Wake Forest Law Review

By Ryan C Dibilio and Robert M. Padget III

Hannah P. v. Daniel Coats

In this case, Appellant Hannah P. (“Hannah”) asserted that her former employer, the Office of the Director of National Intelligence (“Appellee”), discriminated against her pursuant to the Rehabilitation Act of 1973 (“Rehabilitation Act”), 29 U.S.C. § 701, et seq., and violated the Family Medical Leave Act of 1993 (“FMLA”), 29 U.S.C. § 2601, et. seq., by not hiring her for a permanent position.  The district court granted summary judgment for Appellee as to all claims.  The Fourth Circuit affirmed the district court’s judgment as to the Rehabilitation Act and FMLA retaliation claims; however, the Fourth Circuit vacated the judgment as to Hannah’s FMLA interference claim.  The Court determined a genuine issue of material fact remains as to whether Hannah provided notice of her disability and interest in FMLA leave sufficient to trigger Appellee’s duty to inquire.  The Fourth Circuit held that a reasonable jury could find that Hannah’s disclosure of her depression and her April 9, 2015 request for psychiatrist-recommended leave was indeed sufficient to trigger Appellee’s duty to inquire further as to whether she was seeking FMLA leave.  Disclosure of a potentially FMLA-qualifying circumstance, such as depression, and an inquiry into leave options has been held by the Fourth Circuit as sufficient to create a material question of fact regarded whether the employer’s FMLA inquiry obligations have been triggered.  Thus, the case was remanded for consideration of Hannah’s FMLA interference claim.

United States v. Gregory Kyle Seerden

In January 2017, George Kyle Seeden (“Appellant”) was accused of sexual assault on a woman he met in Virginia Beach, Virginia, while visiting for training.  Subsequently, the Naval Criminal Investigation Service (“NCIS”) obtained a military search warrant and found child pornography on Appellant’s phone.  NCIS used this to obtain a federal search warrant and discovered more child pornography.  Appellant sought to suppress the evidence because it violated the Military Rules of Evidence and because it was fruit of the poisonous tree.  While the district court agreed the evidence violated the Military Rules of Evidence “authorization” requirement in Rule 315, the Court admitted the child pornography found in the second search under the good faith exception.  Appellant entered a conditional guilty plea in violation of 18 U.S.C. §§ 2251(a) and (e), production of child pornography.  He then appealed.  The Fourth Circuit reviews a district court’s decision to deny a motion to suppress under two standards of review: (1) findings of fact are reviewed for clear error; and (2) legal conclusions are reviewed de novo.  The Court held that the evidence should not be suppressed under the Military Rules of Evidence because the Federal Rules of Evidence govern admissibility in federal criminal proceedings.  The Court stated, “just as states ‘lack the power to impose on federal courts requirements stricter than those mandated by the federal Constitution . . . so too does the military.’”  Consequently, the Fourth Amendment provides the standard for whether evidence seized pursuant to a non-federal warrant is admissible in federal court.  Further, even if the initial search violated the Fourth Amendment, the good faith exception to the exclusionary rule precludes the evidence obtained in the first and second searches.  The good faith exception admits evidence obtained in unlawful searches on reasonable reliance on a defective warrant.  As Appellant’s commanding officers authorized the search of his phone believing it to be a valid authorization, the good faith exception applies and the evidence is admissible.  For these reasons, the Fourth Circuit affirmed the district court’s judgment.

United States v. Nicholas Young

This was a criminal case in the Eastern District of Virginia where a jury convicted Nicholas Young (“Young”) on one count of attempting to provide material support to the Islamic State of Iraq and the Levant and two counts of attempting to obstruct justice.  Young asserted five sets of errors on appeal.  The first pertained to the district court admitting Nazi and White Supremacist paraphernalia that the FBI discovered in a search of his home and whether the seizure of the items exceeded the search warrant’s scope.  The Fourth Circuit affirmed the district court’s ruling and concluded the seizure did not exceed the warrant’s scope.  The second alleged error was the district court’s admission of an expert witness.  However, determining a witness is an expert is a highly deferential standard, and the Fourth Circuit concluded the district court did not abuse its discretion by admitting the expert.  The next error that Young alleged was that the district court erred when it allowed admission of evidence of Young owning weapons and of evidence of comments Young made about attacking federal buildings. Young also argued that the district court erred in excluding certain comments made by Young and several FBI agents that Young believed to be exculpatory. However, the Fourth Circuit again concluded the district court did not abuse its discretion in its evidentiary rulings.  The fourth alleged error is that the government did not provide sufficient evidence to prove the attempted obstruction of justice charges.  Here, the Fourth Circuit concluded that the evidence presented at trial was insufficient to convict Young on the attempted obstruction of justice counts.  Thus, the Fourth Circuit affirmed the material support conviction, vacated the obstruction convictions, and remanded for resentencing.

ACA Financial Guaranty v. City of Buena Vista, Virginia

In this case, bonds were issued to refinance debt on a municipal golf course in the City of Buena Vista, Virginia (the “City”).  The repayment of the bonds depended on the City making lease payments of the golf course and the City failed to make these payments.  After the City did not make the lease payments, this litigation ensued.  The district court dismissed the complaint.  The Fourth Circuit affirmed the dismissal of the complaint, holding the City’s obligation to make rent payments is not legally enforceable when the obligation to make the payments is expressly subject to the City’s annual decision to appropriate funds.  The Court reasoned that the language of the lease agreement was unambiguous in that if the City did not appropriate funds, the City had no obligation to make the rent payments.  The City decided not to appropriate funds for the rent payments and therefore had no obligation to make the rent payments.  The Fourth Circuit opined that there can be no suit against a party for breaching an obligation if the party never had the obligation in the first place.  Thus, the district court’s judgment was affirmed.

Nikki T. Thomas v. Nancy A. Berryhill

This was a civil case in which the Commissioner of Social Security denied Nikki Thomas’s (“Thomas”) application for supplemental security income (“SSI”).  Thomas obtained review in the district court, which affirmed the denial.  She then appealed to the Fourth Circuit, which found that the Administrative Law Judge (“ALJ”) made two errors, vacated the ruling, and remanded the case.  The issues on appeal were, first, whether the ALJ erred by failing to provide a logical explanation about how the judge weighed the evidence and made the ultimate conclusion regarding Thomas’s residual functional capacity (“RFC”).  The second issue was whether there was an apparent conflict between the dictionary of occupational titles and the vocational expert’s testimony.  The Fourth Circuit determined that when evaluating Thomas’s RFC, the ALJ did not adequately explain the conclusions pertaining to Thomas’s mental impairments because the analysis contained too little explanation for the Court to be able to conduct a meaningful review. Additionally, the Fourth Circuit concluded that there was a conflict between the dictionary of occupational titles and the testimony of the vocational expert, but the ALJ did not identify or resolve it.  For these reasons, the Fourth Circuit vacated the district court’s grant of summary judgment and remanded to the district court with instructions to remand to remand to the Commissioner of Social Security for further administrative proceedings.

Mitra Rangarajan v. Johns Hopkins University

In this civil case, Mitra Rangarajan (“Rangarajan”) was constructively discharged from her job as a nurse practitioner at the School of Medicine of Johns Hopkins University (“Johns Hopkins”).  Rangarajan contended that she was discharged because of discrimination and retaliation, while Johns Hopkins contended that she was discharged because of her performance.  Rangarajan commenced four separate actions against Johns Hopkins arising out of her discharge, alleging state torts of defamation and interference with prospective advantage, as well as violations of the False Claims Act, the Maryland False Health Claims Act, Title VII, and 42 U.S.C. § 1981.  The district court dismissed all four of the actions.  Three of the actions were dismissed by the district court as a sanction for “flagrant and unremitting” violations of the Federal Rules of Civil Procedure by Rangarajan.  The Fourth Circuit held that the district court did not abuse its discretion by dismissing those actions as a sanction.  The Fourth Circuit noted that Rangarajan received notice that dismissal of her actions was a potential sanction that the district court would take.  There was a full opportunity for Rangarajan to respond, and she did in fact respond before any decision on sanctions was actually made.  Rangarajan also rendered the entire discovery process virtually useless by her actions, and the parties had invested substantial time and money in the discovery process.  The Court finally opined that Rangarajan’s abuse of the proceeding would have likely continued into the future.  Thus, the district court did not abuse its discretion and the judgment of the district court was affirmed.

By Cole Tipton

SummitBridge National v. Faison

In this bankruptcy action, SummitBridge National (“National”) appeals the district court’s holding that it is barred from claiming attorney’s fees incurred after a bankruptcy petition was filed.  The contract between National and Ollie Faison (“Faison”) stated that Faison would pay “all costs of collection, including but not limited to reasonable attorneys’ fees.”  The Fourth Circuit reversed the district court’s holding and stated that the Bankruptcy Code does not preclude contractual claims to attorney’s fees that were guaranteed by a pre-bankruptcy contract.  The determination of the district court was reversed and remanded for further proceedings.

US v. Pratt

In this criminal action, Samual Pratt (“Pratt”) appeals his conviction of various counts of sex trafficking and child pornography due to evidentiary errors.  Pratt contends the district court should have suppressed evidence from his cellphone and should not have admitted certain hearsay statements.  First, the Fourth Circuit held that it was reversible error to admit evidence from Pratt’s cellphone because the phone was seized without consent and the government waited thirty-one days before obtaining a search warrant.  The Court stated that such a delay was unreasonable.  Second, the Fourth Circuit held that an unavailable witness’s hearsay statements were admissible because Pratt had procured the witness’s unavailability through phone calls and threats.  Accordingly, the Fourth Circuit vacated Pratt’s convictions on the two counts prejudiced by the cell phone evidence, vacated his sentence, and remanded.

Parker v. Reema Consulting Services, Inc 

In this civil action, Evangeline Parker (“Parker”) appeals the district court’s dismissal of her complaint against her employer, Reema Consulting Services, Inc. (“Reema”).  The central issue of the appeal was whether a false rumor circulated by Reema that Parker slept with her boss for a raise could give rise to liability under Title VII for discrimination “because of sex.”  The Fourth Circuit held that because the complaint alleged Reema spread the rumor and acted on it by penalizing the employee, a cognizable claim for discrimination “because of sex” was alleged.  The district court’s dismissal was reversed.

US Dep’t of Labor v. Fire & Safety Investigation

In this civil action, Fire & Safety Investigation Consulting Services, LLC (“Fire & Safety”) appealed the district court’s determination that they violated the Fair Labor Standards Act (“FLSA”) for failing to pay overtime compensation.  Fire & Safety uses an alternative work schedule for its employees in which an employee works 12 hours per day for 14 days and then receives 14 days off.  Because employees under this plan will work 88 hours in one work week, Fire & Safety pays its employees a blended rate for all 88 hours that is supposed to account for the 48 hours of overtime worked, rather than paying 40 hours of standard pay plus 48 hours of overtime.  The Fourth Circuit held that this blended rate fails to observe the formalities required by the FLSA which requires all overtime hours be recorded and paid at one and one-half times the standard rate of pay for all hours worked over 40.  Accordingly, the Fourth Circuit affirmed the district court’s judgment, including over $1.5 million in back wages and liquidated damages.

Trana Discovery, Inc. v. S. Research Inst.

In this civil action, Trana Discovery, Inc. (“Trana”) brought a fraud and negligent misrepresentation action against Southern Research Institute (“Southern”).  Trana alleged that Southern had provided false data in research reports of a new HIV medication it was researching.  The district court granted summary judgment for Southern on both claims.  The Fourth Circuit upheld the grant of summary judgement, stating that there was no genuine dispute of material fact due to an insufficiency of evidence regarding damages and the standard of care Southern was exacted to.  Accordingly, summary judgement was affirmed.

Jesus Christ is the Answer v. Baltimore County, Maryland

In this civil action, Jesus Christ is the Answer Church (“Church”) brought an action alleging violation of the First Amendment’s Free Exercise Clause, the Fourteenth Amendment’s Equal Protection Clause, the Maryland Declaration of Rights, and the Religious Land Use and Institutionalized Person Act.  Church alleged that Baltimore County, Maryland (“Baltimore”) had infringed upon their State and Federal rights by denying their modified petition for zoning variances to establish a church.  Several neighbors, who had expressed open hostility towards Church, opposed the petition.  After the petition was denied, Church filed an action in district court which was dismissed for failure to state a claim.  On appeal, the Fourth Circuit reversed and remanded because Church’s complaint contained facts sufficient to state a claim that was “plausible on its face.”  The Fourth Circuit held that the neighbors apparent religious bias towards Church was sufficient to plead a plausible Constitutional claim and violation of the Religious Land Use Act. 

Curtis v. Propel Property Tax Funding

In this civil action, Garry Curtis (“Curtis”) brought a suit on behalf of himself and similarly situated individuals against Propel Property Tax Funding (“Propel”), alleging violations of the Truth in Lending Act, the Electronic Funds Transfer Act, and the Virginia Consumer Protection Act.  Propel was engaged in the practice of lending to third parties to finance payment of local taxes.  The district court denied Propel’s motion to dismiss and certified two interlocutory questions.  Propel appealed, asserting that Curtis did not have standing and that he failed to state a claim for relief.  The Fourth Circuit upheld the district court’s ruling, finding that: 1) Curtis had standing because he was personally subject to the harms these consumer protection statutes were designed to protect against; and 2) Curtis had sufficiently pled violations of the lending acts because Propel was conducting consumer credit transactions.

US v. Charboneau

In this civil action, Blake Charboneau (“Charboneau”) challenges the determination that he is a “sexually dangerous person” under the civil commitment provisions of the Adam Walsh Child Protection and Safety Act of 2006.  The district court held that Charboneau was a “sexually dangerous person” within the meaning of the act and committed him to the custody of the Attorney General.  On appeal, Charboneau raised two issues: 1) whether he must be diagnosed with a paraphilic disorder to be committed under the act; and 2) if the record supported the district court’s findings.  The Fourth Circuit affirmed the district court’s judgment, holding that an actual diagnosis was not necessary under the act and the record was sufficient under a clear error standard of review.

US v. Johnson

In this criminal action, Willie Johnson (“Johnson”) appealed a district court’s order to resentence him for bank robbery under the sentencing recommendation in his original plea agreement.  Johnson argued that the government’s original agreement not to seek a mandatory life sentence under the federal three-strikes law was not beneficial because his prior state crimes should not be counted for federal three-strikes treatment.  The Fourth Circuit held that state crimes are encompassed by the three-strikes program and the district court’s decision to honor the original sentencing recommendation was affirmed.

Mountain Valley Pipeline, LLC v. 6.56 Acres of Land

In this civil action, owners of 6.56 acres of land appealed a district court judgement granted Mountain Valley Pipeline, LLC (“Pipeline”) a preliminary injunction for access and possession of property it was acquiring through eminent domain.  The Fourth Circuit reviewed the district court’s application of the test set forth in Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008) for preliminary injunctions.  In doing so, the Court found that Pipeline had established it was likely to succeed on the merits, would suffer irreparable harm, the balance of equities was in its favor, and that an injunction served the public interest.  Accordingly, the district court was affirmed.

Booking.com B.V. v. US Patent & Trademark

In this civil action, Booking.com and the U.S. Patent and Trademark Office (“USPTO”) appeal the district court’s grant of summary judgment protecting the trademark BOOKING.COM.  Booking.com appeals the district court’s grant of attorney’s fees to the USPTO, and the USPTO appeals the court’s decision that BOOKING.COM is protectable.  The Fourth Circuit held that BOOKING.COM is not generic and can be registered as a descriptive mark with secondary meaning.  Moreover, the Court upheld the grant of USPTO’s expenses because the Lanham Act requires a party to pay “all the expenses of the proceeding” when a USPTO decision is appealed to the district court.  Thus, the district court’s judgment was affirmed.

US v. Jones

In this criminal action, James Eric Jones (“Jones”) appeals the district court’s denial of a motion to vacate, set aside, or correct his sentence.  Jones was originally sentenced under the Armed Career Criminal Act (“ACCA”) which requires a mandatory fifteen-year minimum sentence for defendants with at least three prior violent felony convictions.  However, Jones claims that he does not qualify for sentencing under the act because his South Carolina conviction for assaulting, beating, or wounding a police officer is not a violent conviction as defined by the ACCA.  The Fourth Circuit held that assaulting, beating, or wounding a police officer does not qualify under the ACCA because it includes conduct that does not involve violent physical force. Therefore, the district court’s judgment was vacated and remanded.

By Kayla West and Jim Twiddy

Mark Lawlor v. David Zook

In this criminal case, the Appellant sought a review of his death sentence. A Virginia state court sentenced the Appellant to death after his conviction for capital murder. During his sentencing, the sentencing jury found that the Appellant would likely continue to commit criminal acts of violence, making him a continuous threat to society. The state court had excluded relevant testimony of a qualified witness who would have explained that the Appellant represented a low risk for committing acts of violence while incarcerated. The Appellant filed the instant federal petition for review of his death sentence which was dismissed by the district court. The Fourth Circuit granted certificate of appealability on three issues, including whether it was a constitutional error for the trial court to exclude expert testimony about the Appellant’s risk of future violence in prison. The Fourth Circuit concluded that the state court’s exclusion of the expert testimony was an unreasonable application of the established federal law because the evidence was potentially mitigating, and such evidence may not be excluded from the sentencer’s consideration. The Fourth Circuit relied on the Supreme Court’s long recognized principle that a capital sentencing body must be permitted to consider any admissible and relevant mitigating information in determining whether to assign the defendant a sentence less than death. Thus, the district court’s decision was reversed and remanded.

 

Sierra Club v. U.S. Army Corps of Engineers

In this civil case, petitioners asked for the Court to set aside respondent’s verification and reinstated verification that construction of the Mountain Valley Pipeline can proceed under the terms and conditions of Clean Water Act Nationwide Permit 12 (“NWP 12”), rather than an individual permit. The 42-inch diameter natural gas Pipeline proposes to run 304 miles through parts of Virginia and West Virginia, crossing several federal water bodies. Because the construction of the Pipeline will involve the discharge of fill material into federal waters, the Clean Water Act requires that Mountain Valley Pipeline, LLC (certified to construct and operate the Pipeline) obtain clearance from the U.S. Army Corps of Engineers’ before beginning construction. Mountain Valley elected to pursue the general permit approach to obtain Corps clearance under NWP 12 which requires that all terms and conditions are satisfied before valid authorization occurs. Additionally, Mountain Valley must provide the Corps with a certification from the state in which the discharge originates. Under NWP 12, West Virginia’s certification imposes additional “special conditions” which the Corps must make regional conditions. However, the Corps decided to substitute its Special Condition 6 “in lieu of” NWP 12’s Special Condition C (imposed by West Virginia). The Fourth Circuit held that the Corps lacked the statutory authority to substitute its own special conditions “in lieu of” West Virginia’s special conditions. Further, the State Department for West Virginia waived Special Condition A, imposed as part of its certification of NWP 12. However, the Fourth Circuit held that a state cannot waive a special condition previously imposed as part of a nationwide permit absent completion of the notice-and-comment procedures required by the Clean Water Act under Section 1341(a)(1). Accordingly, the Fourth Circuit vacated, in their entirety, the verification and reinstated verification authorizing the Pipeline’s compliance with NWP 12.

 

US v. Terry

In this criminal case, Terry appealed his conviction of possessing methamphetamine with the intent to distribute. The key issue in this appeal was whether the district court erred in denying Terry’s motion to suppress evidence seized during a traffic stop. The stop was conducted through the illegal use of a GPS search. The district court asserted that because Terry relinquished control over the car, he lacked standing to challenge the GPS search. The Fourth Circuit concluded that the government agents committed a flagrant constitutional violation when they secretly placed a GPS on Terry’s car without a warrant, and that the discovery of the evidence seized during the traffic stop was not sufficiently attenuated from the unlawful GPS search to purge the effect of the unlawful search because the GPS and discovery of evidence were so closely tied. Additionally, the Fourth Circuit concluded that Terry did not lose his standing to assert a constitutional violation because when the tracker was placed, he was legitimately in possession of the vehicle. The Fourth Circuit reversed the holding of the district court, and vacated Terry’s conviction.

 

US v. Brown

In this criminal case, Brown asserted that a district court erred in calculating his criminal history category because the court added two points to Brown’s criminal history score based on a prior Virginia state conviction for which Brown received a suspended sentence. Brown’s suspended sentence was conditioned on a period of good behavior for ten years upon release from the prior Virginia State conviction. He was released in July of 2009, meaning that at the time of the present case, Brown had not completed his period of ten years good behavior. The district court concluded that a period of good behavior constitutes a criminal justice sentence, making it relevant to a defendant’s criminal history score. Brown asserted that a period of good behavior is not a criminal justice sentence because it lacks a custodial or supervisory component. The Fourth Circuit concluded that during a period of good behavior, Brown was still subject to the authority of the state. This operated as a supervisory component significant enough to constitute a criminal justice sentence. Because Brown committed the present offense while under a criminal justice sentence, the additional two points to his criminal history score were correctly added. The Fourth Circuit affirmed.

 

By Kelsey Mellan

On March 23, 2017, the Fourth Circuit issued a published opinion in Custis v. Davis, a civil appeal of the district court’s sua sponte dismissal of a federal prisoner’s grievance claim. Plaintiff Ryricka Custis, a federal inmate, filed a complaint through his prison’s administrative grievance process but was subsequently denied relief. He then filed suit in the Eastern District of Virginia. The district court denied his claim sua sponte based on his failure to exhaust administrative remedies. The Fourth Circuit subsequently vacated the district court’s dismissal and remanded for further proceedings.

Facts & Procedural History

Custis, an inmate at Virginia’s Sussex I State Prison (“Prison”), was missing toes on his right foot and thus needed to be assigned to a bottom bunk in a bottom-tier cell. He originally received the necessary bunk assignment, but on August 18, 2014, he was temporarily moved to an upper-tier cell. On September 2, 2014, he fell while climbing the stairs to his cell, injuring his neck and back. He filed an Internal Complaint on September 11, 2014. Approximately one week later, on September 17, his complaint was denied because his assignment was made “based on open compatible available beds with a bottom bunk.”

Custis filed his Regular Grievance the next day, and the Prison received it on September 25. The Prison rejected the grievance on the same day, citing insufficient information, and ordered Custis to file an amended Regular Grievance with the requisite information. Custis filed this document on October 1, 2014. This Grievance was subsequently denied because it was not filed within 3o days of the alleged incident in conformity with the Virginia Department of Corrections Grievance Procedure (“VDOC GP”). The filing date was set for September 17, 2014. After a series of filings and appeals, Custis’s appeal of this rejection to the VDOC was denied.

Custis filed this law suit in the Eastern District of Virginia. The district court sua sponte ordered Custis to submit evidence that he completely exhausted his administrative remedies through the VDOC. Custis complied by submitting his prior grievances and appeals. The district court then dismissed his claim for failure to exhaust administrative remedies because he failed to follow the prison’s grievance procedure timeline. This timely appealed followed.

 Failure to Exhaust Administrative Remedies

The Fourth Circuit reviewed the district court’s dismissal for failure to exhaust available administrative remedies pursuant to precedent set in Talbot v. Lucy Corr Nursing Home. Custis raised two issues on appeal: (1) did the district court errr when it sua sponte examined whether Custis exhausted his administrative remedies, and if it did not err, (2) did the district court err when it found that Custis failed to exhaust his available administrative remedies.

In Jones v. Bock, the Supreme Court determined that an inmate does not need to demonstrate exhaustion of administrative remedies in his or her complaint. Rather, “failure to exhaust” is an affirmative defense that the defendant must raise. There are two rare exceptions to this rule that would allow the court to sua sponte dismiss a claim for failure to exhaust administrative remedies.

The first exception to the Jones rule is that a court may sua sponte dismiss a complaint when the alleged facts in the complaint, taken as true, prove that the inmate failed to exhaust all administrative remedies. Here, it is not clear from the face of Custis’s complaint that he had failed to exhaust all remedies. Even the district court did not conclude that he failed to exhaust said remedies – instead, the court ordered him to provide further documentation for its independent inquiry in the exhaustion of these remedies. Additionally, it is not clear that Custis’s assertion that he “attempted” to exhaust his administrative remedies meant that he tried and failed to exhaust them or that he was completely unable to exhaust said remedies. Thus, Custis’s complaint did not satisfy the first exception to the Jones administrative exhaustion exception.

The second exception to the Jones rule allows a court to sua sponte dismiss an inmate’s complaint for failure to exhaust administrative remedies when the court has given the inmate an opportunity to address or respond to the alleged failure to exhaust. However, this exception was created before Jones and does not survive post-Jones. Here, while the district court allowed Custis to amend his Grievance to include additional requisite information, it did not give him a chance to respond to its dismissal for failure to exhaust.

Disposition  

Thus, the Fourth Circuit determined the district court erred when it sua sponte examined Custis’s exhaustion of available administrative remedies. Additionally, the Fourth Circuit decided the record in this case was incomplete and the inquiry was premature. Therefore, the Fourth Circuit did not specifically decide whether Custis actually exhausted all remedies. Instead, it remanded this case to the district court for further fact finding.

 

 

By Kelsey Mellan

On March 17, 2017, the Fourth Circuit issued a published opinion in Mason v. Machine Zone, Inc. a civil appeal of the district court’s dismissal of a Loss Recovery Statute claim. Plaintiff Mia Mason filed a class action complaint against Machine Zone, Inc. (“Machine Zone”), the developer of a mobile game entitled “Game of War: Fire Age” (“Game of War”). Mason alleged that she lost money participating in an unlawful “game device” – a virtual wheel that makes up a substantial part of Game of War. The district court dismissed Mason’s class action under FRCP 12(b)(6) for failure to state a claim. The Fourth Circuit subsequently affirmed the district court’s decision.

Facts & Procedural History

Machine Zone developed and operates Game of War, a popular video game that can be downloaded for free on mobile devices. Game of War is a strategy game in which players build virtual towns and armies, and “battle” each other in a virtual world. While it is free to play the game, players can purchase virtual “gold” at prices ranging from $4.99 to $99.99. Players can use this gold to “improve their virtual towns” and to obtain virtual “chips” for use during the Game of War “casino.”  This virtual casino is a game of chance in which players can use their virtual chips for an opportunity to obtain prices for use within the game by “spinning” a virtual wheel – a completely randomized feature of the game. The first time a player enters Game of War, he or she is entitled to one free spin of the wheel. However, after the player uses this free spin, must use chips to pay for each additional spin. If a player doesn’t have enough chips to spin, the player must use virtual gold to obtain more chips.

Players who spin the wheel have no control over the outcome of the spin and, thus, no skill on the part of the player influence what the outcome will be. Players obtain prizes from spinning the wheel. If a player wins enough prizes he or she may want to sell his or her account on “secondary markets” for real money. However, this sale on secondary markets, such as Amazon, would violate Machine Zone’s terms of service.

Mason started playing Game of War on her cell phone in early 2014. After using her complimentary spin of the virtual wheel, Mason began purchasing virtual gold in order to obtain more chips to continue spinning the wheel to earn prizes. Between early 2014 and January 2015, Mason spent over $100 to participate in the casino.

Mason filed a class action in the District of Maryland under Maryland’s Loss Recovery Statute. She alleged that she lost money playing an unlawful “game device” and sought “full disgorgement and restitution of any money [Machine Zone] has won” from Mason and similarly situated Maryland residents. The district court determined that Mason failed to state a claim under the Loss Recovery Statute because “she did not lose money” in the virtual casino – and thus, the court dismissed Mason’s complaint.

Plaintiff-Appellant’s Claim Under Maryland’s Loss Recovery Statute

Mason argues that the district court erred in dismissing her class action under FRCP Rule 12(b)(6) because she lost money while playing in the virtual casino – which she claims is an unlawful “game device” under the Loss Recovery Statute. The Fourth Circuit reviewed the district court’s dismissal de novo, accepting Mason’s well-plead allegation as true and drawing all reasonable inferences in her favor.

Maryland’s Loss Recovery Statute states “a person who loses money at a [prohibited] gaming device…may recover the money as if it were a common debt.” The statute defines gaming device as “a game or device which money or any other thing or consideration of value is bet, wagered, or gambled,” and includes a “wheel of fortune.” Pursuant to the Maryland state case, F.A.C.E. Trading, Inc. v. Todd, the Fourth Circuit was required to interpret Maryland’s gambling statutes in a manner that “gives validity not only to the word, but to the spirit of the law. For the purposes of this appeal, the Fourth Circuit assumed that the virtual casino was a prohibited “gaming device” and agreed with the district court that Mason did not lose any money when spinning the wheel in the virtual casino. Therefore, she failed to satisfy a required element for stating a claim under the Loss Recovery Statute.

In deciding whether the loss of virtual money fell under the Loss Recovery Statute, the Fourth Circuit looked to Cates v. State, a Maryland case which noted that the predecessor to the Loss Recovery Statute encompassed a public policy “not to help one who loses at gambling, but to discourage illegal gambling by putting the winner on notice that the courts will force him to disgorge his winnings.” In the case of Game of War, Machine Zone did not “win” any money. Rather, Mason participated in the virtual casino by “spinning” the virtual wheel where no money was at stake – only virtual prizes and chips. Thus, Mason could not have lost or won money as a result of her participation in the virtual activity. Moreover, the Fourth Circuit determined that the fact that Mason could sell her account on “secondary markets” was irrelevant – as the entire account would be sold, not just the virtual prizes or chips.  Thus, the Fourth Circuit rejected Mason’s contention that the existence of a secondary market showed that she lost money as a result of her participation in Game of War’s virtual casino.

 Disposition

 Accordingly, the Fourth Circuit affirmed the district court’s conclusion that Mason did not “lose money” within the meaning of the Loss Recovery Statute as a result of her participation in the Game of War casino.

By Katie Baiocchi

On January 25, 2017, the Fourth Circuit published Marlon Hall v. DIRECTV, LLC, a civil case. Plaintiffs Marlon Hall, John Wood, Alix Pierre, Kashi Walker and John Albrecht (“Plaintiffs”) appealed the order granting defendants’ DIRECTV, LLC, DIRECTSAT USA, LLC and DIRECTV, INC. (“Defendants”) motion to dismiss under Federal Rules of Civil Procedure 12(b)(6). Plaintiffs alleged that defendants were joint employers and therefore are jointly and severally liable for any violations under the Fair Labor Standards Act (“FLSA”). The Fourth Circuit found the district court relied on out-of-circuit authority that has been rejected in the Fourth Circuit in analyzing the relationship between the parties. The district court also failed to construe plaintiffs’ allegations liberally as required by a motion to dismiss. Accordingly the Fourth Circuit reversed and remanded the case.

Facts and Procedural History

Defendant DIRECTV employs technicians through the DIRECTV “Provider Network.” Each plaintiff alleged that between 2007 to 2014 they worked as a technician for defendant, an intermediary provider, a subcontractor, or a combination of all three. Defendant DIRECTSAT enforced the hiring criteria of DIRECTV for technicians. DIRECTV also provided a centralized work-assignment system, and regulated and audited personnel files. Plaintiffs were required to wear DIRECTV uniforms, carry DIRECTV identification cards, and display the DIRECTV logo on their vehicles. Technicians who did not meet DIRECTV hiring criteria could not install or repair DIRECTV equipment. Plaintiffs claim that they each regularly worked in excess of forty hours per week without receiving overtime pay while working as technicians. Plaintiffs specifically allege that the defendants qualify as joint employers and their failure to provide overtime pay violated FLSA overtime and minimum wage requirements. Defendants each moved to dismiss plaintiffs’ complaint pursuant to F.R.C.P. 12(b)(6). The district court granted this motion in its entirety because they concluded that the Complaint did not allege facts sufficient to establish that defendant DIRECTV jointly employed plaintiffs.

The Fourth Circuit reviewed the district court’s dismissal de novo and accepted as true all the factual allegations contained in the complaint and drew all reasonable inference in favor of plaintiffs.

The District Court Applied an Improper Legal Test for Determining Joint Employment Under the FLSA

Under the FLSA, 29 C.F.R. § 791.2(a), “joint employment” exists when “employment by one employer is not completely disassociated from employment by the other employer(s).” Courts are split on the appropriate test for distinguishing separate employment from joint employment in relation to the FLSA. The district court’s analysis was flawed because it concluded that a worker must be an employee as to each putative joint employer when considered separately for the entities to constitute joint employment under the FLSA. Additionally, the district court relied on the test no longer employed by the Fourth Circuit in determining joint employment of the plaintiffs.

Under the Fourth Circuit two-step framework for determining whether a defendant may be liable for an alleged FLSA violation under the joint employment theory the court must first determine whether the defendant and one or more entities shared, agreed to allocate responsibility for, or otherwise co-determined the key terms and conditions of plaintiffs’ work. The second step relies heavily upon the answer to the first part of the analysis and asks whether a worker was an employee or independent contractor under FLSA. The district court erred in considering the second step before the first.

The Fourth Circuit determined that under the first part of the two-part framework that the allegations sufficiently demonstrate defendants were not completely disassociated. The district court erred by failing to follow the new standard employed by the Fourth Circuit to determine joint employment. The Fourth Circuit has held that the fundamental question is whether the entities are “not completely disassociated” with respect to the worker. The Fourth Circuit identified a non-exhaustive list of six factors to assist lower courts in determining if joint employment exists. The court emphasized that no single factor is determinative.

The Fourth Circuit also found that under the second part of the two-part framework the plaintiffs were employees rather than independent contractors. In focusing on the economic realities of the relationship between the defendants and plaintiffs the Fourth Circuit found that the plaintiffs were economically dependent on the defendants.

The District Court Misapplied the Plausibility Standard by Subjecting Plaintiffs to Evidentiary Burdens Inapplicable at the Pleading Stage

Plaintiffs’ factual allegations establish that defendants jointly determined the key terms of plaintiffs’ conditions of employment. Per the complaint defendant DIRECTV was the principal client of the other defendants. Defendant DIRECTV had the authority to direct, control and supervise the plaintiff’s day-to-day job duties. Defendant DIRECTV had specific installation procedures implemented and controlled the uniforms and identification of technicians. The complaint is also replete with allegations that DIRECTV had control over hiring, firing and compensation. The Fourth Circuit found that at this stage of litigation the allegations are sufficient to make a plausible claim that defendants were not completely disassociated.

Conclusion

The Fourth Circuit reversed and remanded the consolidated cases for further proceedings consistent with the opinion because the district court relied on out-of-circuit authority that had been rejected in the Fourth Circuit. Furthermore, the Fourth Circuit found the district court failed to construe plaintiffs’ allegations liberally as a motion to dismiss requires.