Wake Forest Law Review

Schilling v. Schmidt Baking Company, Inc.

In this civil case, plaintiffs appealed the district court’s dismissal of their claims for overtime wages under the Federal Labor Standards Act (FLSA), the Maryland Wage and Hour Law, and the Maryland Wage Payment and Collection Law.  Under the FLSA, professional motor carriers, like Schmidt Baking Company, are generally exempt from the overtime wages requirement.  However, Congress recently waived this exemption for employees whose work affects the safety of vehicles weighing 10,000 pounds or less.  In concluding that the plaintiffs were protected by the FLSA waiver, the Fourth Circuit reversed the district court’s dismissal of the FLSA claims but affirmed the court’s dismissal of the claims brought under Maryland law.

Juniper v. Zook

In this criminal case, Anthony Juniper appealed the district court’s denial of his request for an evidentiary hearing concerning his claim that prosecutors failed to turn over exculpatory and impeaching evidence in violation of Brady v. Maryland, 373 U.S. 83 (1963).  The Fourth Circuit vacated the district court’s decision as to Juniper’s Brady claim, concluding that the district court abused its discretion by dismissing the claim without an evidentiary hearing.  The case was remanded to the district court for further proceedings.

Hensley v. Price

In this civil case, Deputies Michael Price and Keith Beasley appealed the district court’s denial of their motion for summary judgment, which asserted federal qualified immunity and related North Carolina state law defenses.  The Fourth Circuit affirmed the district court’s judgment, concluding that the deputies were not entitled to qualified immunity because their use of force was objectively unreasonable under the circumstances described through plaintiffs’ evidence.  In addition, the Fourth Circuit concluded that the deputies’ related state law defenses failed under the evidence taken in the light most favorable to the plaintiffs.         

OpenRisk, LLC v. Microstrategy Services Corp.

In this criminal case, OpenRisk appealed the district court’s grant of summary judgment in favor of Microstrategy, in which the court held that Federal copyright laws preempted OpenRisk’s computer fraud claims. The Fourth Circuit affirmed the district court’s judgment, concluding that the plaintiff’s computer fraud claims were preempted by the federal Copyright Act since the plaintiff’s sought liability based upon claims that, at their “core,” are not “qualitatively different” from the federal claims.

Maguire Financial, et al. v. PowerSecure International, Inc., et al.

In this civil case, Maguire Financial appealed the district court’s dismissal of its amended complaint containing claims of securities fraud. The Fourth Circuit affirmed the district court’s dismissal, concluding that Maguire Financial’s complaint failed to adequately allege scienter since a comprehensive analysis of the facts within the amended complaint did not create a “cogent and compelling” inference of scienter.  

United States v. Banker

In this criminal case, Banker appealed his convictions for conspiracy to engage in sex trafficking of a minor, sex trafficking of a minor, and enticement of a minor for illegal sexual activity. The Fourth Circuit affirmed Banker’s convictions, concluding that the district court’s jury instructions did not misstate the law and that there was sufficient evidence concerning the elements that the defendant knew or recklessly disregarded that the minor was underage.

By: Ashley Collette and Evan Reid

On October 12, 2017, the Fourth Circuit issued a published opinion in the civil case Siena Corporation v. Mayor and City Council of Rockville, Maryland. In its colorfully-worded decision, the court affirmed the dismissal of the “garden-variety zoning dispute recast in constitutional terms.”

Facts and Procedural History 

In 2013, Siena Corporation set out to construct an “ezStorage” self-storage facility in Rockville, Maryland. The property on which it chose to build was located down the block from an elementary school. Parents at the school expressed fears that the storage facility would lead to safety concerns for the elementary-aged students, including an increase in traffic and “U-Haul-style trucks” driven by inexperienced drivers, the storage of illegal or hazardous materials, and the potential release of asbestos. In response to these concerns, the City Council proposed the Planning Commission adopt a new zoning amendment that prohibited self-storage facilities within 250 feet of public schools. The Planning Commission recommended that the amendment be denied and held a public hearing on the proposed amendment.

While this was taking place, Siena obtained conditional site plan approval from the Planning Commission for their proposed “ezStorage” facility. However, this was conditional approval awaiting Siena’s full compliance with nineteen additional conditions as well as reviews by numerous local agencies.

The Rockville City Council ultimately adopted the zoning amendment prohibiting self-storage facilities in February of 2015. Siena brought suit against the City Council, the Mayor and two Councilmembers who had supported the amendment, and a Rockville resident who had urged its adoption (collectively “the Council”) seeking judicial review of the adoption of the zoning amendment in State court. Siena alleged in its complaint that the amendment violated its due process and equal protection rights under the Fourteenth Amendment and that the newly adopted zoning amendment targeted them specifically.

The Council removed the case to federal court and then moved to dismiss. The federal district court dismissed Siena’s federal due process claim, concluding that “Siena lacked a protected property interest in the ezStorage facility’s construction because it had not applied for a building permit.” Regarding Siena’s equal protection claim, the court held the zoning amendment had a rational basis and was thus constitutional. Siena appealed the district court’s decision to the Fourth Circuit, which reviewed the court’s decision de novo.

Due Process

To prevail on its claim that it was denied due process, Siena needed to show “(1) that it possessed a ‘cognizable property interest, rooted in state law,’ and (2) that the Council deprived it of property interest in a manner ‘so far beyond the outer limits of legitimate governmental action that no process could cure the deficiency.’” The Court found that Siena failed to meet either prong of the test. As to the first prong, Siena had not satisfied the conditions necessary to file for a building permit. But even if it had, the Court explained that zoning issues are local matters that should be decided at the local level. The Fourth Circuit noted that “[e]ven if Siena had a protected property interest here, the enactment of the zoning text amendment would fall short of a substantive due process violation.” Under its analyses of the second prong, the Court held that the action taken by the Council (the passing of an amendment barring self-storage businesses within 250 feet of public schools) was inside the limits of legitimate governmental action. The support for that conclusion was based on evidence that the Council heard testimony about the negative effects of self-storage sites and could have reasonably believed that testimony.

Equal Protection

The Fourth Circuit quickly disposed of Siena’s claim that the amendment violated the equal protection clause by pointing out that the action in question did not involve any rights protected by a higher level of scrutiny than rational basis. The Court stated that “the zoning text amendment is rationally related” to “the state interest in protecting schoolchildren.” Additionally, the Court noted that legislatures have great discretion in drafting statutes that involve economic matters, and this statute did not target Siena but rather applied equally to all self-storage businesses.

Conclusion

This case reaffirms the deference given to local authorities in zoning matters. The Fourth Circuit is hesitant to intervene absent a fundamental right at stake or targeting language.

Weekly Roundup: 10/23-10/27
By: Hanna Monson and Sarah Spangenburg

United States v. Julian Zuk
In this criminal case, the Government appealed the district court’s sentencing of defendant Julian Zuk as being “substantively unreasonable” after he had pled guilty to possessing child pornography as part of a plea agreement. The Fourth Circuit vacated the sentence and remanded for resentencing, reasoning that the 26 month time served sentence was not sufficient “to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment.” 18 U.S.C. § 3553(a)(2)(A).

Campbell McCormick, Inc. v. Clifford Oliver
In this civil case, Campbell McCormick, Inc appealed an order of a federal district court that severed and remanded Oliver’s asbestos exposure claims against it. The Fourth Circuit dismissed the appeal for lack of appellate jurisdiction and also held that the elements for jurisdiction under the collateral order doctrine were not met.

SAS Institute, Inc. v. World Programming Limited
In this copyright case, SAS alleged that WPL breached a license agreement for SAS software and violated copyrights on that software. The Fourth Circuit agreed with the district court that the contractual terms at issue were ambiguous and that SAS had shown that WPL violated the terms. However, on the copyright claim, the Fourth Circuit vacated the district court’s judgment and remanded with instructions to dismiss as moot.

United States v. Shawntanna Lemarus Thompson
In this criminal case, Thompson pled guilty to a drug offense and being a felon in possession of a firearm. Thompson appealed his sentence after the district court increased his sentence when it found that Thompson’s previous state conviction for assault inflicting serious bodily harm constituted a “crime of violence” under § 4B1.2 of the U.S. Sentencing Guidelines. The Fourth Circuit affirmed the sentence because the residual clause of § 4B1.2 authorized the district court’s increased sentence.

By M. Allie Clayton

Today, in the civil case of Barton v. Constellium Rolled Products-Ravenswood, LLC., a published opinion, the Fourth Circuit affirmed the District Court in granting summary judgment for the company. The court stated that the governing collective bargaining agreement did not provide for vested retiree health benefits, and thus the former employer was within their power to unilaterally alter its retiree health benefits program.

Facts

A class of retirees and their union, The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industry & Service Workers International Union AFL-CIO/CLC (“The Union”), filed this action. The union had represented the retirees since 1988 and had negotiated collective bargain agreements with their previous employer—Constellium Rolled Products-Ravenswood, LLC (“Constellium”).

The Parties’ Agreement

There was a specific provision of their collective bargaining agreement (“CBA”) that governed group health insurance benefits: Article 15. The 2010 provision of Article 15 stated:

  1. The group insurance benefits shall be set forth in booklets entitled Employees’ Group Insurance Program and Retired Employees’ Group Insurance Program, and such booklets are incorporated herein and made a part of the 2005 Labor Agreement by such reference.
  2. It is understood that this agreement with respect to insurance benefits is an agreement on the basis of benefits and that the benefits shall become effective on July 15, 2010, except as otherwise provided in the applicable booklet, and further that such benefits shall remain in effect for the term of this 2010 Labor Agreement.

In addition to Article 15 and the various booklets incorporated by reference therein (which operated as summary plan description (“SPD”)), Constellium (or its predecessors) and retirees agreed to further parameters governing retiree health benefits that were contained in “Cap Letters.” The cap letters throughout the years governed how Constellium (or its predecessors) would allocate health care spending of employees based on pre- and post-January 2003 retirees. The third cap letter, which took effect on January 1, 2011, was unique in that it took effect after the concurrently-negotiated collective bargaining agreement did.

The Unilateral Change Leading to Litigation

While the parties were negotiating a new CBA in July 2012, Constellium proposed a change to Article 15 that would extend the cap on its contributions to retiree health benefits to those who retired before January 1, 2003, and freeze its Medicare Part B premium reimbursement amount for all hourly retirees at $99.90. The Union refused to bargain about this issue because it asserted that the retiree health benefits had already vested. Constellium notified the Union that it planned to make those changes on January 1, 2013, and made those changes on that day.

Procedural History

After discovery, the parties filed cross-motions for summary judgment. The district court granted the company’s motion and dismissed the case.

The Issue

Did Constellium’s unilateral alteration of those benefits breach its obligations under the CBA?

Reasoning

The Supreme Court in M&G Polymers USA, LLC v. Tackett stated that courts must “interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy.” Therefore, as this court was interpreting the collective bargaining agreement with the parties, it was bound by ordinary contract principles. Those ordinary contract principles included the rule that states that in order to find that the retiree health benefits vested, there must be unambiguous evidence that indicates that the parties intended that outcome.

The Fourth Circuit found that the plain language of the CBA and the SPD indicated that the benefits did not vest. They found that there was explicit durational language in the retiree health benefits SPDs. Bolstering that conclusion was the contrast of the retiree health benefits section with a different section of the SPD that stated unambiguously that the pension plans cannot be reduced and they are paid monthly for the participants. Because the language was unambiguous in another section, it clearly demonstrated that the parties knew how to express their intent that certain benefits should vest.

Disposition

Because there were clear temporal limitations on the employee health benefits, the retirees’ and the Union’s arguments that the benefits had already vested cannot be upheld. Therefore, the grant of summary judgment in favor of Constellium by the district court is affirmed.

By Ali Fenno

On February 21, 2017, the Fourth Circuit issued a published opinion in the civil case of vonRosenberg v. Lawrence. In vonRosenberg, the Fourth Circuit addressed whether the district court abused its discretion by staying a federal proceeding until the conclusion of a similar state action involving different parties and claims. After examining the abstention standard from Colorado River Water Conservation District v. United States, the Fourth Circuit vacated the abstention order and remanded the case back to the district court, holding that the district court abused its discretion by abstaining in favor of state court proceedings that were not parallel to the federal court proceedings.

Facts

Both this federal proceeding and the related state proceeding concerned whether the Diocese of South Carolina (the “Diocese”) dissociated itself from the Protestant Episcopal Church in the United States (the “Episcopal Church”). Bishop vonRosenberg, the federal plaintiff-appellant, claims that the Episcopal Church appointed him as Bishop of the Diocese after removing Bishop Lawrence, the federal defendant-appellee, from the position. But Bishop Lawrence contends that the Episcopal Church could not have removed him because the Diocese of South Carolina had dissociated from the Episcopal Church and acted independently of the organization. Thus, each party claimed to be the Bishop of the Episcopal Church in South Carolina.

State Claim

Litigation over the dissociation matter first began when the Diocese filed suit against the Episcopal Church in a South Carolina state court, claiming that the Diocese had dissociated from the Episcopal Church and sought “resolution of their real and personal property rights.” The Episcopal Church then counterclaimed for trademark infringement and dilution under the Lanham Act. It also requested that Bishop Lawrence and others be added as counterclaim defendants, but the state trial court denied the request in September 2013.

The state court issued its final order on February 3, 2015. It held that the Diocese had validly dissociated from the Episcopal Church and owned the property at issue, and permanently enjoined the Episcopal Church from using the Diocese’s marks. The Episcopal Church appealed, and the South Carolina Supreme Court heard oral arguments on September 23, 2013. No opinion from the state supreme court has yet been issued.

Federal Claim

Bishop vonRosenberg filed this federal action on March, 13, 2013, seeking declaratory-injunctive relief against Bishop Lawrence. He claimed that Bishop Lawrence violated the Lanham Act by falsely advertising himself as the Bishop of the Diocese. But the district court abstained the proceeding in favor of the state court proceedings in August 2013. The court reasoned that it had broad authority to decline jurisdiction on cases seeking declaratory relief. On appeal, the Fourth Circuit vacated the abstention order on the grounds that the district court had applied the wrong abstention standard; the district court should have applied the standard for actions involving both declaratory and non-declaratory relief from Colorado River Water Conservation District v. United States. The Fourth Circuit remanded the case so this correct standard could be applied.

On remand, the district court again abstained in favor of the state proceedings, and Bishop vonRosenberg appealed.

Failure to Meet the “Exceptional Circumstances” Abstention Standard

The Fourth Circuit began its analysis by establishing that Colorado River is a narrow standard; it requires that abstention of jurisdiction be justified by “exceptional circumstances.” The Fourth Circuit identified the first step in this “exceptional circumstances” test to be a determination of whether the state and federal cases are parallel. It listed three guiding principles for this determination: (1) the federal and state parties should have more in common than merely the litigation of substantially similar issues; (2) the parties themselves should be nearly identical; and (3) despite overlapping of facts, there must not be serious doubt that the state action would not resolve all the claims. The Fourth Circuit then noted that even if the if the factual circumstances are sufficiently parallel, Colorado River requires that a handful of procedural factors be balanced before abstaining.

In applying these principles to this case, the Court first observed that the parties in the two cases are not the same. Neither Bishop Lawrence nor Bishop vonRosenberg were parties to the state action. Furthermore, the two courts were not litigating the same claims. The state court looked only at the Episcopal Church’s false advertising claim, not that of Bishop vonRosenberg. Thus, because the state and federal cases involved different parties and different claims, the cases were not parallel as required by Colorado River‘s “exceptional circumstances” standard.

Conclusion

The Fourth Circuit concluded that the state and federal proceedings failed to meet Colorado River’s “exceptional circumstances” standard because, as they involved different parties and different claims, they could not be considered parallel cases. Accordingly, it vacated the abstention order and remanded the case back to the district court.

By M. Allie Clayton

On February 15, 2017, in the civil case of Crouse v. Town of Moncks Corner, the Fourth Circuit held that the police chief in Moncks Corner had qualified immunity against a claim by two police officers that they had been fired in retaliation for the exercise of their First Amendment rights.

Initial Facts

Appellants are two detectives, Richard Crouse and George Winningham, who were forced to resign from the Moncks Corner Police Department in October 2013.  The officers were forced to resign due to an interaction they had with Mr. Berkeley regarding Mr. Berkeley’s treatment at the hands of their supervising officer, Lieutenant Michael Roach.  Mr. Berkeley was arrested by Lt. Roach on October 4th. Prior to this incident, the relationship between Lt. Roach and the two detectives, Crouse and Winningham, had been deteriorating, with at least one of the detectives complaining to Captain Murray and Chief Caldwell. Prior to the incident with Mr. Berkeley, the complaints dealt with his management style, treatment of criminal suspects, and showing the officers inappropriate pictures, but did not include accusations of excessive use of force.

The Incident(s) with Mr. Berkeley

On October 4, 2013, James Berkeley was arrested by Lt. Roach. Reports of the arrest conflicted, even by those who were present. The actual facts of the arrest are inconsequential, however, because, on Monday, October 7, 2013, Crouse and Winningham heard a version of what happened. Another officer told Crouse and Winningham that he had heard that Lt. Roach had “kneed Mr. Berkeley in the groin.” Crouse and Winningham further investigated the arrest incident by reading the incident report and viewing pictures of the incident. Crouse talked to Capt. Murray about his concern.

The next day, October 8, 2013, Crouse and Winningham decided to speak to Berkeley. During lunch, the two officers went to Berkeley’s house. Although the two were wearing plain clothes and driving in an unmarked car, the officers’ badges and guns were visible. The two were sitting outside Berkeley’s home for a few minutes when they saw Berkeley and initiated a conversation with him. Crouse and Willingham encouraged Berkeley to file a complaint against Roach, telling him that other officers supported his version of the story. Winningham suggested Berkeley get an attorney. Crouse handed Berkeley a form that the police department had created for citizens to submit complaints about police officers. That form was freely available in the police station and had been handed out upon request by clerical staff and police officers.

Crouse and Winningham attempted to conceal the fact that they had met with Berkeley. Crouse made sure that his fingers never touched the form that was given to Berkeley. Crouse also instructed Berkeley to pretend that he did not recognize the officers if they saw each other later. The two originally agreed to tell anyone who asked that Berkeley had flagged them down, but later decided that they would tell the truth if they were questioned.

All of the countermeasures that the two men used to try to conceal their interaction with Berkeley were in vain, as Mr. Berkeley called Officer Winder that same day. Berkeley told Officer Winder that a Moncks Corner police officer had encouraged him to sue Roach and the Moncks Corner police department. Officer Winder informed Chief Caldwell, who responded by assigning Lieutenant Mark Fields to investigate both Berkeley’s claim of excessive use of force and Berkeley’s visit by the mystery officers.

The Investigation by Lt. Fields

The investigation by Lt. Fields did not require much in order to discover who the mysterious officers were. On October 15, 2013, Lt. Fields interviewed Mr. Berkeley, both about the arrest and about the mysterious officers. Based on the physical description of the two men, Fields immediately suspected Winningham and Crouse. Fields told Chief Caldwell of his suspicions and then proceeded to interview Crouse and Winningham separately. Both Crouse and Winningham admitted what they had done, both orally and in written statements. Fields told Chief Caldwell of the confession. Chief Caldwell then instructed Captain Murry to offer Crouse and Winningham an ultimatum: either the two could voluntarily resign or they would be terminated.

Procedural History

On February 19, 2014, Crouse and Winningham filed suit against Chief Caldwell and the Town of Moncks Corner. They raised three claims, two about their wages and a claim under 42 U.S.C. §1983. Regarding their §1983 claim, the detectives argued that their forced resignations were unconstitutional because they were in retaliation for the detective’s exercise of their First Amendment rights. The district court held that Chief Caldwell was entitled to qualified immunity regarding the First Amendment claim and granted summary judgment in favor of Chief Caldwell. The district court reasoned that the Chief was entitled to qualified immunity because, under Garcetti v. Ceballos, acting as a private citizen was a required element of a First Amendment retaliation claim, and the plaintiffs did not clearly establish that element. The two other claims were dismissed without prejudice, and the plaintiffs re-filed those claims as a separate action.

The Issue

The issue in this case is whether the chief of police had qualified immunity on the 42 U.S.C. The §1983 claim, and, if the chief did not have qualified immunity, whether the plaintiffs’ First Amendment rights were violated.

The Law

Employees do not surrender their First Amendment rights, even if they are employed by the government. The interests underlying the rule are both the employee’s interest in commenting upon matters of public concern and the community’s interest in hearing the opinion of the employees’ informed opinions. (See Pickering v. Bd. of Educ. & City of San Diego v. Roe). While the government employer might impose certain restraints on the employees’ speech.

Under McVey v. Stacy, the Fourth Circuit has established a three-prong test to determine whether an employee’s First Amendment rights were violated. The first two prongs of which are questions of law. The first prong involves two inquiries: (1) whether the speech was made as a citizen or pursuant to the employee’s duty & (2) whether the speech addressed a matter of the community’s interest or complaints regarding internal office affairs. If the speech was made as a private citizen about a matter of public concern, the inquiry can proceed to the second prong. The second prong requires the court to balance the interest of the employee in speaking and the interest of the government in providing efficient services, which requires a “particularized inquiry into the facts of a specific case.” Only if the employee’s interest outweighed the government employer’s interest, does the court proceed to the third prong—a determination whether the speech caused the disciplinary action.

Qualified Immunity

An employer is entitled to qualified immunity from those claims if either of the first two prongs cannot be resolved under clearly established law. Under Ashcroft v. al-Kidd, to defeat a claim for qualified immunity, a plaintiff must show two things: (1) that the official violated a constitutional or statutory right & (2) that the right was “clearly established at the time of the challenged conduct.” In order to demonstrate that the right was clearly established, there must be existing precedent that places the statutory or constitutional question beyond debate. The inquiry depends on the official’s perceptions when the incident occurred.

Holding and Reasoning

Chief Caldwell is entitled to qualified immunity because he reasonably could have viewed the actions of Crouse and Winningham as “surreptitious conduct designed to foment complaints and litigation against a supervisor with whom they did not get along. The Fourth Circuit further stated that the right is not clearly established in this case, and thus the Fourth Circuit did not even address whether or not the constitutional violation occurred.

The Fourth Circuit affirmed the district court which stated that Caldwell was entitled to qualified immunity because it was unclear whether Crouse and Winningham were speaking as citizens or as government employees.  The inquiry of whether Crouse and Winningham were speaking as citizens involves a practical inquiry into the employee’s daily professional activities to determine whether the task was within the scope of the employee’s duties.  The Court reasoned that under the facts to his case, Chief Caldwell was reasonably able to believe that Crouse and Winningham were speaking as employees of the police department.  Crouse and Winningham were identified as police officers and their speech resembled their daily duties as detectives.  According to the court, Chief Caldwell “is not liable for bad guesses in gray areas.” Because Chief Caldwell’s belief was reasonable, he is thus entitled to qualified immunity

Disposition

The Fourth Circuit affirmed the District Court of South Carolina’s decision that Chief Caldwell was entitled to qualified immunity. The Court affirmed that Chief Caldwell had a reasonable belief that Crouse and Winningham were acting as police officers and thus, have viewed his interest in maintaining discipline within the department as paramount, leading to a proper exercise of his discretion.

By: Kristina Wilson

On Friday, November 18, 2016, the Fourth Circuit issued a published opinion in the civil case RB&F Coal, Inc. v. Mullins. The Fourth Circuit affirmed the U.S. Department of Labor’s Benefits Review Board’s finding that a coal miner, Turl Mullins, and his wife, Deloris Mullins, were entitled to employment and survivors’ benefits under 30 USC § 901 et seq (Black Lung Benefits Act). While the parties agreed that the Mullinses should be compensated, on appeal, the parties disputed whether RB&F Coal, Inc. should be responsible for paying the benefits.

The Statutory Scheme

The Fourth Circuit’s analysis was governed by the Black Lung Benefits Act (“BLBA”) and Virginia’s Guaranty Act. Under the BLBA, a mine operator that employs a miner who becomes disabled by pneumoconiosis is responsible for compensating the miner. 30 USC §§ 901(a), 922(a), 932(b), 932(c). Where multiple coal companies employ a miner, the most recent company to employ the miner is liable for the payments, as long as the company qualifies as a “potentially liable operator.” 20 C.F.R. § 725.495(a)(1). To be a “potentially liable operator,” the coal company and/or its insurer must be financially capable of assuming liability. Id. § 725.494(e).

Virginia’s legislature established the Virginia Property and Casualty Insurance Guaranty Association (VPCIGA), a state chartered non-profit association that provides payment of “covered claims” resulting from insolvent insurers. Va. Code Ann. § 38.2-1603. Virginia state laws require all insurance companies conducting business in Virginia to join the VPCIGA. Id. §§ 38.2-1604. The VPCIGA is only responsible for the claims of an insolvent insurer that are “covered claims,” as defined in the Guaranty Act. Id. § 38.2-1606(A)(1). “Covered claims” include “. . . any claim filed with the VPCIGA after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer.” Id. § 38.2-1606(A)(1)(b).

Facts and Procedural History

Between 1985 and 1988, Turl Mullins worked for several different coal companies, including RB&F Coal, Inc. (“RB&F”) and Wilder Coal (“Wilder”). Mullins developed pneumoconiosis in 2009 and filed a Black Lung Benefits Act (“BLBA”) claim in that same year. At the time of filing, Mullins’s most recent employer, Wilder, was out of business and its insurer declared insolvent. Therefore, the Department of Labor district director imposed liability on RB&F for payments to the Mullinses. RB&F challenged the finding and transferred the case to an Administrative Law Judge.

The Administrative Law Judge affirmed the Department of Labor’s finding because RB&F failed to prove that Wilder Coal was capable of financially assuming the liability. RB&F appealed the Administrative Law Judge’s finding with the Department of Labor’s Benefits Review Board, but the Benefits Review Board affirmed. This appeal followed.

Wilder Is Not a “Responsible Operator” under the BLBA

On appeal, RB&F first argued that Wilder qualified as a “responsible operator” because Wilder’s claims are still “otherwise guaranteed,” under Virginia’s Guaranty Act. However, Virginia’s Guaranty Act excluded claims filed after the final date set by a court for claims against an insolvent insurer. Va. Code Ann. § 38.2-1606(A)(1)(b). The final date set by a court for claims against Wilder’s insurer was August 26, 1992. Mullins did not file his claim until 2009. Therefore, Mullins’ claim was not “otherwise guaranteed.”

The BLBA Does Not Preempt the Guaranty Act

RB&F next argued that the BLBA preempted the Guaranty Act’s limitation of liability for black lung claims. In so arguing, RB&F assumed that the VPCIGA was an insurer under the BLBA. The Department of Labor regulations implementing the BLBA provide that an insurer is any fund, including a State fund, that is authorized under a state’s workers’ compensation laws to insure employers’ liability. 20 C.F.R. § 725.101(a)(18). However, Virginia’s workers’ compensation laws prevented the VPCIGA from covering Wilder’s insurer’s claims past a certain date. In fact, the Guaranty Act precluded the VPCIGA from providing full coverage of all the claims of an insolvent insurer. Thus, the VPCIGA is not an insurer under the BLBA, and as such, the BLBA does not preempt the Guaranty Act.

Disposition

Therefore, because RB&F established neither that Wilder was a “responsible operator” nor that the BLBA preempted the Guaranty Act, the Fourth Circuit affirmed the Benefits Review Board’s imposition of liability on RB&F.

 

 

 

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By M. Allie Clayton

On November 15, 2016, the Fourth Circuit released a published opinion in the civil case of United States v. Government Logistics N. V., and held that, while the substantial continuity test for successor corporate liability did not apply, the factual allegations regarding the fraudulent transaction test could not be resolved in this case except by a fact finder, and thus reversed.

Facts and Procedural History

This complex case began over fifteen years ago as a bid-rigging scheme by shipping businesses in order to defraud the United States. The Fourth Circuit has entertained appeals from decisions in this case at three different points throughout the litigation.

This case began in the year 2001, when Gosselin Group N. V. (then known as Gosselin World Wide Moving, N. V.) and at least one other entity, the Pasha Group, implemented a bid-rigging scheme with regard to two government programs—the International Through Government Bill of Lading (“ITGBL”) program and the Direct Procurement Method (“DPM”) program—that facilitate the trans-Atlantic shipping of household goods that belong to military and domestic personnel. The ITGBL program involves the Department of Defense (“DOD”) soliciting bids from domestic freight forwarders, and those domestic forwarders subcontract foreign operations to businesses overseas. The DPM program involves the DOD soliciting bids from international businesses. Both programs were administered by the Army’s Military Transport Management Command (the “MTMC”).

The Gosselin defendants (Gosselin Group N. V., Gosselin World Wide Moving N. V., and Gosselin Group’s CEO and former managing director, Marc Smet) and the Pasha Group (“Pasha”) implemented a bid-rigging scheme in which they increased the prices that the DOD paid to ship goods to and from Europe under the ITGBL and DPM programs. This led to the DOD paying millions of dollars more than it should have paid. Those bid-rigging schemes did not go undetected, and led to the qui tam proceedings in this case, and successful criminal prosecutions. Qui tam proceedings are lawsuits in which a whistleblower brings a civil claim pursuant to the False Claims Act (“FCA”). Under the FCA, 31 U.S.C. § 3730, whistleblowers are rewarded for assisting the United States in recovering any money lost to the defendants, up to 25% of the proceeds if the government participates, and up to 30% of the proceeds if the government does not participate.

The Criminal Prosecutions

In November of 2003, a grand jury returned a two-count indictment against Gosselin Group and Smet that charged each with “conspiracy to restrain trade, in violation of 15 U.S.C. § 1, and conspiracy to defraud the United States, in contravention of 18 U.S.C. § 371.” In February 2004, Gosselin Group and Pasha agreed to be charged and prosecuted by criminal information for the conspiracy offenses. Gosselin Group N. V. and the Pasha Group entered conditional guilty pleas to a pair of criminal conspiracy offenses. Smet signed the plea both for himself and for the Gosselin Group, thereby escaping further criminal prosecution. Pursuant to that plea agreement, both the Gosselin Group and Pasha admitted to various elements of the conspiracy. The plea agreement was accepted on February 18, 2004. As a result of a contemporaneous agreement between Smet and the Army, Smet was barred from doing business with the United States for three years (March 2004-March 2007). A United States Management Team—consisting of four Gosselin Group employees: COO Stephan Geurts St., Stephan Geurts Jr., Timotheus Noppen, and Ludi Bokken—was created within Gosselin Group to allow Gosselin Group to continue working with DOD, in the absence of Smet.

Under the plea agreement, Gosselin Group and Pasha were able to pursue an immunity claim in the district court to seek dismissal of both the charges lodged in the information. The two defendants claimed that the bid-rigging scheme was immune from federal prosecution. In August 2004, the Eastern District of Virginia dismissed one of those charges, finding that certain provisions of the Shipping Act granted Gosselin Group and Pasha immunity from federal prosecution on the antitrust conspiracy. However, the district court also found that the defendants did not have immunity from prosecution on the charge of conspiracy to defraud the United States. Therefore, the two defendants were sentenced only on the latter charge. This decision led to cross appeals from the defendants and the United States. The Fourth Circuit determined that immunity did not apply to either charge, and further held that the defendants were both criminally liable for both conspiracies and remanded to the district court for resentencing. United States v. Gosselin World Wide Moving, N. V., 411 F. 3d 501 (4th Cir. 2005). The resentencing proceedings began in 2006. The district court imposed a $6 million dollar fine on Gosselin Group, and two separate $4.6 million dollar fines on Pasha. The court also ordered both defendants to make restitution to the DOD in the sum of $865,000.

The Qui Tam Proceedings

In 2002, realtors Kurt Bunk and Ray Ammons (the “Realtors”) brought qui tam proceedings against the Gosselin defendants under the FCA. Bunk filed his qui tam action alleging an FCA claim related to the DPM program in the Eastern District of Virginia in August of 2002. Ammons filed his qui tam action alleging an FCA claim related to the ITGBL program (“ITGBL claim”) and to Gosselin Group exerting pressure on Covan International (“Covan claim”) and Cartwright International Van Lines (the “Cartwright claim”) to submit higher ITGBL claims. These cases were sealed, pursuant to 31 U.S.C. § 3730, and remained under seal and pending while the criminal cases were resolved.

Once the criminal proceedings were resolved in 2006, the Department of Justice (“DOJ”) gave the Gosselin defendants notice of the two pending qui tam actions. The DOJ not only detailed the false claims and bid rigging evidence that was underlying the qui tam actions, but also advised the Gosselin defendants that the United States might intervene. In January 2007, the DOJ sent a settlement demand to the Gosselin defendants.

Smet conveyed his frustration regarding the criminal liability and pending civil matters to Geurts Jr. Later Smet approached Jan Lefebure, the Managing Director of International Freight Forwarding Service—the company that handled Gosselin Group’s commercial exports—with a proposal to move Gosselin Group’s business as it related to the United States to another business entity. Lefebure owned another corporation called Brabiver—described as a “company doing nothing” but that had “a license for transportation or freight forwarding.” Smet proposed to Lefebure a scheme to rebrand and reopen Brabiver and move all of his [a.k.a. Gosselin Group’s] government contracts into Brabiver.

On June 27, 2007, Smet made several interest free loans, totaling over €100,000 to the four principles involved in the Brabiver venture, Noppen, Geurts Jr., Lefebure, and Rene Beckers. The loans were not secured, and only repayable on Smet’s demand, but that never occurred. The next day, Smet’s principles used the loans to purchase shares in Brabiver and formalize the change from Brabiver to GovLog. The very next day, GovLog and Gosselin Group entered into a series of agreements that were memorialized by contracts with terms dictated by Smet, not negotiated, and drafted by Smet’s attorneys and presented by Smet to the GovLog principals. These agreements transferred Gosselin Group’s business with the DOD to GovLog, and also committed GovLog to exclusively use Gosselin Group and its related entities to perform said DOD contracts. In exchange for Gosselin Group’s business with DOD, GovLog did not pay, but promised Gosselin Group a percentage of its future net revenue—“all of those revenues received by GovLog . . . minus the amount of the [services] invoiced by [Gosselin Group] to GovLog in connection with the services provided to GovLog by Gosselin Group and its subsidiaries.” Once GovLog obtained Gosselin Group’s DOD contracts, it began its shipping operations on behalf of Gosselin Group on July 1, 2007—approximately four days after Smet made loans to the GovLog Principals.

GovLog consisted of 20 employees, all but one of whom were previous Gosselin Group employees. Their sole business was signing contracts with DOD and arranging shipping services for DOD, but GovLog was not responsible for any actual shipping, nor did it have any warehouses (GovLog leased warehousing facilities from Gosselin Group). All GovLog actually owned was a couple of automobiles, a chair, and a table. GovLog earned no net revenues during 2007 or 2008, and thus was not obligated to pay any funds to Gosselin Group in exchange for Gosselin Group’s business with the DOD. However, GovLog did pay for the leased warehouse facilities and other services provided by Gosselin Group, which essentially meant that any “money that’s going to GovLog is actually ending up being paid to Gosselin.”

Later that year, on November 7, 2007, Ammons’s qui tam action was transferred to the Eastern District of Virginia and consolidated with Bunk’s qui tam action. In 2008, the Realtors’ complaints were unsealed, but on July 18, 2008 Ammons’s qui tam action was superseded by the government’s Complaint in Intervention under 31 U.S.C. § 3730(b)(2). The government did not intervene in Bunk’s qui tam suit. In the Complaint in Intervention, the government named GovLog as a defendant, and alleged that GovLog was “a successor/transferee in interest of Gosselin [Group].” On October 2, 2008, Bunk filed his Second Amended Complaint, which included GovLog as a named defendant and alleged successor corporation liability claim against GovLog.

The Bunk Complaint pleaded numerous FCA theories of liability against the Gosselin defendants and others. Bunk joined several additional complaints, including a 42 U.S.C. § 1985 claim and state law claims. However, only his DPM claim was not superseded by the government’s Complaint in Intervention. In 2011, the government and the Relators moved for summary judgment on the issue of whether GovLog was liable as a successor corporation of Gosselin Group. The district court severed the claims against GovLog from those against the Gosselin defendants, and then proceeded to conduct a trial to first resolve the claims against the Gosselin defendants.

On July 18, 2011, the jury trial for the Gosselin defendants began on the DPM, ITGBL, and Covan claims. At the close of the government’s case, the district court awarded judgment as a matter of law to the defendants on the ITGBL claim, and submitted the DPM and Covan claims were submitted to the jury. On August 4, 2011, the jury returned a verdict against the Gosselin defendants on the DPM claim and in favor of the Gosselin defendants on the Covan claim. Despite evidence establishing that the defendants had submitted over 9,000 false invoices to the DOD, the district court did not impose any civil penalties, reasoning that such an award would be unconstitutionally punitive (each false claim authorized a minimum civil penalty of $5,500, which would have resulted in a cumulative penalty in excess of $50 million dollars).

Both parties appealed. Bunk challenged the district court’s denial of civil penalties, the government challenged the court’s award of judgment on the ITGBL claim, and the Gosselin defendants argued that Bunk lacked standing. The Fourth Circuit rejected the Gosselin defendants’ standing argument, and directed the court to amend its civil penalties judgment and award $24 million dollars in civil penalties on the DPM claim. The Fourth Circuit also vacated the grant of judgment in favor of the Gosselin defendants on the ITGBL claim and remanded the matter for further proceedings.

Once the claims against the Gosselin defendants were resolved, the district court proceeded to determine the successor corporation liability claims pending against GovLog. The district court initially focused on identifying the applicable legal test for successor corporation liability claim. In September 2014, the district court ruled that application of Carolina Transformer’s substantial continuity test would be inconsistent with the Supreme Court’s decision in Bestfoods. United States v. Carolina Transformer Co., 978 F.2d 832 (4th Cir. 1992); United States v. Bestfoods, 524 U.S. 51 (1998). The court then found that only traditional common law principles governed the issue of GovLog’s liability as a successor corporation.

On November 3, 2014, the Relators and the government moved for summary judgment, relying on the common law’s fraudulent transaction theory of successor corporation liability. Bunk presented two theories of successor corporation liability against GovLog: (1) the substantial continuity theory, and (2) the fraudulent transaction theory. GovLog cross-moved for summary judgment, stating that the theory proposed by the government and the Relators was entirely speculative. On December 23, 2014, the district court granted judgment to GovLog under two theories: (1) neither complaint had properly alleged that GovLog was liable as a successor corporation under any recognized legal theory; and (2) GovLog was entitled to summary judgment for want of a genuine dispute of material fact. The court ruled that the transactions between GovLog and Gosselin Group were not shown to have been pursued with a fraudulent intention because there was “no evidence sufficient to establish any of the recognized ‘badges of fraud’” in regard to the creation or operation of GovLog. On December 29, 2014, the court entered judgment in favor of GovLog. The Relators appealed from the judgment, and the Fourth Circuit has jurisdiction under 28 U.S.C. § 1291.

The Initial Jurisdictional Question

Initially, the Fourth Circuit addressed whether or not the district court had subject matter jurisdiction over Bunk’s successor corporation complaint. The Fourth Circuit found that the court possessed supplemental jurisdiction over Bunk’s claim. Bunk’s FCA claim provided original jurisdiction under 28 U.S.C. § 1331. The question remained whether the successor corporation liability claim revolves around the same central fact pattern as the original FCA claim against the Gosselin defendants. The Fourth Circuit held that GovLog’s successor corporate entity liability is wholly dependent on the Gosselin defendants’ liability. Because the “successor corporation liability question is part and parcel of Bunk’s original qui tam action,” the district court did not err in exercising supplemental jurisdiction on this claim.

The Alleged Errors

The Fourth Circuit had to decide whether or not the district court erred by entering judgment in favor of GovLog on the successor corporation liability issue. Bunk challenged the three rulings of the District Court: (1) that the substantial continuity test is inconsistent with Supreme Court precedent; (2) that Bunk had not adequately pleaded the fraudulent transaction theory; and (3) that the fraudulent transaction theory was without evidentiary support, thus leaving no genuine issue of material fact and entitling GovLog to summary judgment.

Successor Corporation Liability Theories

There are four exceptions from the general rule that a corporation that acquires the assets of another corporation does not acquire its liabilities. Under federal common law, a successor corporation takes on the liabilities of its predecessor if: (1) the successor agrees to assume the liabilities; (2) the transaction is a de facto merger; (3) the successor may be considered a “mere continuation” of the predecessor; or (4) the transaction is fraudulent. United States v. Carolina Transformer Co., 978 F.2d 832 (4th Cir. 1992).

Under exception (3), the mere continuation theory states that liability can pass to the successor if “after the transfer of assets, only one corporation remains.” This is not applicable to Bunk’s case because two corporations were viable after the transfer of assets. However, there was another theory proposed in Carolina Transformer—the substantial continuity theory. Substantial continuity theory allows a court to look at eight factors to determine whether successor corporation liability should be imposed. However, the Supreme Court stated in United States v. Bestfoods that “‘[i]n order to abrogate a common-law principle, the statute must speak directly to the question addressed by the common law.’” United States v. Bestfoods, 524 U.S. 51 (1998) (quoting United States v. Texas, 507 U.S. 529 (1993)). Because the FCA doesn’t speak to successor corporation liability, it has “no impact on the traditional common law principles governing successor corporation liability.” Therefore, the district court did not err in declining to apply the substantial continuity test.

Bunk also relied on exception (4), the “fraudulent transaction theory of successor corporation liability.” Because this was dismissed on a motion for summary judgment, the Fourth Circuit reviewed whether the pleadings were legally sufficient under a de novo standard of review. The Fourth Circuit did not decide whether the heightened standard of pleading in Fed. R. Civ. P. 9(b) applied because the Court stated that even if there was a heightened standard it was satisfied in this case. The Bunk Complaint sufficiently outlined the dealings between GovLog and Gosselin Group that formed a solid foundation for the fraudulent transaction theory. Therefore, the district court erred in dismissing Bunk’s successor corporation liability claim as insufficiently pleaded.

The Fraudulent Transaction Theory

However, because the district court ruled in the alternative that GovLog was entitled to summary judgment on Bunk’s fraudulent transaction theory, the Fourth Circuit had to also address whether the summary judgment award was warranted.

Because direct evidence of intent to defraud is rare, courts have developed recognized “badges of fraud” that constitute indirect and circumstantial evidence. Those “badges of fraud” include; (1) the conveyance is to a spouse or near relative; (2) inadequacy of consideration; (3) transactions different from the usual method of transacting business; (4) transfers in anticipation of suit; (5) retention of possession by the debtor; (6) transfer of all or nearly all of the debtor’s property; (7) insolvency caused by the transfer; (8) failure to produce rebutting evidence when the circumstances surrounding the transfer are suspicious; or (9) transactions in which the debtor retains benefits.

In this situation the court found that the evidence did not simply fail to dispel the required fraudulent intention, but it could easily establish it. The Fourth Circuit found that “[a]t least four of the badges of fraud are readily apparent on the evidence . . .:” (1) inadequacy of consideration; (2) transactions different from the usual method of transacting business; (3) transactions in anticipation of suit or execution; and (4) transactions through which the debtor retains benefits. The consideration was found to be grossly inadequate because, in effect, GovLog paid nothing for the business interests it received from Gosselin Group. The transaction was made in haste and with little input from GovLog or any GovLog owners, and Smet was in control of every facet of the transaction—which is not something that occurs in the usual mode of transacting business. Also, the Fourth Circuit found that a reasonable juror could find that Gosselin Group continued to reap the benefits of the business that it transferred to GovLog. But the most suspicious aspect, according to the Fourth Circuit, was the timing of the transaction. “[T]he temporal proximity of the Gosselin defendants’ being advised of the qui tam actions and the GovLog transaction being consummated suggests that the transaction was made to defraud Bunk and the United States out of civil penalties.”

Disposition

According to the Fourth Circuit, the various factual disputes in this case cannot be resolved by anyone except a factfinder. Therefore, the district court erred in awarding summary judgment to GovLog. The Fourth Circuit vacated the judgment and the case was remanded to the district court for further proceedings.

By: Kristina Wilson

Earlier today, November 4, 2016, the Fourth Circuit issued a published opinion in the civil case Wells Fargo Equipment Finance v. Asterbadi. The Fourth Circuit affirmed the District Court’s decision in favor of Wells Fargo. On appeal, the parties disputed whether the statute of limitations on a debt collection judgment against Asterbadi had restarted upon registration in a new district.

Facts and Procedural History

On October 4, 1993, the District Court of Virginia entered a debt collection judgment against Asterbadi for over 2 million dollars. Under Virginia law, the judgment was enforceable for twenty years. Asterbadi made several payments on the judgment, but it remained mostly unsatisfied. The creditor, CIT/Equipment Financing Inc. (“CIT”), registered the debt in Maryland in 2003, pursuant to 28 U.S.C. § 1963. At the time of registration, Asterbadi still owed over 1.5 million dollars on the debt, most of which was interest. After unsuccessful attempts to enforce the judgment against some of Asterbadi’s stocks in Maryland, CIT took no further action to enforce the judgment.

In June of 2007, CIT sold and assigned the judgment to Wells Fargo. Starting in April of 2015, Wells Fargo attempted to enforce the judgment. It filed a notice of assignment and a copy of the assignment in the Circuit Court of Montgomery County, as well as a notice of assignment in the District Court of Maryland. In May of 2015, Asterbadi sought a protective order, stating that Wells Fargo was attempting to enforce a Virginia judgment that was outside Virginia’s and Maryland’s statutes of limitations. In August of 2015, Wells Fargo filed a renewal of its registered judgment in the district court.

The district court ultimately held that the statute of the limitation on the judgment began when the judgment was registered with the district court , which was in August of 2003. Thus, the District Court denied Asterbadi’s motion for a protected order because the judgment was still enforceable against him.

Asterbadi Can Appeal the Protective Order

The Fourth Circuit considered two jurisdictional issues on appeal. First, Wells Fargo argued that Asterbadi’s appeal was limited to an injunction entered against him by CIT in September of 2015. Second, Asterbadi contended that Wells Fargo lacked standing to enforce the judgment.

In September of 2015, the District Court entered an injunction against Asterbadi, and in October of 2015, the District Court denied Asterbadi’s motion for a protective order. Asterbadi appealed the entry of the injunction, but Wells Fargo argued that Asterbadi should have appealed the denial of the protective order instead. However, in its September of 2015 order, the District Court explicitly rejected Asterbadi’s claims that Wells Fargo did not have standing and that the statute of limitations had run on the judgment. The Fourth Circuit stated that these claims were “ necessary conditions precedent” to a grant of injunctive relief. Thus, the Fourth Circuit concluded that Asterbadi could challenge the District Court’s rulings on those two claims.

Wells Fargo Does Have Standing

Asterbadi argued that Wells Fargo lacked standing because it did not comply with Maryland Rule 2-624. Under Maryland Rule 2-624, an assignee may enforce a judgment in its own name when it files the assignment in the court where the judgment was entered. Asterbadi contended that Wells Fargo had only submitted a notice of assignment and not the actual copy of assignment to the District Court. However, Asterbadi himself provided the District Court with a copy of the assignment in an earlier proceeding. Therefore, the District Court had both the notice and the copy of the assignment. The District Court consequently held that Wells Fargo had satisfied Maryland Rule 6-264, and the Fourth Circuit affirmed.

The Judgment’s Statute of Limitations Restarted under Maryland Law

Asterbadi argued that the statute of limitations on the judgment had expired, while Wells Fargo contended that registering the judgment in Maryland constituted a “new judgment” and that the statute of limitations therefore started tolling upon its registration in Maryland.

The Fourth Circuit evaluated both arguments under 28 U.S.C. § 1963. Under this section, debt collection judgments from one district are enforceable in a different jurisdiction if they are registered by filing a certified copy of the judgment in the other jurisdiction’s District Court. The statute’s intent was to minimize the inefficiency and awkwardness of requiring creditors to obtain new judgments against a debtor in order to enforce a judgment in a different jurisdiction. In interpreting § 1963 in this manner, the Fourth Circuit rejected Asterbadi’s contention that the registration was simply a “ministerial act” and a procedural mechanism to enforce the Virginia judgment. The Fourth Circuit reasoned that if registration was just a “ministerial act,” § 1963 would not need to explicitly provide that registered judgments are equally as enforceable as other judgments entered in the registration court.

Because the statute allowed creditors to obtain “new judgments,” without litigation, the Fourth Circuit treated Wells Fargo’s judgment as a “new judgment” upon its registration in Maryland. The Fourth Circuit applied Maryland law and held that debt collection judgments are enforceable for twelve years, pursuant to Maryland Rule 2-625. Accordingly, the judgment against Asterbadi would only have been enforceable until August 27, 2015. However, Wells Fargo filed for renewal on August 26, 2015. Thus, the Fourth Circuit held that Wells Fargo’s judgment will remain enforceable for twelve more years.

Disposition

Therefore, the Fourth Circuit affirmed the District Court’s denial of Asterbadi’s motion for a protective order.

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By Mike Stephens

In a civil case, Zhikeng Tang v. Loretta E. Lynch, decided today, October 28, 2016, the Fourth Circuit denied petition for review of an order from the Board of Immigration Appeals (“Board”) denying requests for asylum, withholding of removal, and protection under the United Nations Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (“CAT”). The Court ultimately denied the Petitioner’s petition for review because substantial evidence supported the Board’s decision.

Facts and Procedural History

The Petitioner, Zhikeng Tang (“Tang”), is a native and citizen of China. In July 2009, Tang entered the United States illegally. Tang was introduced to Catholicism in 2011 and began attending a church. In 2011, Tang filed for asylum and the United States government began removal proceedings.

At a hearing before an immigration judge (“IJ”), Tang requested asylum, withholding of removal, and CAT protection based on his religious practice. Tang produced evidence of his membership in the Catholic Church and testified that his faith was genuine. Tang argued that his practice of the Catholic faith required attendance in an underground church in China and not a church sanctioned by the Chinese government. Tang claimed that removal to China would result in persecution from the Chinese government due to his participation in an underground church. In support of this argument, Tang provided the IJ with letters from his family that showed underground churches in China were persecuted. In addition, Tang also produced two State Department reports that criticized the Chinese government’s treatment of religious groups in China.

While the IJ found Tang’s testimony to be credible, the IJ rejected Tang’s asylum request. The IJ found that Tang did not provide sufficient evidence to show that Tang “faces an objectively reasonable risk of persecution on account of his Roman Catholicism.’ Additionally, because Tang’s claim for asylum failed, the IJ determined Tang had failed to meet the higher standard required for withholding of removal. Lastly, the IJ also concluded that Tang did not show sufficient evidence that his chances of torture were “more likely than not” upon removal to China.

The Board, on administrative appeal, upheld the IJ’s conclusion that Tang had failed to meet his burden for asylum or withholding of removal. The Board noted that Tang had not shown that the Chinese government knew or would gain knowledge of Tang’s faith and that Tang had not “established that there is a pattern or practice of persecution in China of persons similarly situated to him.” In addition, the Board concluded that Tang had waived his CAT claim because he did not challenge the IJ’s ruling on this claim. Tang appealed, challenging the Board’s denial of asylum, withholding of removal, and CAT protection.

Asylum

Tang argued the Board erred in denying his request for asylum, claiming that he met his burden of proof required for showing a fear of persecution in China. Tang claims that the instances of persecution evidenced in the letters from China and the State Department reports show a “pattern or practice of persecution in China.”

The Fourth Circuit rejected Tang’s argument and upheld the Board’s denial of asylum. The Court held that Tang’s evidence was not sufficient to allow a reasonable fact-finder “to conclude that the requisite fear of persecution existed.” While the Fourth Circuit found that Tang satisfied the subjective component required for asylum, the Court determined that Tang had failed to demonstrate an objective fear of persecution.

The Court found that Tang did not meet either of the requirements to satisfy the objective component provided for within 8 C.F.R. § 1208.13(b)(2). First, the Court concluded that Tang had waived a challenge to the Board’s conclusion that he would face individual persecution from the Chinese government because he failed to raise this argument. Second, the Fourth Circuit determined that Tang did not satisfy his burden of proving “an objectively reasonable chance” of facing a pattern or practice of persecution in China. The Court noted that the two State Department reports that Tang provided showed that the Chinese government recognized the Catholic faith and also permitted practice of the faith in churches and at home. Additionally, the reports and the letters from Tang’s family only showed “random” or “isolated and sporadic” instances of harassment. Thus, because the persecution was not “thorough or systematic,” the Fourth Circuit declined to “disturb the Board’s conclusion that Tang failed to establish a well-founded fear of persecution.”

Withholding of Removal

Tang also claimed the Board’s refusal to grant his application for withholding of removal was erroneous. Tang argued that the evidence he provided in support of his claim for asylum was sufficient to grant his withholding of removal.

The Fourth Circuit held that Tang did not meet the necessary burden to entitle him to a withholding of removal. The requisite burden of proof in a withholding of removal claim is that of a “clear probability,” which means “it is more likely than not that [Tang’s] life or freedom would be threatened in the country of removal.” The Fourth Circuit noted that this burden of proof “is more demanding than that of asylum” and that an applicant’s claim for withholding of removal would fail when their claim for asylum failed. Therefore, the Fourth Circuit held that Tang had failed to satisfy his burden or proof and was not entitled to a withholding of removal.

Protection Under CAT

Lastly, Tang appealed the Board’s denial of protection under CAT. Tang asserted that his evidence showed that the Chinese government’s torture of unregistered church members was “prolific in China.”

The Fourth Circuit refused to review this claim due to lack of jurisdiction. Under 8 U.S.C. § 1252(d)(1), courts can only review an order of removal once the “alien has exhausted all administrative remedies available to the alien as of right.” The Court held that Tang did not exhaust his administrative remedies because he failed to bring this issue on appeal before the Board.

Disposition

The Fourth Circuit ultimately denied Tang’s petition for review of the Board’s decision.

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By Mike Stephens

This afternoon, October 7, 2016, the Fourth Circuit issued a published opinion in the civil case McCray v. Federal Home Loan Mortgage Corp. The Fourth Circuit affirmed the district court’s decision to dismiss the Plaintiff’s Truth in Lending Act (“TILA”) claims regarding notice. However, the Fourth Circuit reversed and remanded the district court’s decision that two of the defendants, the White Firm and the “Substitute Trustees,” were not “debt collectors” under the Fair Debt Collection Practices Act (“FDCPA”).

Facts and Procedural History

In October 2005, Renee McCray took out a loan to refinance her house. The loan documents were sold to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Wells Fargo was retained to service the loan. After several years of payments, McCray disputed a billing statement in June 2011 and sent Wells Fargo several requests for information regarding the costs contained within the statement. Wells Fargo either failed to respond or did not respond adequately to McCray’s requests. Eventually, McCray stopped making payments after April 2012 and the loan went into default. Wells Fargo employed the White Firm to initiate the foreclosure.

The White Firm sent McCray a letter dated September 28, 2012, notifying McCray that the firm had been retained to begin the foreclosure proceedings on her home. The letter ended by stating, “This is an attempt to collect a debt. This is a communication from a debt collector. Any information obtained will be used for that purpose.” The White Firm also sent McCray another letter notifying her that the loan was “154 days past due” and that $4,282.91 was needed to cure the default. Members of the White Firm were placed as trustees on the deed of trust and filed a foreclosure action in February 2013, which is still pending. McCray filed suit in 2013, alleging violations of FDCPA and TILA. The district court dismissed four of McCray’s claims and granted summary judgment on the fifth. McCray raised three issues on appeal.

Defendants Were Debt Collectors Subject to the FDCPA’s Regulation

McCray first alleged that the the district court erred in concluding the White Firm and the Substitute Trustees were not “debt collectors” as defined within the FDCPA. McCray argued that the facts contained within the complaint regarding the firm’s letter were sufficient to show that the White Firm “regularly collect[ed] or attempt[ed] to collect debts” that were owed to another, consistent with the definition in 15 U.S.C. § 1692a(6). The White Firm responded that their actions did not qualify them as debt collectors as they never actually sought collection of money because, as the district court concluded, there was no “express demand for payment or specific information about [McCray’s] debt.” The White Firm also argued that their foreclosure action was “incidental to [their] fiduciary obligation,” placing them within an exception in § 1692a(6)(F)(i).

The Fourth Circuit reversed and remanded the district court’s dismissal, holding that McCray’s complaint sufficiently alleged that the White Firm were debt collectors and that their actions in initiating the foreclosure constituted debt collection activity for the purposes of the FDCPA. The Court rejected the White Firm’s argument for two reasons. First, the Court held that the FDCPA did not require an “express demand for payment.” Instead, activities “taken in connection with the collection of a debt or in an attempt to collect a debt” are actionable under the FDCPA. Second, the Court held that foreclosure is not merely “incidental,” but instead “central to the trustee’s fiduciary obligation under the deed of trust.” Thus, because McCray’s complaint alleged facts showing the White Firm was retained to collect the loan in default, and because the firm’s letter concluded that it was “an attempt to collect debt,” their actions fell within debt collection activity that is regulated by the FDCPA.

The District Court Properly Dismissed McCray’s TILA Claim

McCray also alleged that the district court wrongfully dismissed her TILA claim against Freddie Mac. McCray argued that Freddie Mac failed to give her notice of its purchase of the loan in violation of § 1641(g). This provision was added by Congress in 2009, which provides that:

not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer.

The district court found that McCray’s complaint failed to allege that Freddie Mac acquired the loan after Congress amended TILA to require notice. Additionally the district court found that McCray received notice of her claim in October 2011 because Wells Fargo sent her a letter notifying her that Freddie Mac was the “investor” on the loan. Because McCray filed suit in 2013 after receiving notice of the TILA claim in October 2011, the district court held, in the alternative, that her claim was barred by TILA’s one-year limitations period.

The Court affirmed the district court’s initial conclusion because McCray did not challenge the district court’s dismissal for failure to allege that her loan was sold after Congress amended TILA in 2009.  The Court affirmed the district court’s alternative holding as well. McCray did challenge the district court’s alternative conclusion, alleging hat the district court erred by not allowing her the opportunity to amend her complaint.  McCray pointed out that the October 2011 letter was not included in her complaint and instead was contained within the defendants’ motion to dismiss. Yet, McCray submitted an affidavit in her response where she stated she received a letter in December 2011 which repeated that “[t]he investor/noteholder for this loan is [Freddie Mac].” The Court found McCray’s claim was barred by the statute of limitations because McCray conceded notice that Freddie Mac was the owner of the loan in December 2011.

Wells Fargo Did Not Hold Legal Title

Lastly, McCray argued the district court wrongfully dismissed her claim that Wells Fargo violated § 1641(g) when it failed to give her notice that it had been assigned the deed of trust. The district court concluded that § 1641(g) was not applicable because Wells Fargo only received a “beneficial interest” to service the loan and “not legal title.” McCray claimed that a line in the deed of trust granted Wells Fargo an ownership interest and that failure to notify her of this interest was in violated of TILA.

The Fourth Circuit affirmed the district court, holding that the Wells Fargo did not obtain an ownership interest because the note was not sold to Wells Fargo. The Court found that simply because the note “can be sold” does not mean “the note was in fact sold to Wells Fargo.” The Court also highlighted that this claim contradicted McCray’s previous claim that Freddie Mac owned the note and failed to provide timely notice of ownership.

Disposition

The Court ultimately reversed and remanded McCray’s FDCPA claim that the White Firm and the Substitute Trustees were acting as “debt collectors.” The Court was careful to note that this reversal was not to indicate whether or not the defendants actually violated the FDCPA. The Court affirmed the district court’s dismissal of McCray’s TILA claims.

Judge Johnston Concurring in Part and Dissenting in Part

Judge Johnston, District Judge for the Southern District of West Virginia, sitting by designation, only dissented on the portion of the decision to affirm dismissal of McCray’s TILA claim against Wells Fargo for failing to provide notice of its interest in the loan. Judge Johnston noted that McCray’s complaint was filed pro se, and as such, should have been construed liberally. Because of this, the complaint could be read to infer that McCray could not identify the actual owner of the mortgage loan. In essence, the TILA claim regarding notice was nothing more than a pro se litigant attempting to “cast a wide net” by alleging both Wells Fargo and Freddie Mac failed to provide her notice of which entity owned the loan. Judge Johnston found the majority opinion’s reading of a pro se complaint to be “unduly strict” at the pleading stage when discovery would surely reveal whether Wells Fargo did receive an ownership interest.

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By Daniel Stratton

Today, March 21, 2016, the Fourth Circuit issued a published opinion in the civil case Jane Doe #1 v. Matt Blair, vacating the district court’s decision. The Fourth Circuit held that the lower court incorrectly determined that there was no federal diversity jurisdiction because the defendant corporation failed to allege its principal place of business. The Fourth Circuit overturned the decision because it was a procedural determination rather than a jurisdictional one.

The Case Bounces Between State and Federal Courts

On March 27, 2014, Ben and Kelly Houdersheldt filed a complaint in West Virginia state court as the next friends and guardians of Jane Doe #1, against Matt Blair and Res-Care, Inc. On July 14 of that same year, Res-Care removed the case to federal court, claiming subject matter jurisdiction based on diversity. Res-Care alleged that Jane Doe #1 was a resident of West Virginia and that Blair was a resident of Virginia. The company alleged that it was incorporated in Kentucky, but did not allege the state in which it had its principal place of business. The Houdersheldts, acting as next friends and guardians of Jane Doe #2, amended the complaint to include the second plaintiff. Jane Doe #2 and the Houdersheldts were residents of West Virginia.

On January 20, 2015, the district court sua sponte remanded the case back to state court, asserting that diversity subject matter jurisdiction had not been established. The court asserted that because neither party had asserted where Res-Care had its principal place of business, the court did not have jurisdiction based on diversity. Defendant Blair filed a motion to amend under Federal Rule of Civil Procedure 59(e) and for reconsideration under Federal Rule of Civil Procedure 60. Res-Care joined the motion. In the motion, the defendants argued that no party had challenged the diversity jurisdiction and that the parties had determined that Res-Care’s principal place of business was Louisville, Kentucky. The plaintiffs did not oppose Blair and Res-Care’s motion, but the district court denied it. Res-Care and Blair appealed.

Procedural or Jurisdictional: The Threshold Question for Reviewing Removal Orders

Federal circuit courts are restricted in reviewing district court orders remanding removed cases to state court. Under 28 U.S.C. § 1447(d), remand orders are generally “not reviewable on appeal or otherwise.” Supreme Court precedent, however, limits 28 U.S.C. § 1447(d) to cases where (1) a district court lacks subject matter jurisdiction, or (2) there is a defect in removal (other than a lack of subject matter jurisdiction) that was raised by a motion filed by a party within thirty days after the notice of removal was filed.

Under this system, a court can remand a case sua sponte for lack of subject matter jurisdiction at any time. Such an order is not reviewable by a federal appellate court. However, if the remand is based on another defect, a motion must be timely filed. If no motion is filed, 28 U.S.C. § 1447(d) does not bar a court’s review. Essentially, whether an appellate court has jurisdiction to review a district court’s remand order turns on whether the order was jurisdictional or procedural in nature.

How Have Other Circuits Tackled This Question?

In deciding how to resolve this case, the Fourth Circuit took notice of how other circuits have dealt with the the precise issue of “whether a failure to establish a party’s citizenship at the time of removal is a procedural or jurisdictional defect.” Three other circuits – the Fifth, Seventh, and Eleventh Circuits – had previously determined that this type of failure was “procedural, rather than jurisdictional.” Those circuits determined that a procedural defect was any defect that did not go to the question of whether the case could have been brought in federal court in the first place.

The Fourth Circuit, in the 2008 case Ellenberg v. Spartan Motors Chassis, reached a similar decision in regards to the amount in controversy component of diversity jurisdiction. In that case, the complaint did not state a dollar amount for damages claimed. The notice of removal to federal court there stated that the amount in controversy exceeded $75,000. Once the case was in federal court, the district court sua sponte considered whether the case should be remanded to state court. There, the district court found that the defendants’ allegations of diversity jurisdiction failed because they had failed to establish that the amount in controversy exceeded the required jurisdictional amount. Soon after, the defendants filed a motion with facts supporting their allegations regarding the amount in controversy, which the district court denied. On appeal, the Fourth Circuit determined that it was not barred from reviewing the lower court’s decision because the remand order was based on a procedural insufficiency rather than on finding a lack of subject matter jurisdiction.

The Fourth Circuit Applies Ellenberg; Adopts Approach of the Other Circuits

Turning to the present case, the Fourth Circuit noted that the district court had proceeded in a manner similar to the district court in Ellenberg. Like that court, the court in the current case had “recited the well-established principles of subject matter jurisdiction” then determined that diversity jurisdiction had not been established. Then, after Blair attempted to correct this failure with his Rule 59(e) motion, the court here denied that motion, much as the court in Ellenberg.

The Fourth Circuit was not persuaded that in the present case the lower court had explicitly concluded that there was no subject matter jurisdiction, because such an order required an examination of the underlying substantive reasoning. This, the Fourth Circuit reasoned, was enough to show that the district court had not based its decision on a lack of subject matter jurisdiction, but instead on the procedural insufficiency of the removal notice. As a result, the court explained that the only way the this procedural deficiency could be raised would be by a party filing a timely motion, which did not occur here. Thus the Fourth Circuit adopted the approach used by the Fifth, Seventh, and Eleventh Circuits.

The Fourth Circuit Remands the Case Back to Federal District Court

Because the district court improperly remanded this case sua sponte, the Fourth Circuit reversed the lower court’s decision and remanded the case back for further proceedings. The Fourth Circuit also granted a motion made by Res-Case to amend its removal notice to correct its earlier deficiency.