Wake Forest Law Review
29Feb

Fourth Circuit Analyzes Innocence Protection Act’s “Timeliness” Requirement

Categories: 4th Cir. Blog Criminal Cases
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By Taylor Anderson

On February 29, 2016, the Fourth Circuit issued its published opinion regarding the criminal case United States v. Cowley. Shane Cowley (“Appellant”) appealed the district court’s denial of his motion seeking post-conviction DNA testing pursuant to the Innocence Protection Act (“IPA”). The Fourth Circuit affirmed the denial of Appellant’s motion, holding that Appellant’s motion was untimely.

Appellant Convicted of Several Crimes

On July 30, 1998, Jeff Stone (“Stone”) was shot and killed. Stone’s son witnessed the murder and gave descriptions that matched the general physical characteristics of Appellant and Ron Moore. Cowley was charged in a four-count indictment. The first three counts arose from the attempted robbery of Stone and the fourth was based on subsequent threats that Appellant made to a witness. To date, no one has been charged with Stone’s murder. A jury found Appellant guilty of all four counts.

Appellant subsequently filed a motion to vacate, but the district court eventually denied his motion. The Fourth Circuit later denied Appellant a certificate of Appealability (“COA”) and dismissed the appeal. In 2004, while Appellant’s case was still before the district court, the IPA became law. As relevant here, the IPA allows federal prisoners to move for court-ordered DNA testing under certain specified conditions. Although Appellant’s initial proceedings were complete in 2006, he did not file his IPA motion for post-conviction DNA testing until June 6, 2014. Appellant specified several items that he wanted to undergo DNA testing.

The district court issued an extensive opinion as to Appellant’s IPA motion and described the ten stringent requirements for relief under the IPA. The district court denied Appellant’s motion because it did not satisfy the last requirement—that the motion be made in a “timely fashion.” Appellant appealed this denial.

Whether Appellant Needed a COA Before the Fourth Circuit Could Evaluate IPA Motion

As an initial matter, the Fourth Circuit addressed whether the appeal was properly before the court. The government (“Appellee”) argued that the appeal was not properly before the Fourth Circuit because the district court originally denied a COA and the Fourth Circuit did not issue one. Therefore, the Fourth Circuit had to first determine whether Appellant needed a COA to appeal from the district court’s ruling on his IPA motion.

The Fourth Circuit explicitly held that an appeal from the denial of an IPA motion is not subject to the COA requirement. The Fourth Circuit said that its ruling is consistent with the plain language of the IPA. Specifically, the IPA says that it does not affect the circumstances under which a person may obtain DNA testing or post-conviction relief under any other law. Therefore, the Fourth Circuit determined that Appellant’s appeal was properly before the court.

Was Appellant’s IPA Motion “Timely”?

The IPA contains ten specific requirements that the movant must satisfy before a district court can order DNA testing. One of them is a requirement that the motion be “made in a timely fashion, subject to” certain rebuttable presumptions. The IPA confers a rebuttable presumption of timeliness on motions made within 60 months of enactment of the Justice For All Act (“Act”) of 2004 or within 36 months of conviction, whichever comes later. Appellant did not file his IPA motion until June 6, 2014, almost five years outside the window set forth in the Act; thus, the Fourth Circuit determined that Appellant’s motion was subject to a rebuttable presumption against timeliness.

The IPA presumption may be rebutted upon the court’s finding that any of four exceptions apply. Appellant contended that two of the four applied in this scenario.

The first exception that Appellant argued was that the presumption had been overcome for “good cause shown.” Appellant contended that he had shown “good cause” because he was incarcerated for the entire eight years between the passage of the IPA and the filing of his motion, and therefore, he could not obtain adequate legal counsel to help him with his motion. The Fourth Circuit abruptly denied this argument, holding that the mere fact that a prisoner is incarcerated and unable to search freely for an attorney cannot serve as the basis for the “good cause” finding. The Fourth Circuit stated that because nearly all persons bringing IPA motions will be incarcerated, allowing the mere fact of incarceration to satisfy the “good cause” exception would render the presumption meaningless. Thus, the Fourth Circuit did not disturb the district court’s ruling that Appellant has not shown “good cause” for his delay.

The second exception that Appellant argued was that the denial of his motion would result in a “manifest injustice.” The Fourth Circuit first recognized that this exception requires consideration of all relevant facts and circumstances surrounding the motion. The Fourth Circuit stated that Appellant, even prior to his trial, was aware of the underlying grounds for his claim that DNA testing might not exonerate him. Additionally, even though Appellant may have uncovered “new” evidence, Appellant was aware of this new evidence prior to his trial. Also, prior to his trial, Appellant was aware that the evidence he sought to have tested existed. The Fourth Circuit said, “[d]espite this, [Appellant] waited nearly eight years after the conclusion of his [] proceedings to file an IPA motion.” For this reason, the district court’s denial of Appellant’s IPA motion did not result in a “manifest injustice” to Appellant.

Judgment Affirmed

The Fourth Circuit held that Appellant did not successfully rebut the presumption against “timeliness” requirement of the IPA. For this reason, the Fourth Circuit affirmed the district court’s denial of Appellant’s motion seeking post-conviction DNA testing.

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30Sep

Fourth Circuit Vacates Denial of Motion to Compel Arbitration in Payday Loan Case

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By Eric Jones

On May 29, 2015, the Fourth Circuit issued a published opinion in the civil case Dillon v. BMO Harris Bank.  The Circuit Court held that the district court erred when it denied appellant’s renewed motion to compel arbitration pursuant to loan agreements that the plaintiff had signed.  Thus, the Fourth Circuit vacated and remanded to the district court for further proceedings.

The Automated Clearing House Network and Payday Lenders

In 2013, James Dillon obtained loans from several online lenders that carried interest rates which substantially exceed the maximum allowable rates under North Carolina State law.  The defendants, BMO Harris Bank, N.A., Generations Federal Credit Union, and Bay Cities Bank (the “Banks”) operated as Originating Depository Financial Institutions (“ODFIs”) in connection with the loans.  Dillon alleges that in doing so they provided the payday lenders with access to the Automated Clearing House (the “ACH”) network, a system to enable secure electronic payments.  When payments were due under Dillon’s loans, the lenders initiated payment transactions through the ACH network.  The Banks then entered the transactions into the ACH network.  Soon after, a central clearing facility transferred funds directly from Dillon’s account to those of the lenders.  In this way, Dillon alleges that the payday lenders were able to establish loans in states where those loans are illegal and unenforceable.

The Motions to Compel Arbitration

Dillon filed a putative class action against the Banks alleging that by operating as OFDIs for payday lenders, they were complicit and necessary parties to the lenders’ unlawful practices.  The Banks filed initial motions to compel arbitration, pointing to clauses in the loan agreements stating that any claims arising from those loans would be submitted to arbitration.  To these motions, the Banks attached the loan agreements themselves bearing Dillon’s name.  In opposition, Dillon argued that the Banks had failed to offer proof that the attached loan agreements had been authenticated.  The Banks argued that because Dillon used the same loan agreements in his complaint, the pleadings themselves established the authenticity of the agreements and the arbitration clause.  Nevertheless, the district court denied the motion to compel arbitration, finding that the Banks had failed to provide authenticating evidence.

To cure the deficiency, the Banks obtained declarations from the lenders purporting to authenticate the loan agreements and filed renewed motions to compel arbitration.  Dillon opposed, arguing that the district court had already ruled on the motion to compel arbitration, and thus the law of the case doctrine should bar reconsideration.  The district court agreed, and the Banks filed a timely interlocutory appeal.

The Federal Arbitration Act and Interlocutory Appeals

The Fourth Circuit began by explaining the history of the Federal Arbitration Act (FAA) and the requirement that courts rigorously enforce agreements to arbitrate.  Section 16(a)(1)(A) of the FAA provides for immediate appeal from an order refusing a stay in any litigation that is referable to arbitration, and § 16(a)(1)(B) provides for immediate appeal for any order denying a petition to compel arbitration.  The Banks argued that the district court’s denial of the renewed motion to compel arbitration and stay the proceedings thus allows immediate appeal.  Dillon, in opposition, argued that the district court’s order denied reconsideration of the motion to compel arbitration, and thus fell outside of the FAA.  The Fourth Circuit, looking to the title of the motions and the clear intention to seek enforcement of an arbitration clause, held that valid jurisdiction existed over the appeal.

The District Court Erred by Interpreting the Renewed Motions as Motions for Reconsideration

Although the district court did not explain why it considered the renewed motions to be motions for reconsideration, the Circuit Court found two potential reasons.  The Fourth Circuit held that neither were convincing.  First, the district court could have believed that the Banks were allowed only one opportunity to invoke the FAA’s enforcement mechanisms.  Alternatively, the district court could have relied on the law of the case doctrine, believing that both motions invoked the same issues.  The Circuit Court addressed each of these in turn.

First, the Fourth Circuit could find no authority which limited a party’s access to FAA’s enforcement mechanisms unless the party is found to be in default.  A party is found to be in default, and thus barred from compelling arbitration or staying the proceedings, only if they have utilized the litigation machinery so substantially that to subsequently permit arbitration would prejudice the party opposing the stay.  Because the district court did not find that the Banks were in default, the order could not have rested upon these grounds.

Second, the Fourth Circuit held that the initial motions to compel arbitration and the renewed motions raised different issues, and thus were not barred by the rule of the case doctrine.  In their initial motions, the Banks argued that the loan agreements were substantially authenticated.  When the district court disagreed, the Banks did not challenge that ruling in their renewed motions.  Rather, they attempted to cure the evidentiary deficiencies that the district court relied on in denying the initial motion.  Thus, the law of the case doctrine did not bar the renewed motions.

The Fourth Circuit Vacated and Remanded for Further Proceedings

Because the district court erred in its interpretation of the Banks’ renewed motions to compel arbitration, the Fourth Circuit vacated the court’s order and remanded for further proceedings.

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10Apr

Court Affirms Denial of Rule 59 Motion

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By Evelyn Norton

Today, in an unpublished per curiam opinion, in the civil case of Wade v. U.S., the Fourth Circuit affirmed the decision of the District Court for the Southern District of West Virginia to deny a motion to alter or amend its judgment.

The District Court Entered Judgment in Favor of Defendant and Denied Plaintiff’s Motion

The district court granted judgment to Defendant following a bench trial.  Subsequently, Plaintiff Tracy E. Wade, Administratrix of the Estate of Richard Brian Wade, filed a motion to alter or amend the judgment pursuant to Federal Rules of Civil Procedure Rule 59.  However, the district court denied Plaintiff’s motion.

Thus, Plaintiff appealed the judgment in favor of Defendant and denial of the Rule 59 motion.  Defendant initially argued that the Fourth Circuit lacked jurisdiction because Plaintiff did not timely file the appeal.  However, the Fourth Circuit ordered the parties to submit supplemental briefs on the issue of whether the district court properly entered judgment on a separate document.

The Fourth Circuit Did Not Lack Jurisdiction

The Federal Rules of Civil Procedure Rule 58 require the essentials of a judgement be set forth in a separate written document from the court’s opinion.  Here, the Fourth Circuit concluded that the district court failed to enter judgment on a separate document, thus giving the Fourth Circuit jurisdiction.

 The District Court Did Not Err or Abuse its Discretion

The Fourth Circuit reviewed the district court’s factual findings for clear error and its conclusions of law de novo.  The Court reviewed the denial of the Rule 59 motion for abuse of discretion.

After considering the record and the parties’ briefs, the Court determined that the facts and legal contentions were already adequately presented.  Thus, the Court dispensed with oral argument because it would not aid in the decision process.  The Court concluded the district court neither erred nor abused its discretion in entering judgement in favor of Defendant and denying Plaintiff’s Rule 59 motion.

District Court Affirmed

The Fourth Circuit affirmed the denial of Plaintiff’s motion to alter or amend the district court’s judgment.

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16Mar

Misleading Statements Sufficient for Trial in 10b-5 Suit

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By Dan Menken

Today in the published opinion of Zak v. Chelsea Therapeutics International, the Fourth Circuit vacated the district court’s dismissal of the plaintiffs’ claim that the defendants, Chelsea Therapeutics International, LTD (“Chelsea”) and several corporate officers, violated § 10(b) of the Securities Exchange Act of 1934 (“the Exchange Act”) and remanded the case for further proceedings.

Plaintiffs Claim Chelsea Therapeutics and its Officers Violated § 10(b) of the Exchange Act

The plaintiffs in this class-action suit claim that Chelsea and several of its corporate officers violated § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), by making materially misleading statements and omissions about the development and likelihood of regulatory approval for a new drug, Northera. The district court dismissed the complaint, holding that the plaintiff’s allegations were insufficient as a matter of law to establish that the defendants acted with the requisite state of mind.

On appeal, plaintiffs contend that the district court committed two errors: (1) the district court’s consideration of exhibits submitted with defendants’ motion to dismiss and (2) the court’s determination that the plaintiffs’ allegations of scienter were legally insufficient.

Misleading Statements Regarding Northera’s Chances for FDA Approval

Northera was designed to treat symptomatic neurogenic orthostatic hypotension, a condition which may cause a dramatic drop in blood pressure when a person stands. During clinical testing, Northera’s efficacy was brought into question—only one study achieved a positive outcome. Following a December 2010 meeting with the FDA where Chelsea was warned that a single positive study typically was not sufficient to support approval of a new drug, Chelsea announced to investors that the FDA had “agreed” that Chelsea’s application for Northera could be submitted based on data from the one successful trial.

During a conference call with Chelsea investors, Chelsea President and Chief Executive Officer along with Chelsea’s Vice President and Chief Medical Officer indicated that the meeting with the FDA represented a “successful outcome” and that Chelsea was “very pleased” with the FDA’s responses to Chelsea’s questions about its application and supporting data. Following these statements, Chelsea’s stock price rose about 28%.

After submitting the drug for approval, Chelsea announced to the public on February 13, 2012 that the FDA’s briefing document indicated questions regarding the drugs efficacy in clinical trials, but it did not disclose that the FDA recommended the drug not be approved. Following the press release, Chelsea’s stock price dropped 37.5%. When the briefing document became public eight days later, Chelsea’s stock price dropped an additional 21%. The FDA made its final decision not to approve Northera on March 28, 2012, and one week later the plaintiffs filed suit.

Defendant’s Motion to Dismiss

Defendants, in their motion to dismiss, attached three documents filed with the Securities and Exchange Commission (“SEC”). One document, a “Definitive Proxy Statement,” listed the amount of Chelsea stock shares held by the company’s officers at the end of February 2012, near the end of the class period. However, it did not reflect whether any of these stock holdings had been acquired or sold during the class period. Defendants represented that none of the Chelsea officers had sold any shares of Chelsea stock during the class period and this fact undermined any inference of scienter. The plaintiffs objected to the court’s consideration of the SEC documents because they did not show whether any individuals purchased or sold stock during the period in question. At the conclusion of the hearing, the district court took judicial notice of the SEC documents, and granted the defendants’ motion to dismiss.

Fourth Circuit Review

The Fourth Circuit reviewed the district court’s dismissal de novo. The court noted that Rule 10b-5 prohibited the making of “any untrue statement of a material fact” or the omitting of “a material fact necessary in order to make the statements made . . . not misleading.” Rule 10b-5(b). Plaintiffs asserting a claim under Rule 10b-5 must establish: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Yates v. Mun. Mortg. & Equity, LLC, 774 F.3d 874, 884 (4th Cir. 2014). To demonstrate scienter, a plaintiff must show that the defendant acted with “a mental state embracing intent to deceive, manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007). Allegations of reckless conduct can satisfy the level of scienter necessary to survive a motion to dismiss. However, the court noted, claims of securities fraud are subject to a heightened pleading standard under the Private Securities Litigation Reform Act. 15 U.S.C. § 78u-4(b)(2).

Regarding the plaintiffs’ assertion regarding the district court’s first error, the Fourth Circuit addressed the fact that, generally, when considering a Rule 12(b)(6) dismissal, courts are limited to considering the sufficiency of the allegations set forth in the complaint and documents attached to the complaint. Because the SEC documents were not explicitly referenced in the plaintiffs’ complaint, the Fourth Circuit believed that the district court should not have considered those documents in reviewing the sufficiency of the plaintiffs’ allegations. Even if the judge had the right to take judicial notice of the documents, he did not have the right to construe it in favor the defendants. The court concluded that the district court’s consideration of the challenged SEC documents was not harmless.

The plaintiffs further asserted that the district court erred in concluding that their allegations of scienter were insufficient as a matter of law. The plaintiffs pointed out that Chelsea was aware of the FDA’s adverse recommendation regarding the approval of Northera, but withheld that information, indicating a strong inference of wrongful intent. The Fourth Circuit pronounced that the defendants’ failure to reveal such information must be viewed in the context of the statements that they affirmatively elected to make. In light of Chelsea’s failure to reveal to investors the FDA’s expectation that Northera needed at least two successful clinical trials to be considered for approval, the Fourth Circuit believed that their affirmative assertions regarding their optimism following the FDA meeting could be construed as misleading. Therefore, the court concluded that the plaintiffs’ allegations were sufficient to support the required inference of scienter.

Vacated and Remanded

Thus, the Fourth Circuit held that the district court erred in taking judicial notice of the challenged documents filed with the SEC, because the documents did not relate to the complaint. This error was not harmless. The court also held that defendants’ failure to disclose critical information about the weaknesses of the new drug application were sufficient to support a strong inference of scienter. The Fourth Circuit thus vacated the district court’s judgment and remanded the case for further proceedings.

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