Wake Forest Law Review

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By Kayleigh Butterfield

On April 30, 2015, the Fourth Circuit issued a published opinion in the civil case Harris v. Norfolk Southern Railway Co. Norfolk Southern Railway Company (“Norfolk Southern”) appealed the district court’s grant of summary judgment against it on the issue of liability in a negligence action brought by Charles Harris, who sought compensation for injuries suffered from a train derailment. Harris cross-appealed the district court’s summary judgment grant against him on a claim for punitive damages. The Fourth Circuit reversed the grant of summary judgment on the issue of liability, affirmed the grant against punitive damages, and remanded the case for further proceedings.

Factual Background

On July 21, 2009, Harris was working at a coal-loading facility (“loadout”) in Mingo County, West Virginia. Norfolk Southern employees backed an empty train of freight rail cars over an area of the railroad track running underneath the loadout where Harris was working. Both the train and track were owned and operated by Norfolk Southern. A section of the rail about 35 feet from the loadout was heavily corroded between the ball and vertical part of the rail. When the rail cars passed over the damaged portion of the track, a part of the rail separated and the cars derailed. When one of the cars crashed into the loadout’s support beams, the loadout collapsed and Harris subsequently suffered severe physical and mental injuries. The evidence showed that most of the track damage occurred months or years prior to the derailment.

Standard of Review

Summary judgment is reviewed de novo, viewing all facts and reasonable inferences in the light most favorable to the nonmoving party. Summary judgment is appropriate so long as the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.

Federal Rail Safety Act and Track Safety Standards

Under the Federal Rail Safety Act (“FRSA”), 49 U.S.C. § 20101, et seq. Norfolk Southern has a duty to inspect the rail in accordance with the comprehensive track safety standards (“TSS”) as set forth by the Secretary of Transportation. 49 C.F.R. Part 213. The TSS sets forth minimum requirements for how inspections must be conducted and how issues should be remedied.

Norfolk Southern Breached Its Duty to Inspect

Section 213.5 of the TSS states that a track owner “who knows or has notice that the track does not comply with the requirements of this part” is responsible for remedying the problem in accordance with the TSS. The Fourth Circuit examined the plain language of the Federal Railroad Administration’s (“FRA”) commentary to the 1998 TSS amendments, and found that their reading of the phrase “knows or has notice” was reasonably interpreted to include constructive notice.

The Fourth Circuit then determined the scope of Norfolk Southern’s duty to inspect the track. While the court rejected Harris’ contention that a visual inspection requires someone to look at every part of the track structure, the court concluded that a reasonable visual inspection must be made in light of the surrounding circumstances. In this case, evidence was brought showing that Norfolk Southern knew that the obstruction of coal and debris on the tracks could cause corrosion. Despite this knowledge, Norfolk Southern failed to examine any of the embedded portion of the track over a period of months and years. Thus, the Fourth Circuit determined that any reasonable jury would find that Norfolk Southern breached its duty to inspect.

Genuine Dispute as to Proximate Cause

The Fourth Circuit concluded that a genuine dispute of material fact existed as to proximate cause. Expert testimony revealed that corrosion could have been detected through ultrasonic testing or digging out coal debris from the damaged parts of the track. However, the court noted that the testimony did not provide that the damage was consistent along the track or that it would necessarily be discovered by digging out sample areas of coal debris. Because a jury could reasonably find that Norfolk Southern’s breach was not the proximate cause of Harris’s injuries, the Fourth Circuit reversed summary judgment on the issue of liability.

Harris Did Not Meet Standard for Punitive Damages

The Fourth Circuit did not find that Norfolk Southern’s conduct met the standard of severe negligence required for an award of punitive damages. The court noted that Norfolk Southern conducted ultrasonic rail testing and visual inspections on a regular basis. While the defect remained undiscovered, the court held that Norfolk Southern’s actions simply did not rise to the near-reckless level of negligence needed to award punitive damages.

Conclusion

For the above reasons, the Fourth Circuit reversed the grant of summary judgment on the issue of Norfolk Southern’s liability, affirmed the grant of summary judgment on Harris’s claim for punitive damages, and remanded to the district court for further proceedings.

By Mikhail Petrov

In the civil case of Dan Ryan Builders, Inc. v. Crystal Ridge Development, Inc., Plaintiff, Dan Ryan Builders Inc., (“Ryan”) appealed the decision of the US District Court for the Northern District of West Virginia and sought additional damages from Defendant, Lang Brother’s Inc. (“Lang”). The Fourth Circuit affirmed the decision of the district court, finding that the “gist of the action” doctrine was properly applied and Plaintiff was not entitled to additional damages. The case was argued on December 10, 2014, and the decision was released on April 20, 2015.

The Facts of the Case

The events of this case took place in West Virginia. Lang sought to build a housing development, Crystal Ridge, on a seventy acre tract of land. In 2005, pursuant to a Lot Purchase Agreement (“LPA”), Lang subdivided the land and contracted to sell all 143 lots to Ryan, a Maryland corporation. The LPA detailed the responsibilities of each party. The parties also entered into a number of other written contracts, including a contract to do a “fill of slope.” Lang was responsible for all of the infrastructure, including the fill slope, which was done by an independent contractor. In March 2007, cracks appeared in the basement slab and the foundation walls of a partially constructed house. Ryan contracted an engineering firm to fix the issue – but the relationship between Lang and Ryan had soured after the incident and the parties “divorced.” In December 2007, the slope behind the lot that had exhibited cracks in the foundation began sliding downhill towards a nearby highway. A geotechnical study concluded that the slope had failed due to its natural composition as well as poor construction. Ryan also experienced other difficulties with the development, including the storm water management system, the development permits, and the entrance drive.

At the District Court

In December 2009, Ryan filed a lawsuit against Lang seeking monetary damages. Ryan asserted three causes of action. First, negligence on the part of Lang in connection to the construction of the fill slope. Second, a breach of several contractual duties stated in the LPA and a subsequent amendment to the LPA made after the parties had “divorced.” Third, fraudulent misrepresentation. The third and final cause of action was abandoned at trial. The court held a five-day bench trial and awarded Ryan $175,646.25 in damages and $77,575.50 in pre-judgment interest for breach of contract with respect to repairs of the road leading to Crystal Ridge. Ryan failed to carry its burden of proof with other asserted breaches, including the entrance easement, storm water management, and the erosion control system. Lastly, the court rejected Ryan’s negligence claim because it failed under West Virginia’s “gist of the action” doctrine, which bars recovery in tort when the duty that forms the basis of the asserted tort claim arises solely from a contractual relationship. It requires plaintiffs seeking relief in tort to identify a non-contractual duty breached by the alleged tortfeasor. Ryan appealed.

Standard of Review

The Fourth Circuit used a mixed standard of review following a bench trial. Factual findings may only be reversed if clearly erroneous. Conclusions of law, including contract construction, are examined de novo.

Reasoning

Ryan offers two reasons why the district court erred in the “gist of action” holding. The court considered both of them separately.

Reason One – Principles of Party Presentation

Ryan contends that the “principles of party presentation” ought to have prevented the district court from relying on the “gist of the action” doctrine. The party presentation principle cautions a federal court to consider only the claims and contentions raised by the litigants before it – and neither Ryan nor Lang raised the “gist of action” doctrine in district court. The Fourth Circuit rejected this argument, stating that a party’s failure to identify the applicable legal rule does not diminish a court’s responsibility to apply that rule. Additionally, the Supreme Court has long recognized that “a court may consider an issue ‘antecedent’ to … and ultimately ‘dispositive of’ the dispute before it, even an issue the parties fail to identify and brief.”  U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of Am., Inc. 508 U.S. 439, 447 (1993). Here, the “gist of the action” doctrine is just such an “antecedent” and “dispositive” issue since it goes to the duty element of any West Virginia tort claim. Therefore, Ryan’s contention that the party presentation principle barred the district court is rejected.

Reason Two – Gist of the Action

The Fourth Circuit found that the district court did not err in its application of the “gist of the action” doctrine. Because Ryan’s tort claim rests on Lang’s asserted negligence in performing the two contracts, the LPA and its Amendment, and not on any duty independent of those contracts, the “gist of action” doctrine bars the claim. The Fourth Circuit found that this is precisely the type of simple breach of contract claim that is masqueraded as a tort claim. Therefore, the court found that Ryan’s negligence claim fails as a matter of law.

Ryan’s New Claim

Alternatively, Ryan sought damages under claims he had not alleged at the district court level. Specifically, he alleges that he should have been awarded damages for the “fill of slope” contract. The Fourth Circuit found that the district court is not responsible for searching through the case in pursuit of potential basis for awarding relief. In fact, The Fourth Circuit stated that the district court did an excellent job of identifying Ryan’s meritorious claims.

Holding

The Fourth Circuit affirmed the decision of the district court. The Fourth Circuit did not agree with Ryan on either of his two arguments about the district court’s application of the “gist of the action” doctrine. Additionally, the Fourth Circuit rejected Ryan’s contention that he should have been awarded damages for the “fill of slope” contract. Arguing that Ryan should have been able to recover for the “fill of slope” contract, Circuit Judge Gregory dissented in part.

By Patrick Southern

Today, the Fourth Circuit released an unpublished opinion in the civil case of Jones Lang LaSalle Americas, Inc. v. The Hoffman Family, LLC. The appellate court reversed a decision from the Eastern District of Virginia, where summary judgment had been previously granted to the defendant in this breach of contract claim. While the district court had ruled that an agreement between the parties pertaining to commission to be paid on a real estate deal was unenforceable as a matter of public policy, the Fourth Circuit had a different interpretation of the relevant Virginia law.

The Parties Wanted to Find a Tenant to Lease Hoffman’s Property

Jones Lang LaSalle (“JLL”), the plaintiff in this matter, is a real estate business. Hoffman owns considerable property in Virginia. In 2007, the parties signed an agreement, under which Hoffman retained JLL to act as the exclusive leasing agent for its landholdings in Virginia as Hoffman tried to get the United States government to lease the land. The agreement provided that if JLL’s efforts resulted in the lease of any of the properties in question, JLL would receive a commission equal to two percent of the lease’s base rent.

JLL hired Arthur Turowski, a former member of the U.S. General Services Administration (“GSA”), to advise JLL on matters related to the federal lease procurement process. Turowski was not a licensed Virginia real estate salesperson.

In 2011, the GSA solicited proposals for a lease for a site to house the new headquarters of the National Science Foundation. JLL assisted Hoffman in presenting its property as a candidate, and the GSA selected Hoffman for the lease in 2013. As a result, Hoffman will receive a total base rent of more than $330 million over the 15-year term of the lease.

The parties then began to disagree about the commission; JLL claimed it was owed $6.62 million (two percent of the base rent) while Hoffman asserted it only owed $1 million based on what it claimed were oral agreements reflected in written submissions made to the GSA and elsewhere.

JLL Claimed Hoffman Was In Breach of Contract

JLL ultimately filed an action for breach of contract in 2013, seeking the $6.62 million it claimed it was owed under the agreement between the parties. During discovery, Hoffman learned that Turowski was not a licensed real estate salesperson.

Hoffman moved for summary judgment, arguing that as a matter of public policy, JLL could not recover commission that might have been payable under the agreement because Turowski was critical to JLL’s efforts to lease the property.

The Eastern District of Virginia entered summary judgment in favor of Hoffman. The court concluded Turowski was required to have a real estate salesperson’s license because he was centrally involved in the activities that led to Hoffman’s successful bid for the lease. The court said that there was a public policy which had been declared by Virginia’s courts that such individuals were to be licensed real estate agents.

The Plaintiffs Claimed the District Court Erred On the Public Policy Question

On appeal, JLL argued the district court erred in concluding that a JLL employee involved in the leasing efforts was required to have a Virginia real estate salesperson’s license, and that the consequence of the employee’s failure to be so licensed was a total forfeiture of JLL’s commission.

Essentially, it indicated that the district court was wrong in determining Turowski’s participation in the leasing efforts rendered the agreement between JLL and Hoffman unenforceable on public policy grounds.

The Fourth Circuit Interpreted Relevant Virginia Law Differently than the Eastern District of Virginia

Hoffman did not dispute that the agreement was valid when formed; instead, it argued that JLL performed its obligations in contravention of the Virginia real estate licensing scheme (and, thus, rendered the agreement unenforceable).

But the Fourth Circuit disagreed, saying Hoffman’s position was unsupported in Virginia law. There is no explicit statute or judicial decision the court could point to that would impose a total prohibition of JLL’s commission under Virginia law.

The appellate court did say that Virginia law was clear on two fronts: (1) that a contract made in violation of the real estate licensing statutes is illegal and unenforceable, and (2) that Virginia courts are averse to holding contracts unenforceable on public policy grounds unless their illegality is “clear and certain.” The Fourth Circuit noted that relevant precedent indicates Virginia courts are to be wary of employing public policy concerns to invalidate contracts that were valid when formed.

The Fourth Circuit’s opinion makes clear that its reversal of the summary judgment ruling doesn’t mean that JLL is entitled to the $6.62 million it seeks. Instead, this ruling only clarifies that Turowski’s participation in the leasing efforts did not render the agreement unenforceable as a matter of law. The District Court will receive the case on remand to resolve the remaining issues, including whether the parties agreed to a lesser commission in an oral agreement.

By: Michael Klotz

Today, the Fourth Circuit Court of Appeals issued its decision in United States of America v. Boggs. In this case, Mr. Boggs appealed a 57-month sentence imposed pursuant to an agreement in which he plead guilty to wire fraud. The issue on appeal was whether the government breached the terms of the plea agreement by failing to move for an adjustment of the sentence. The agreement specified that the government would recommend a reduction of the sentence if Mr. Boggs complied with his obligations under the agreement and accepted responsibility for his conduct.

Prior to his sentencing, Mr. Boggs made a statement through his counsel to his probation officer that he “did not mean to commit a fraud.” At his sentencing, Mr. Boggs challenged the loss amount, but asserted that although he did not intend to defraud the victim, he was nonetheless guilty because he did not do what he was supposed to do with the money. Further, Mr. Boggs attempted to “distance[] himself from the statement he gave the probation officer.” The district court concluded that Mr. Boggs had not accepted responsibility for this conduct, and sentenced him to the maximum within the sentencing range of 46 to 57 months.

On appeal, Mr. Boggs argued that the government breached the plea agreement because he had accepted responsibility, and argued further that the “acceptance of responsibility” provision in the plea agreement was ambiguous. The Fourth Circuit observed that Mr. Boggs’ actions both prior to sentencing and at his sentencing hearing were “inconsistent with the acceptance of responsibility.” Further, the court noted that the interpretation of a plea agreement is a matter governed by contract law, and the “acceptance of responsibility” provision in the plea agreement was not ambiguous. Thus, the Fourth Circuit affirmed the district court ruling that the government did not breach the plea agreement.