Wake Forest Law Review

Weekly Roundup: 2/26-3/2

By: Cara Katrinak & Raquel Macgregor

Carlton & Harris Chiropractic, Inc. v. PDR Network, LLC

In this civil case, Carlton & Harris Chiropractic appealed the district court’s dismissal of its claim against PDR Network for violating the Telephone Consumer Protection Act (TCPA) by sending an unsolicited advertisement via fax. Carlton & Harris argued that the district court erred by failing to defer to a 2006 rule promulgated by the Federal Communications Commission (FCC) interpreting provisions of the TCPA–specifically, interpreting the term “unsolicited advertisement.” Carlton & Harris further argued that the Hobbs Act required the district court to defer to the FCC’s rule. The Fourth Circuit vacated and remanded the case, holding both that the Hobbs Act deprived the district court of jurisdiction to consider the validity of the FCC rule and the district court’s reading of the FCC rule conflicted with the plain meaning of the rule’s text.  

Singer v. Reali

This appeal and cross-appeal arose from the district court’s dismissal of a securities fraud class action complaint related to the healthcare provider reimbursement practices of defendant TranS1 and four of its officers in connection with TranS1’s AxiaLIF system (the “System”). Named plaintiff Phillip J. Singer alleged that TranS1 and its officers, through the System, enabled surgeons to secure fraudulent reimbursements from health insurers and government-funded healthcare programs. Singer initiated this class action against TranS1 and its officers pursuant to Section 10(b) of the Securities Exchange Act, claiming that TranS1 and its officers concealed the fraudulent reimbursement scheme from the market through false and misleading statements and omissions and that TranS1’s stock price plummeted when the scheme was revealed.

Here, Singer appealed (No. 15-2579) the district court’s dismissal of his complaint for failure to sufficiently plead the material misrepresentation element or the scienter element of his Section 10(b) claim. TranS1 and its officers cross-appealed (No. 16-1019), contending that the district court erred in dismissing their challenge to the loss causation element of Singer’s claim. In reviewing the complaint, the Fourth Circuit held that Singer sufficiently pleaded the misrepresentation and scienter elements because the complaint specified statements made by TranS1 and its officers about its reimbursement practices that support Singer’s claim. In addition, the Court held that Singer also sufficiently pleaded the loss causation element because the complaint alleged losses resulting from “the relevant truth . . . leak[ing] out” about TranS1’s previously concealed fraudulent reimbursement scheme. Accordingly, the Fourth Circuit vacated and remanded No. 15-2579 and affirmed No. 16-1019.

Norfolk Southern Railway Co. v. Sprint Communications Co. L.P.

In this civil case, Sprint Communications appealed the district court’s order granting Norfolk Southern Railway’s motion to confirm an arbitration award. The arbitration arose from a disputed license agreement between the parties. The agreement granted use of Norfolk Southern’s railroad rights of way for Sprint’s fiber optic telecommunications system. The parties disagreed over the amount Sprint owed Norfolk Southern for such continued use and, pursuant to their agreement, hired three appraisers to determine an appropriate amount. On appeal, the parties disputed whether the final decision of the appraisers constituted a “final” arbitration award under the Federal Arbitration Act (FAA). Because the text of the appraisers’ final decision reserved the right to withdraw assent in the future, the award could not be considered “final.” Accordingly, the Fourth Circuit reversed and remanded the case, holding that the arbitration award was not “mutual, final, and definite” as required by the FAA.        

U.S. v. Phillips

In this civil case, claimant Damian Phillips appealed the district court’s holding that he lacked standing to intervene in his brother Byron Phillips’ forfeiture case. Damian sought to intervene after the United States claimed that $200,000 in cash found in a storage unit leased by Byron was subject to forfeiture under 21 U.S.C. § 881(a)(6) for being connected to the “exchange [of] a controlled substance.” Damian claimed that the cash was his life savings and, therefore, was not connected with drugs in violation of the statute. The Fourth Circuit affirmed the district court, holding that–based on the record–Damian lacked the necessary colorable interest in the $200,000 to establish standing.     

Janvey v. Romero

The Fourth Circuit affirmed the District Court of Maryland’s decision denying a motion to dismiss a bankruptcy petition. Appellee, Romero, had originally filed a Chapter 7 bankruptcy petition after he was found liable for a $1.275 million Ponzi scheme. The receiver, Janvey, moved to dismiss the bankruptcy petition due to bad faith under 11 U.S.C. §707(a). The Fourth Circuit was tasked with assessing whether the district court abused its discretion in deciding that Romero’s decision to file bankruptcy had not risen to the level of “bad faith.” The Fourth Circuit emphasized that the purpose of the Bankruptcy Code is to “grant a fresh start to the honest but unfortunate debtor,” and dismissing a bankruptcy petition for cause under bad faith is only warranted “in those egregious cases that entail concealed or misrepresented assets . . . excessive and continued expenditures, [and] lavish life-style.” The Court rejected Appellant’s arguments that filing bankruptcy in response to a single debt or the debtor’s ability to pay the debt constitute bad faith per se. The Court noted that although Romero had $5.348 million in assets, most of these assets were statutorily exempt. Moreover, Romero was supporting his wife’s medical costs, which averaged $12,000 a month for a bacterial brain infection that had left her incapacitated. The Court noted that Romero filed for bankruptcy in part for legitimate reasons, such as the inability to pay his wife’s medical expenses, and Romero was unable to find work after the Ponzi scheme was made public. Thus, the Court found that the district court had not abused its discretion in finding that Romero’s bankruptcy petition had not risen to the level of bad faith.

Hickerson v. Yamaha Motor Corp.

In this case, the Fourth Circuit affirmed the District Court of South Carolina’s decision to exclude the Plaintiff’s expert testimony and enter summary judgment for the Defendant. The Plaintiff had filed suit against Yamaha for a WaveRunner’s (jet ski) inadequate warnings and defective design that resulted in serious internal injuries during a watercraft accident. The WaveRunner itself contained several warnings to wear a swimsuit bottom and to only have three passengers riding the craft at a time. When the accident occurred, a ten-year-old was driving, the Plaintiff was only wearing a bikini bottom, and she was the fourth passenger. The district court excluded the Plaintiff’s expert testimony regarding potential warnings because the expert’s proposals were scientifically untested and thus were unreliable under the Daubert standard. The Fourth Circuit offered little independent analysis regarding the expert testimony exclusion, but the Court agreed with the district court’s reasoning under the abuse of discretion standard of review. Moreover, regarding Plaintiff’s defective design claims, the Court noted that in South Carolina, design defects can be “cured” by adequate product warnings. The Court found that the warnings were adequate as a matter of law, and thus the district court did not err in granting summary judgment on the Plaintiff’s design defect claims.

Elliott v. American States Insurance Co.

This appeal arose from Plaintiff Elliott’s claim against her automobile insurer. In 2013, Elliott was in an automobile accident that left her with serious bodily injuries. As Plaintiff’s insurance coverage through the Defendant was capped at $100,000 and Plaintiff claimed more than $200,000 in damages, her recovery was insufficient to cover her expenses. The Plaintiff then initiated an action to recover damages first against Jones, the other driver in the accident, and then against her insurer. The District Court for the Middle District of North Carolina ultimately denied Plaintiff’s motion to remand the case back to the Superior Court (where she originally filed the case) and granted Defendant’s 12(b)(6) motion for failure to state a claim. On appeal to the Fourth Circuit, the Plaintiff had three claims: (1) that the Defendant’s filing for removal to the district court was untimely, (2) that the district court erred in determining parties were diverse, and thus subject matter jurisdiction did not exist in federal court; and (3) the district court erred in granting Defendant’s motion to dismiss for failure to state a claim. On the Plaintiff’s first claim, the Court concluded that the original service of process was made on a “statutory agent,” not an agent appointed by the defendant. Thus, the thirty-day time period to file the notice of removal did not start until the Defendant actually received a copy of the complaint, not when the service of process was actually delivered. Consequently, the Defendant filed its notice of removal within the allotted time period. As to the second claim, the Court held that the “direct action” variation on diversity jurisdiction from § 1332(c)(1) does not include an insured’s suit against his or her own insurer for breach of the insurance policy terms; thus the parties were diverse. Lastly, the Court rejected the Plaintiff’s claims regarding the Defendant’s motion to dismiss on multiple grounds, including that the Defendant had no obligation to settle the Elliot’s claims until after a judgment was settled against the other motorist, Jones.

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By Kayleigh Butterfield

On October 30, 2015, the Fourth Circuit issued its published opinion in the criminal case United States v. Andrews. In Andrews, the Fourth Circuit affirmed the district court’s imposition of a U.S.S.G. § 3C1.1 enhancement for obstructing the administration of justice, because the district court’s finding was not clearly erroneous based on the facts of the case.

False Alibi Testimony at Robbery Trial

On March 27, 2011, Andrews robbed a Domino’s Pizza store at gunpoint. Andrews stole the manager’s wallet, along with money from the cash register and other employees. After the incident, the manager reported the robbery to the police. In the following search for Andrews, police officers found a car that had been run off the road. The car contained the manager’s wallet along with numerous articles belonging to Andrews, identifying him as the owner of the vehicle, and placing him at the scene of the crime.

Andrews was subsequently charged and pled not guilty, invoking his right to a jury trial. Prior to trial, Andrews filed a notice of alibi and a brief describing alibi testimony. In his opening statement, Andrews’ attorney previewed the alibi testimony of Andrews’ girlfriend and her mother. Both women testified that Andrews was at their home on the night of the robbery. However, the mother of one of Andrew’s children testified that Andrews’ had visited her on the night in question and had then confessed to robbing the Domino’s store. Andrews chose not to testify and was found guilty on all counts.

On remand for resentencing, the government requested a two-level enhancement for obstruction of justice under U.S.S.G. § 3C1.1. The district court found sufficient evidence to support the enhancement given Andrews’ knowledge of the false testimony and his subsequent silence during trial.

Scope of U.S.S.G. § 3C1.1

The relevant language of § 3C1.1 provides that an enhancement for obstruction applies to defendants who “willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice with respect to the investigation, prosecution, or sentencing of the instant offense of conviction . . . .” The commentary on   § 3C1.1 goes on to provide a non-exhaustive list of examples of covered conduct, which includes subornation of perjury. Further, the commentary notes that the defendant is accountable for his or her own conduct as well as for “conduct the defendant aided or abetted, counseled, commanded, induced, procured, or willfully caused.”

Willful Obstruction of Justice

The Fourth Circuit first explained that, while perjury is a common form of obstruction, § 3C1.1 does not require a finding based on such narrow grounds. Nor was the district court’s finding based on perjury. The Fourth Circuit noted that the district court based its decision on facts that indicated a broader finding of a “willful obstruction of justice.”

Next, the Fourth Circuit addressed the facts and found no clear error in the district court’s imposition of the enhancement. The Fourth Circuit reasoned that the extensive evidence found in his car, as well as the testimony against him, showed that Andrews’ alibi testimony was “patently false.” As to whether Andrews knew his witnesses were going to present false testimony, the Fourth Circuit noted that Andrews’ notice of alibi, trial brief, and counsel’s opening statement all referenced the substance of the testimony. Andrews also filed a pro se motion against the prosecution for intimidating his witnesses and blocking them from testifying, and therefore should have known what testimony his motion sought to protect. Finally, the Fourth Circuit reasoned that even if Andrews remained unaware of the testimony up until his first alibi witness took the stand, he would have realized that the witness immediately following was about to present similarly false information. Thus, the Fourth Circuit found that the district court was within its discretion to impose the obstruction enhancement.

Finally the Fourth Circuit addressed Andrews’ argument that his right to remain silent was violated by the imposition of the obstruction enhancement. The Fourth Circuit made clear that the obstruction enhancement in no way overrides a defendant’s right to remain silent or present a vigorous defense. Rather, it prohibits a defendant from knowingly allowing false testimony, just as it would prevent him or her from testifying falsely.

Affirmed

For the aforementioned reasons, the Fourth Circuit affirmed the district court’s imposition of the obstruction enhancement under U.S.S.G. § 3C1.1.