Wake Forest Law Review

By Mickey Herman

On Thursday, January 17, 2017, the Fourth Circuit issued a published opinion in the civil case Huskey v. Ethicon, Inc. The defendant-appellants, Ethicon, Inc. and Johnson & Johnson (collectively “Ethicon”), appealed the district court’s denial of their post-trial renewed motion for judgment as a matter of law (“JMOL”) or, alternatively, for a new trial. After reviewing the evidence presented to the jury in this products liability action, the Fourth Circuit affirmed the district court’s denial of both motions.

Facts & Procedural History

In 2008, Mrs. Jo Huskey began suffering from Stress Urinary Incontinence. By 2011, her condition had deteriorated such that she underwent surgery to implant a Tension-Free Vaginal Tape-Obturator (“TVT-O”) to alleviate her symptoms. Following the surgery, Mrs. Huskey began experiencing pelvic pain, which her doctor determined was caused by erosion in the TVT-O’s heavy-weight polypropylene mesh. After several non-invasive attempts to relieve her pain failed, Mrs. Huskey again underwent surgery to cover the eroded mesh. Unfortunately, Mrs. Huskey’s pain persisted and she was referred to a specialist who performed a third surgery in an effort to remove the mesh entirely. That procedure too was unsuccessful, as a portion of the mesh was unrecoverable. As a result, Mrs. Huskey suffers from severe pain when engaging in physical activity and sexual intercourse. That pain will last of the rest of her life and she will require medication for pain management.

In 2012, Mrs. Huskey and her husband, Allen, filed suit in the Southern District of West Virginia as part of In Re Ethicon Inc., Pelvic Repair Sys. Prods. Liab. Litig., MDL 2327. Following the district court’s grant of partial summary judgment in favor of Ethicon, the trial proceeded on five claims: strict liability and negligent design defect, strict liability and negligent failure to warn, and Mr. Huskey’s loss of consortium. Mrs. Huskey sought both actual and punitive damages for her claims.

Following the Huskey’s case, Ethicon moved for JMOL pursuant to Fed. R. Civ. P. 50(a). The district court granted the motion as to punitive damages; it otherwise deferred ruling on the motion. After Ethicon renewed the motion following its case, the district court again deferred and submitted the case to the jury. After the jury returned a unanimous general verdict for the Huskeys on all five claims, Ethicon renewed its motion for JMOL pursuant to Fed. R. Civ. P. 50(b) and, alternatively, requested a new trial under Fed. R. Civ. P. 59(a)(1)(A). The district court denied both motions. Ethicon appealed.

Denial of JMOL Motion

Ethicon first argued that the district court improperly denied its motion for JMOL. Noting that it reviews such denials de novo, the Fourth Circuit stressed that JMOL is appropriate only if “a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.” Fed. R. Civ. P. 50(a). Because the jury returned a general verdict, the Fourth Circuit emphasized that reversal was only appropriate if the Huskeys failed to prove both their design defect and failure to warn claims.

The Fourth Circuit turned first to the Huskey’s design defect claims. Pursuant to Illinois law (under which the Huskeys, Illinois residents, brought their claims), “[t]o prevail [on those] claims, the Huskeys had to demonstrate: 1) that a certain condition of the TVT-O resulted from Ethicon’s design, 2) that this condition made the product unreasonably dangerous, 3) that the dangerous condition existed when Mrs. Huskey’s TVT-O left Ethicon’s control, and 4) that the dangerous condition in the TVT-O proximately caused harm to Mrs. Huskey.” Ethicon argued that the Huskeys not only “failed to prove a specific flaw in the TVT-O’s design” but that Restatement (Second) of Torts § 402(a) comment k shielded the company from liability.

Addressing Ethicon’s first argument, the Fourth Circuit determined that the testimony of four of the Huskey’s expert witnesses—each of whom asserted that the design of the mesh was to blame—constituted sufficient evidence from which a reasonable jury could find that Ethicon’s mesh caused Mrs. Huskey’s injuries and subsequent pain.

Considering Ethicon’s second argument, the Fourth Circuit analyzed the text of comment k, which “recommends that [unavoidably unsafe products], ‘with the qualification that they are properly prepared and marketed, and proper warning is given,’ not trigger strict liability.” Restatement (Second) of Torts § 402(a). Because whether a product is unavoidably unsafe is a question of fact, the Fourth Circuit made clear that “[i]f a reasonable jury could find that the TVT-O did not meet comment k’s parameters, Ethicon’s reliance on comment k fails.” Relying again on the Huskey’s experts’ testimony that the mesh’s design was, in fact, defective, the Fourth Circuit concluded that a reasonable jury could so find and, thus, Ethicon’s comment k argument fails.

Because it could affirm the district court’s denial of Ethicon’s JMOL on these grounds alone, the Fourth Circuit did not address the failure to warn claims.

Denial of New Trial Motion

The Fourth Circuit next turned to Ethicon’s assertion that the district court erred by denying its motion for a new trial. Pursuant to Fed. R. Civ. P. 59(a)(1)(A), a new trial is warranted where “the verdict is contrary to the clear weight of the evidence, rests upon false evidence, or will cause a miscarriage of justice.” The denial of such motions is reviewed for abuse of discretion.

Ethicon first argued that it was entitled to a new trial because the district court, by failing to clarify comment k’s policy rationale, improperly instructed the jury on comment k. Only where a jury instruction “fails to inform the jury of the controlling legal principle,” such that the challenging party suffers prejudice, is a new trial warranted. After comparing the language of comment k to the instruction given, the Fourth Circuit determined that, although the instruction failed to explain that comment k shifts the burden of proof to the defendant, that deficiency did not prejudice Ethicon. Furthermore, it concluded that because comment k requires a “case by case” analysis, its underlying policy was irrelevant and could be omitted without prejudice to Ethicon.

Ethicon next argued that it was entitled to a new trial because the district court improperly excluded four pieces of evidence concerning the FDA’s approval of the mesh used in the TVT-O. Evidentiary exclusions are reviewed for an abuse of discretion and a new trial is appropriate only where there exists “a high probability that the error . . . affect[ed] the judgment.” Reviewing each piece of evidence in turn, the Fourth Circuit concluded that they were properly excluded under Fed. R. Evid. 403 because their probative value was outweighed both by a risk of confusion and wasted time, as well as because of their needlessly cumulative nature.

Thus, because the Fourth Circuit determined that the district court did not abuse its discretion with respect to the contested jury instructions and exclusion of evidence, it held that Ethicon was not entitled to a new trial.

Conclusion

Determining that sufficient evidence supported the jury’s verdict in favor of the Huskeys, the Fourth Circuit affirmed the district court’s denial of Ethicon’s motion for JMOL. Furthermore, because it concluded that district court did not abuse its discretion in instructing the jury and excluding evidence, the Fourth Circuit affirmed the district court’s denial of Ethicon’s alternative motion for a new trial.

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By M. Allie Clayton

On November 1, 2016, in the civil case of Ripley v. Foster Wheeler, LLC, a published opinion, the Fourth Circuit established that the government contractor defense is available in failure to warn cases. The Fourth Circuit reversed and remanded to the Eastern District of Virginia to determine if the government contractor presented sufficient proof to warrant removal under U.S.C. § 1442.

Facts and Procedural History

For over four years in and around the 1970s, Mr. Bernard Ripley worked as a boilermaker at the Norfolk Naval Shipyard. In 2014, when Mr. Ripley was diagnosed with malignant mesothelioma, he and his wife, Deborah Ripley, filed suit in Newport News Circuit Court, a Virginia state court. The Ripleys allege that Mr. Ripley was exposed to asbestos due to products that Foster Wheeler, LLC and Foster Wheeler Energy Corp. (“Appellants”) manufactured for the Navy, and that Appellants are liable for failing to warn Mr. Ripley of the asbestos hazards.

Appellants filed a Notice of Removal and removed the case to the United States District Court for the Eastern District of Virginia. Appellants asserted a government contractor defense, arguing that the suit stemmed from Appellant’s contract with the Navy, thus allowing removal pursuant to the federal officer removal statute 28 U.S.C. § 1442(a)(1). The government contractor defense allows a company that contracts with the military to avoid liability under state-law tort claims for design defects. When the Ripleys moved for remand, the district court granted the motion due to a decades-old practice in the district that denies the government contractor defense in failure to warn cases. Because the federal defense did not apply, according to the District Court, the federal courts had no subject matter jurisdiction. Appellants appealed the grant of the motion for remand.

The Issue

Does the government contractor defense apply to failure to warn cases? If it does, can Appellants, under the federal officer removal statute, remove to the federal district court in order to establish the defense?

The Federal Officer Removal Statute

The federal officer removal statute is an exception to the well-pleaded complaint rule. It allows a defendant to remove a case if the defendant establishes:

  • (1) it is a federal officer or a “person acting under that officer,” 28 U.S.C. §1442(a)(1);
  • (2) a “colorable federal defense”; and
  • (3) the suit is “for a[n] act under color of office,” which requires a causal nexus “between the charged conduct and asserted official authority.” Jefferson Cty., Ala. v. Acker. (alteration and emphasis in original).

The Federal Officer Removal Statute—As Applied

Appellants sought removal based on the government contractor defense as explained under Boyle v. United Technologies Corp.. In Boyle, the Supreme Court held that the government contractor defense applied to design defect cases. The reasons for applying the defense to defect cases were two-fold: (1) separation of powers suggested that the judiciary should be hesitant to intervene in matters of military procurement contracts; and (2) a higher risk of liability for contractors would increase costs to the government and decrease the supply of contractors.

The Eastern District of Virginia in McCormick v. C.E. Thurston & Sons, Inc. had previously held that the government contractor defense was “not available in failure to warn cases.” However, the Fourth Circuit found that most other jurisdictions, including the Second, Fifth, Sixth, Seventh, Ninth, and Eleventh Circuits, that have considered this issue held that the defense does apply to failure to warn cases. The Fourth Circuit further found that the reasons for applying the defense to defect cases were equally applicable in the failure to warn cases. The separation of powers consideration was still relevant due to the fact that it was a military contract. Also, the increased costs to the governments due to the increase risk of liability and the decreased supply of contractors was equally relevant in the general failure to warn context, beyond asbestos. Due to the overwhelming amount of opposing precedent and the valid rationales supporting the application of the defense, the Fourth Circuit “join[ed] the chorus and h[e]ld that the government contractor defense is available in failure to warn cases.”

Disposition

The Fourth Circuit went against precedent that the District Court relied on in remanding the case back to the state court. Because of this shift in doctrine, the Fourth Circuit reversed and remanded the case to the District Court to determine if the Appellants have presented enough proof to warrant removal pursuant to 28 U.S.C. § 1442.

peanuts

By Malorie Letcavage

On December 2, 2015, the Fourth Circuit issued its published opinion in Severn Peanut Co., Inc. v. Industrial Fumigant Co. In this case, appellant Severn Peanut Co. (“Severn”) asked the Fourth Circuit to overturn the lower court’s grant of summary judgment for appellee, Industrial Fumigant Co. (“IFC”) on both the breach of contract and the negligence claim. The Fourth Circuit ultimately affirmed the grant of summary judgment because the consequential damages provision in the contract overcame the breach of contract claim and North Carolina law does not allow a plaintiff to pursue a tort claim under the guise of a contract claim.

Background

Severn entered into an agreement with IFC to apply a pesticide, phosphine, to its peanut storage dome. The parties signed a Pesticide Application Agreement (“PAA”) which detailed that Severn would pay IFC $8,604 for the pesticide services. The contract specified that the sum excluded IFC assuming any risk of “incidental or consequential damages” to Severn’s “property, product, equipment, downtime, or loss of business.” It also stipulated that the pesticide would be applied according to the instructions on its label.

The label on the phosphine requires the user to avoid the pesticide tablets from piling up because this could lead to fire or an explosion. Despite this warning, IFC dumped 49,000 tablets of the pesticide into the peanut dome through a single hatch. The pile up of the tablets caused a fire and an explosion. Severn’s insurer paid to cover Severn’s loss of peanuts, business income, and the damage to the peanut dome. Severn filed against IFC for breach of contract and negligence. The District Court granted partial summary judgment for IFC on the breach of contract claim because it found that the consequential damages clause in the PAA excluded a claim for breach of contract. It also found Severn to be contributorily negligent, and thus granted summary judgment in favor of IFC on the negligence claim.

Breach of Contract Claim

The Court examined the consequential damages limitations in North Carolina. It found that this doctrine allows parties the freedom to contract. It strongly stressed that it would not overhaul a valid enforceable contract that both parties agreed to and signed. It held that the consequential damages doctrine may only be limited if the clause is unconscionable. The Court found that overall the doctrine is a widely used tool for completing business.

In application to Severn’s case, the Court held that the language of the PAA established a valid consequential damages clause, and the items damaged fell within this language. It also found that the clause was not unconscionable. A clause is unconscionable when no reasonable person would view the contract’s result without feeling injustice. However, this clause was conscionable because it was between two experienced business parties who contracted specifically to include the provision; it was a fair result according to the contract.

The Court also rejected Severn’s argument that the clause was a violation of public policy. The Court refused to find consequential damage clauses against public policy without a clear indication from the North Carolina courts, of which there was none. It held that North Carolina law provides other criminal and civil penalties for the misapplication of the pesticide, so there was no reason to hold private liability as the only means of enforcement. Thus, the Court affirmed summary judgment on the breach of contract claim because the contract was an agreement between two sophisticated commercial entities who should be held to the terms of the contract they signed.

Negligence Claim and Economic Loss Doctrine

While the Court agreed with Severn’s argument that the ruling of contributory negligence ignored material facts, it still affirmed the grant of summary judgment for IFC because of the economic loss doctrine. The Court found that the negligence claims would not survive the assent to the consequential damages limitation. The economic loss doctrine “prohibits recovery for purely economic loss in tort when contract…. operates to allocate the risk.” The doctrine encourages parties to allocate the risk of loss themselves, as they are in the best position to do so.

In this case, Severn wanted to claim a remedy in tort for IFC’s breach of duty to apply the pesticide according to the label, which is the same source as their breach of contract claim. Yet since Severn bargained to limit consequential damages caused by breach of contract they cannot be allowed to try to undo that bargain using tort law. Additionally, the Court found that the storage dome and peanuts were not outside of the contract, and were not exempt from the economic loss doctrine.

Summary Judgment Affirmed

Thus, the Fourth Circuit affirmed the lower court’s grant of summary judgment for IFC on both the breach of contract and the negligence claim.

 

By Elizabeth DeFrance

In an opinion for the civil case, Marks v. Scottsdale Ins. Co., published June 29, 2015, the Fourth Circuit Court of Appeals held that a general liability insurer for a hunt club had no duty to indemnify or defend a club member who accidentally shot a passing driver while hunting on land the club leased.

Marks Accidentally Hit by Pellets When Deer Hunter Shot Towards Public Road

Plaintiff Timothy B. Johnson (“Johnson”), a member of the Northumberland Hunt Club (“Hunt Club” or “Club”) was hunting deer on land leased by the Club when he took a shot that traveled towards an adjacent public highway. Pellets from Johnson’s gun struck Plaintiff-Appellant Danny Ray Marks, Jr. (“Marks”) in the head as he was driving. Marks filed a negligence claim against Johnson in Virginia state court, alleging that because Johnson was experienced with firearms and the location, he should have known his actions posed a risk to drivers on the highway. Marks also filed a negligence claim against the Hunt Club, alleging they failed to promulgate rules to protect the public. In a second complaint filed in Virginia state court, Marks sought a declaration that the Hunt Club’s insurer, Scottsdale Insurance Company (“Scottsdale”) had a duty to indemnify and defend Johnson due to an endorsement provision in the Club’s insurance policy. Scottsdale removed to federal court based on diversity jurisdiction and filed a counterclaim seeking an endorsement stating it does not have a duty to indemnify or defend Johnson. Johnson joined the district court litigation and the parties agreed to have a magistrate adjudicate the matter. On cross motions for summary judgment, the magistrate held that Scottsdale did not owe a duty to indemnify or defend Johnson, and granted Scottsdale’s motion.

Scottsdale issued a commercial general liability policy to the Hunt Club, establishing its duty to indemnify for “those sums that the insured becomes legally obligated to pay for damages from bodily injury or property damage to which this insurance applies,” and to defend the Club in such suits. The policy also included an endorsement that modified its coverage “to include as an insured any of your members, but only with respect to their liability for your activities or activities they perform on your behalf.” “You” and “your” are defined as “the Named Insured.”

The Court Applied Contract Principles to Determine the Scope of the Policy’s Coverage

To determine whether Johnson was an “insured” under the policy’s endorsement, the Court looked to the plain meaning of the language. Under Virginia common law, ambiguous policy language is to be construed against the insurer. However, a term is only deemed ambiguous if it is “capable of more than one reasonable meaning.” An insurer only owes a duty to indemnify and defend if the allegations in the complaint come within the scope of the policy’s coverage.

Language of the Endorsement is not Ambiguous

The Court analyzed the language of the two clauses in the endorsement to determine the scope the coverage. The first clause insured “any of [the Club’s] members, but only with respect to [member] liability for the Club’s activities.” Johnson argued that the language was clear, and that his actions were covered under this clause because he was hunting at the time of the incident and hunting is one of the Club’s activities. In the alternative, he argued that the language was ambiguous and should be construed in his favor. The Court disagreed, reasoning that the language was clear, and that this clause “restricts coverage to situations involving a member’s alleged vicarious liability for the activities of the Club as an entity, not for torts allegedly committed by members during a Club activity.

Johnson conceded that the second clause in the endorsement, covering “activities [members] perform on [the Club’s] behalf,” did not apply to him in this situation.

The Court reasoned that Johnson’s proposed interpretation of the first clause was flawed when the language of the endorsement was examined as a whole. The court determined that the first clause covered actions taken by the Club that a member might be held vicariously liable for, and the second clause covered actions taken by an individual on behalf of the Club. However, under Johnson’s interpretation, the second clause becomes redundant because all member actions in connection with the Club would be covered under the first clause.

Once the scope of coverage was established, the court looked to Marks’s complaint to determine if the allegations against Johnson came within the scope of the policy’s coverage. The court reasoned that because the complaint only alleged that Johnson was a member of the club and on land leased by the club when he shot Marks, the complaint rested only on “the recreational pursuits indulged in by members,” not on Johnson’s vicarious liability for the Club’s activities.

Scottsdale has No Duty to Indemnify or Defend Johnson

Because Scottsdale was not be liable for any of the allegations against Johnson in the complaint, Scottsdale did not have a duty to indemnify or defend Johnson. The Court affirmed the judgment of the magistrate judge.

By Mikhail Petrov

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

The Facts of the Case

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

At the District Court

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

Standard of Review

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

Reasoning

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

Reason One – Principles of Party Presentation

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

Reason Two – Gist of the Action

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

Ryan’s New Claim

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

Holding

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

By Patrick Southern

On March 25, the Fourth Circuit released a published opinion in the civil case of Johnson v. American Towers, LLCIn its decision, the court affirmed a ruling from the District of South Carolina, declaring that court had properly determined it had jurisdiction over the matter on multiple grounds and had also properly dismissed the claim on the merits.

Plaintiff Was Brutally Attacked In His Home

Plaintiff Robert Johnson worked as a prison guard. He was attacked in his home and shot six times. He survived the attack, and a subsequent investigation revealed that the attack was ordered by an inmate at the prison where he worked, using a contraband cell phone.

The Johnsons sued several cellular phone service providers and owners of cell phone towers (including American Towers), seeking to recover under state law negligence and loss of consortium theories. The defendants fell into two groups: wireless service providers and owners of cellular towers. According to the Johnsons, these defendants were liable for Mr. Johnson’s injuries because they were aware that their services facilitated the illegal use of cellphones by prison inmates and yet failed to take steps to curb that use.

The defendants removed the case to federal court, citing federal question jurisdiction under 28 U.S.C. § 1331 and complete diversity under 28 U.S.C. § 1332. The Johnsons moved to remand to state court, and the District of South Carolina denied the motion on two grounds: (1) that federal question jurisdiction existed because the Federal Communications Act preempted their state law claims, and (2) that diversity jurisdiction existed because the only non-diverse defendants were fraudulently joined and the amount in controversy exceeded $75,000.

The defendants subsequently moved to dismiss the case under Federal Rule of Civil Procedure 12(b)(6). The District Court granted the motion on three grounds: (1) that the Johnsons’ claims were barred by express and conflict preemption; (2) South Carolina law did not impose a duty on the defendants to prevent inmates from illegally using their cell phone services; and (3) the Johnsons’ claims were implausible and so did not meet pleading standards. The Johnsons appealed to the Fourth Circuit.

On Appeal, Plaintiffs Argued on Jurisdictional Grounds In Addition to the Merits of Their Claims

The plaintiffs brought forth two issues the Fourth Circuit considered on appeal.

First, they asked if the District Court had erred in concluding it had federal jurisdiction over the Johnsons’ state law claims. If the Fourth Circuit found federal jurisdiction was proper, they further argued the District Court had improperly dismissed the plaintiffs’ claims on the merits.

The District Court Erred in Finding Federal Question Jurisdiction

The District Court had found federal question jurisdiction existed because the plaintiffs’ state law claims were preempted by the Federal Communications Act. On appeal, the Fourth Circuit noted that this “complete preemption” is rare, and indeed there is a presumption against such preemption. The presumption exists because, in the court’s view, the principles of federalism dictate the judiciary should be careful to not draw an inference that Congressional actions are intended to wipe out wide swaths of state law (at least without some explicit statement as such from Congress).

While the court said the language of the Federal Communications Act constituted “ordinary preemption” it also noted that was not sufficient to create federal subject matter jurisdiction. Only complete preemption can do so. For complete preemption to exist, the preempting statute must provide the exclusive cause of action for claims in the area the statute preempts.

The Fourth Circuit said the Federal Communications Act does not provide the exclusive cause of action in this area, since that statute only permits recovery against common carriers, and the tower owners are not considered common carriers (since they do not provide wireless service). Even though the wireless providers can be sued under the Federal Communications Act, the court noted there was nothing in the Act that indicated Congress intended it to be the exclusive remedy for state law claims against such providers. Indeed, the language of the Act suggests the opposite — that it was not intended to supplant common law and state law remedies.

But Diversity Jurisdiction Allowed the District Court to Hear the Case

With respect to diversity jurisdiction, the Johnsons’ original complaint had named two non-diverse defendants. However, under the “fraudulent joinder doctrine” the District Court was free to remove those defendants and retain jurisdiction over the case. But to do so, there must be a showing that there could not be a claim against the defendants in question even if all questions of law and fact were resolved in plaintiffs’ favor. The standard is obviously plaintiff friendly — if even a “glimmer of hope” of recovery against the defendant at issue is found, it cannot be removed.

But these defendants met that lofty standard. One did not operate towers in the area of South Carolina in question, and so it could not have been found liable for any damages to Mr. Johnson. With regard to the other non-diverse defendant, the Fourth Circuit found that the Federal Communications Act preempted the Johnsons’ claims against it.  Thus, it was also removed properly, and diversity jurisdiction was proper.

The District Court Properly Dismissed the Claims on Their Merits

On three different grounds, the Fourth Circuit agreed with the decision of the District Court to dismiss the Johnsons’ claims.

First, it found that the Communications Act’s express language preempted the Johnson’s claims. The court indicated that the existence of a common law tort duty would obstruct or burden a wireless service provider’s ability to provide coverage. The providers would have to actively monitor their networks to prevent calls coming from inside South Carolina prisons, which would limit their ability to offer wireless service in those areas.

Second, it found the Johnsons’ claims were barred by conflict preemption. Conflict preemption applies to state law “when compliance with both federal and state regulations is a physical impossibility, or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” The court found that a state law obligation to block calls from inside South Carolina prisons would conflict with parts of the Communications Act which bar actions to block cell phone signals. The provision in question says that no person shall interfere with any radio communications, including his or her own. Thus, a state law obligation to block the signals inside of prisons would directly conflict with the federal law, making compliance with both impossible.

Finally, it found the Johnsons’ claims were implausible. The court indicated the allegations were “speculative” in nature. The Johnsons’ complaint merely asserted that “an inmate at the prison using a cellphone ordered a coconspirator outside of the prison to kill Captain Johnson.” The Fourth Circuit said the Johnsons failed to offer any further facts to support their claims. Their complaint did not identify the wireless service provider who carried the alleged call, or even when the alleged call occurred. Without more factual allegations, the Fourth Circuit said it would be impossible for a district court to assess the Johnsons’ claims.

By Patrick Southern

Today, in Beyond Systems, Inc. v. Kraft Foods, Inc., the Fourth Circuit held in a published decision that the established tort doctrine of volenti non fit injuria (“to a willing person it is not a wrong”) applies to internet service providers (an “ISP”) who set “spam traps” solely for the purpose of raising claims against those who send certain types of spam e-mails. The appellate court affirmed the decision of the District of Maryland in this civil case.

Defendants Argue The Claim Is Barred

Defendant Kraft Foods argued successfully at the District Court level that the claims of plaintiff Beyond Systems and third-party plaintiff Hypertouch were barred because the plaintiffs’ actions before the filing of the action constituted consent. The plaintiffs appealed this issue in the hopes of receiving a new trial, since the District of Maryland never so much as reached the question of damages in this tort action.

Plaintiffs Have a History of Claims Under Anti-Spam Statutes

Spam e-mail became an issue in the 1990s and 2000s, and 35 states responded by 2004 in passing legislation providing for a private right of action for ISPs for violations of provisions related to the sending of spam.

The plaintiff in this case, Beyond Systems, is a Maryland-based corporation which used certain tactics referred to as “spam traps.” In the code of various web sites, it hid e-mail addresses in a way that could not be seen by the typical end user, but instead were only visible to “spam crawlers” (programs which are used by spammers to look for e-mail addresses and subscribe them to e-mail lists). Beyond Systems did nothing to filter or block spam e-mails on the accounts in question, and actually increased its storage capacity to archive these e-mails and retain them for use in litigation.

The third-party plaintiff, Hypertouch, is a California-based corporation owned by the brother of the owner of Beyond Systems. It had engaged in similar tactics and sued Kraft Foods in 2005 over certain e-mails. The claim resulted in a settlement, which provided in part that Hypertouch agreed to cooperate with Kraft in identifying future e-mails that may violate California law. Such lawsuits were big business for both companies, accounting for 90 percent of Beyond Systems’ income in recent years.

In 2008, Beyond Systems sued Kraft and another company, Connexus, in the District of Maryland, bringing both Maryland and California state law claims. Many of the e-mails in question were the same ones that formed the basis for the Hypertouch suit in 2005. Partial summary judgment was granted on e-mails that had been part of the Hypertouch suit, e-mails in which Hypertouch did not notify Kraft of the violations in accordance with the settlement agreement, and (because of the applicable statute of limitations) e-mails which were sent more than one year before the suit.

The District Court bifurcated the trial into a “liability” proceeding and a “damages” proceeding. There were two phases to the liability proceeding: in the first, the court had to determine if Beyond Systems met the Maryland state law standard for being classified as an ISP; in the second, it then had to determine if it was a “bona fide” ISP. The jury found that Beyond Systems met the state law standard, but said because of its litigation activities and relationship to Hypertouch, it was not a “bona fide” ISP. It held that Beyond Systems had invited its own injury and was thus barred from recovery.

The Tactics Utilized by Plaintiffs Constituted Consent

While the cause of action in this case is derived from state statutes, it is rooted deeply in the tort law tradition. Thus, common law rules are applicable in such cases. The Fourth Circuit held, accordingly, that the common law principle that one cannot recover damages flowing from conduct he consents to barred Beyond Systems from any recovery in this case. The appellate court agreed with the trial court that the actions of Beyond Systems constituted consent.

 Claims Based on State Statutes Viewed Through The Lens of Tort Law

The Maryland and California laws at issue in this case exist only as a result of an exception to the federal law which precluded many such statutes, the CAN-SPAM Act (15 U.S.C. § 7701(a(11) et seq.). The federal law allowed certain state laws to continue in operation so long as they were aimed at prohibiting “falsity or deception” in such spam e-mails. Both the Maryland and California laws fall into that category, but since they are primarily concerned with falsity and deception, the Fourth Circuit indicated they fall “into the vein of tort.”

It is a general maxim of tort law that “no wrong is done to one who consents.” In other words, one who consents to conduct of another cannot recover in an action of tort for the conduct or for harm resulting from it. Maryland and California courts have recognized that “[t]hose who, with full knowledge, assent to the invasion of their interests may not complain.”

The Fourth Circuit held that in this case, there was “overwhelming” evidence that Beyond Systems consented to the harm it claims it suffered. It created fake e-mail addresses solely to gather spam, embedded those e-mail addresses in web sites in a way in which they could only be discovered by “spam crawler” programs, and even increased storage capacity to hold more spam e-mails.

But the distinction here is admittedly a thin one. In a footnote, the court made clear it is not barring all claims from a plaintiff ISP whose legitimate business is impacted by deceptive spam and gathers e-mails to have evidence for a suit. The case here turned on the nature of Beyond Systems as a company (its substantial revenue stream from claims related to spam e-mail), and the court said that this plaintiff “gratuitously created circumstances which would support a legal claim and acted with the chief aim of collecting a damage award.”

The Judgment of the District of Maryland Is Affirmed

The Fourth Circuit agreed with the District Court that Beyond Systems had consented to receive the spam e-mails in question in this case, and thus it was barred from any potential recovery.

By Lauren Emery

Plaintiff Challenges District Court’s Finding of No Cause of Action in NATO’s Intentional Sinking of a Fishing Vessel and Unintentional Killing of its Owner

In Wu Tien Li-Shou v. United States, a published civil opinion released on January 23rd, the Fourth Circuit considered whether the intentional sinking of a fishing boat and the accidental killing of its owner presents a justiciable claim.  Wu Tien Li-Shou (Wu), a citizen of Taiwan, seeks damages from the United States for the killing of her husband and the destruction of his ship.

Taiwanese Fishing Boat, Taken Hostage by Somali Pirates, Attacked by NATO

Since the summer of 2009, the North Atlantic Treaty Organization (NATO) has conducted Operation Ocean Shield in the Gulf of Aden and the Indian Ocean in response to the threat posed by Somali-based piracy on global shipping.  On May 10, 2011, as part of Ocean Shield, the USS Groves engaged the Jin Chun Tsai (JCT), a Taiwanese fishing ship.  More than a year earlier, the ship had been hijacked by Somali pirates who used the skiffs stored on board to launch attacks.  More than two dozen pirates held three crew members hostage including the master and owner of the ship, Wu Lai-Yu (Master Wu).  After almost an hour of firing on the JCT, the pirates indicated their surrender and a special team from the USS Groves boarded the ship.  The team found three pirates dead along with Master Wu in his sleeping quarters “with the crown of his head shot off.”  The next day that USS Groves intentionally sunk the JCT with Master Wu’s body on board.

Military Engagement with Taiwanese Ship Does Not Provide a Justiciable Claim

The Fourth Circuit affirmed the district court’s finding that NATO’s actions presented a non-justiciable political question.  Furthermore it held, that even if there was subject matter jurisdiction over the case, Wu’s claims “would be ‘futile’ in light of the discretionary function exception to any waiver of the government’s sovereign immunity from suit.”

Claims Against NATO Actions Barred by Political Question Doctrine and Sovereign Immunity Exception

The Fourth Circuit found that Wu’s suit presented a political question because it would require the court to intervene in the middle of a “sensitive multinational counter-piracy operation” and to “second-guess the conduct of a military engagement.”  It claimed, “Wu would have us sit astride the top of the command pyramid and decree the proper counter-piracy strategies and tactics to the NATO and American commanders below.”  The court declared that such an action would violate the doctrine of separation of powers by demanding the judicial branch intervene in a dispute which is best suited for resolution by a coordinate branch of government.  Furthermore, it stated that matters of national security and defense are the most clearly marked areas for judicial deference.

On appeal, Wu claimed that both the Suits in Admiralty Act (SIAA) and the Public Vessels Act (PVA) waive sovereign immunity for in personam admiralty suits.   While neither statute contains an explicit exception to the scope of its waiver, the court declared that common law precedent recognizes that, “the SIAA must be read to include a discretionary function exception to its waiver of sovereign immunity” which is grounded in separation of powers concerns.  The Fourth Circuit explained that, because the separation of powers is a constitutional doctrine, courts must recognize it even in the absence of an explicit statutory command.  It claimed that this logic can also be extended to imply a discretionary function exception in the PVA.  The court further stated that “conduct of a military engagement is the very essence of a discretionary function” and therefore falls squarely within the exception to the SIAA’s and PVA’s sovereign immunity waiver.  Even if the NATO and American commanders abused their discretion in their engagement, the fact that the function is discretionary “ab initio exempts those choices from judicial review.”

By Patrick Southern

Today, in Marks v. Dann, the Fourth Circuit affirmed the dismissal of the plaintiff’s claims against the defendant, who was employed as director of a Maryland state agency, the Maryland Venture Fund (“MVF”).

The United States District Court for the District of Maryland previously held that the plaintiff’s claims were barred under the Maryland Tort Claims Act (“MTCA”), and the Fourth Circuit affirmed the plaintiff had failed to meet either possible exception to that law.

Dispute Arises from Conflict With Former Business Partners

The underlying dispute in this case revolves around a company called Maxtena, which manufactures custom antennas. Plaintiff Marks was a co-founder of the company, as well as a former officer and employee of it. He engaged in litigation with Maxtena’s board of directors regarding his departure from the company. While that litigation was pending, Maxtena’s board sold interest in the company to the MVF, which was directed by defendant Dann.

Marks alleged his former colleagues entered into a sweetheart deal with MVF to dilute his stake in the company at an artificially low valuation. Marks then named Maxtena’s board members and Dann as defendants in his lawsuit, alleging Dann colluded with Maxtena’s board and aided and abetted the board in breaching its fiduciary duties to the company by accepting a low valuation for the stake in the company.

Plaintiff Failed to Plausibly Allege Defendant’s Actions Were Malicious or Outside the Scope of Employment

The District Court dismissed Marks’s claims against Dann, holding that he was entitled to immunity from personal liability under the MTCA.  That law couples a waiver of the state’s sovereign immunity from civil suits in state court with protection for state officials who act: (1) without malice and (2) within the scope of their official duties.

The District Court found that Marks’s complaint failed to plausibly allege that Dann’s actions either resulted from malice or were outside the scope of his official duties. It held that Marks failed to show Dann’s negotiations for a low price on MVF’s investment in Maxtena resulted from an improper motive instead of in order to advance MVF’s legitimate commercial interests. It further said Marks’ argument that Dann’s actions were beyond his role at MVF was completely without factual support; indeed, the fact Dann sought to secure stake in Maxtena at below-market value directly contradicts that contention.

Thus, the complaint was dismissed under Federal Rule of Civil Procedure 12(b)(6). Marks then moved for certification of the dismissal as a final and appealable order under Rule 54(b). The motion was granted, and Marks appealed.

Plaintiff Failed to Meet High Bar For Malice and Showed No Activity Outside the Scope of Employment

On appeal, the Fourth Circuit affirmed the judgment of the District of Maryland, holding that Marks’s complaint failed to plausibly allege that Dann’s actions were malicious or outside the scope of his public duties as managing director of the MVF.

The ordinary effect of the MTCA and related waiver of immunity for tort actions is to substitute the liability of the state for the liability of the state employee. Under the MTCA, state officials enjoy immunity even for intentional torts. Marks argued his remedy here should still be against Dann because, in his view, Dann designed the transaction to specifically cause Marks harm, which he said was malicious conduct and outside the scope of Dann’s employment. Dann responded that there was nothing improper about his desire to get the best economic outcome for MVF, and that there was no support in the complaint for Marks’s theory that he colluded with the Maxtena board to harm Marks.

The Fourth Circuit first addressed Marks’ argument related to the “malice” exception to the MTCA. A state official’s conduct is “malicious” if it is “characterized by evil or wrongful motive, intent to injure, knowing and deliberate wrongdoing, ill-will or fraud.” Intent and motive are critical. This is a high bar to meet, requiring more than just reckless or wanton conduct. Instead, it requires “evil motive” to “deliberately and willfully injure” a plaintiff.

The court noted this is difficult to prove in a commercial context, where behavior that may be intended to harm is often equally consistent with permissible financial self-interest. But there must be more to support the inference of malice than the allegation a plaintiff suffered economic injury as a result of a state official’s actions which advance the economic interests of his/her state employer. Marks offered only the allegation he suffered economic injury as a result of Dann’s activities, and there was nothing to infer the conduct was driven by anything but ordinary economic concerns. The complaint included no indication Dann sought terms unrelated to the economics of the transaction, or that the terms were out of the ordinary for such transactions, or that his stance in negotiations was inconsistent with MVF’s commercial interests.

Finally, the court turned to Marks’ argument that Dann’s conduct was outside the scope of his employment as director of the MVF. Under the MTCA, conduct is outside the scope of public duties if it is undertaken for reasons of personal ambition or unauthorized by the state employer.

The court noted the complaint offered no information that allows an inference Dann was acting in his own self-interest instead of the interests of MVF. Instead, the complaint actually showed Dann secured an extremely advantageous deal for the MVF. The most that cold be inferred from the complaint was that Dann was overzealous in attempts to get a good deal for MVF, not that he advanced an agenda to harm Marks or derive some personal benefit.

The Judgment Dismissing Plaintiff’s Claims Against Dann is Affirmed

The Fourth Circuit did not rule on whether any tortious conduct was committed. Instead, it merely affirmed the District Court’s ruling that Marks failed to meet either of the exceptions to Dann’s personal immunity under the MTCA, and noted that if Marks has any remedy for the MVF’s alleged misconduct, it is against the state, not against Dann in his personal capacity.

By Dan Menken

Last Thursday, January 8th, in Weidman v. Exxon Mobil Corp., the Fourth Circuit affirmed the district court’s denial of Plaintiff’s motion to remand and also affirmed the dismissal of all but one of his tort claims. Because the dismissal of one of Plaintiff’s claims was reversed, the Circuit Court remanded the case for further proceedings.

Plaintiff Stated Four Claims Based on Employer’s Conduct

In March 2013, Weidman filed suit against his former employer, ExxonMobil, and ten ExxonMobil employees. Plaintiff alleged that the Medical Department of ExxonMobil committed violations of the law by operating illegal pharmacies and illegally stockpiling large quantities of medication. He further alleged that after he reported the violations to ExxonMobil, an employee of the Medical Department initiated a campaign of retaliation against him. After reporting his colleague’s conduct, Plaintiff stated that ExxonMobil conducted a “sham” investigation concluding that Weidman had not been harassed and that the pharmacies were legal. During a second investigation, Plaintiff reported that one of the investigators admitted to him that ExxonMobil had been operating an illegal pharmacies for years.

Plaintiff then alleged that he was required to participate in a performance improvement plan, which lasted for over a year. Plaintiff contended that the purpose of the meetings was not to improve his performance, but to overburden him with the creation of new tasks meant to cause his failure to perform. He stated that during one of these performance meetings on October 24, 2012, he suffered a heart attack which was a direct result of the stress maliciously inflicted upon him. In mid-December 2012, ExxonMobil extended Plaintiff’s performance plan. ExxonMobil subsequently terminated Weidman’s employment at his next meeting in January 2013 for failing to cooperate with the plan.

Weidman then filed suit asserting four causes of action: (1) fraud based on Appellees alleged retaliation against him despite contrary assurance in the employee handbook and the CEO’s yearly videos; (2) intentional infliction of emotional distress; (3) personal injury based on damage to his heart; and (4) wrongful discharge. Defendant removed the case to the Eastern District of Virginia and moved to dismiss the case. Plaintiff moved to remand the case to state court. The district court dismissed all of Plaintiff’s claims and denied his motion to remand.

First Three Claims Fail to State a Claim

The district court denied Plaintiff’s motion to remand based on the “fraudulent joinder” doctrine, despite the fact that Weidman had named three non-diverse defendants in his complaint. The fraudulent joinder doctrine provides that diversity jurisdiction is not automatically defeated by naming non-diverse defendants. The district court may retain jurisdiction if the non-moving party shows that the plaintiff committed outright fraud in pleading jurisdictional facts, or that “there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court.” Mayes v. Rapoport, 198 F.3d 457, 464 (4th Cir. 1999). The Fourth Circuit agreed that Weidman’s claims against the non-diverse defendants had no possibility of succeeding, and thus affirmed the district court’s denial of Weidman’s motion to remand.

The Circuit Court then performed a de novo review of the district court’s dismissal for failure to state a claim. According to Bell Atl. Corp. v. Twombly, a complaint “must contain sufficient facts to state a claim that is plausible on its face.” The Fourth Circuit held that Weidman failed to sufficiently plead his fraud claim by making vague referrals to statements from ExxonMobil’s CEO and members of the Human Resources Department. Moreover, the facts stated in his claim for intentional infliction of emotional distress did not reach the level of “outrageous and intolerable” conduct, and was therefore properly dismissed. The claim for personal injury was also properly dismissed because it only stated a “naked assertion devoid of further factual enhancement,” and thus failed to meet the requirement laid out in Ashcroft v. Iqbal.

Plaintiff Sufficiently Stated Claim For Wrongful Discharge Based on Public Policy

Finally, in regards to Plaintiff’s wrongful discharge claim, Virginia law recognizes three situations in which a litigant may show her discharge violated public policy: (1) where an employer fired an employee for exercising a statutorily created right; (2) when the public policy is “explicitly expressed in the statute and the employee was clearly a member of that class of persons directly entitled to the protection enunciated by the public policy”; and (3) “where the discharge was based on the employee’s refusal to engage in a criminal act.”

Here, the Fourth Circuit reversed the district court’s ruling, stating that Weidman sufficiently stated a claim that he was fired for refusing to engage in a criminal act. Sections 54.1-3310 and 54.1-3435 of the Virginia Code make it unlawful for anyone to practice pharmacy or to engage in wholesale distribution of prescription drugs without a license. Although these sections are not part of Virginia’s criminal code, a violation of these sections lead to criminal penalties. Defendants argue that this claim cannot survive because Weidman failed to cite the statute in his complaint. The Fourth Circuit stated, however, that any deficiency in this regard is merely technical. Therefore, Plaintiff pled sufficient factual detail that he was fired for refusing to participate in “illegal pharmacy distribution activities.”

Case Remanded To Address Wrongful Discharge Claim

Thus, the Fourth Circuit reversed the dismissal of Weidman’s wrongful discharge claim against ExxonMobil and remanded the case for further proceedings.

By: Benjamin C. Zipursky*

Zipursky_LawReview_December2009

∗ Professor & James H. Quinn ‘49 Chair in Legal Ethics, Fordham Law School; Visiting Professor, Harvard Law School (Spring 2009). John Goldberg has provided helpful comments on a previous draft and has been a collaborator on many of the central ideas here; I take full responsibility for whatever has gone wrong in this particular Article, however. I am grateful to Michael Green for his willingness over the past several years to engage me in person, over the telephone, and through correspondence on many of the central issues discussed in this Article. Because most of the communication on foreseeability was between Michael Green and myself, and because this Article was written to reflect some of that communication, I chose to write this individually.