Wake Forest Law Review
27Mar

Fourth Circuit Reverses Dismissal of Prisoners’ Complaint for Mootness

Categories: 4th Cir. Blog Archive Civil Cases
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By John Van Swearingen

On March 24, 2017, the Fourth Circuit issued a published opinion in the prisoner civil rights case Porter v. Clarke. Plaintiffs, originally four Virginia death row inmates, filed a complaint in the United States District Court for the Eastern District of Virginia alleging that the conditions of their confinement amounted to cruel and unusual punishment violative of the Eighth Amendment. One inmate was executed during the course of this action, leaving three inmates as Plaintiffs. Defendants, the Director of the Virginia Department of Correction and the Warden of the Sussex I State Prison, thereafter changed the policies at issue in the complaint. The district court subsequently dismissed Plaintiff’s action for mootness. Plaintiffs timely appealed, claiming their action is not moot.

Facts and Procedural History

In November 2014, when Plaintiffs filed this lawsuit, the Virginia Department of Corrections was operating under a pair of 2010 policies that governed the living conditions of death row inmates. Plaintiffs spent twenty-three hours a day in seventy-one-square-foot cells, alone, with a steel bed, a desk, and a combination commode-and-sink. Death row inmates could not have “contact” visits with anyone; all visitation was separated by plexiglass. The warden had unlimited discretion in granting contact visits with immediate family under “extreme circumstances.”

Inmates were allotted one hour of “outdoor recreation” five days a week. This consisted of an empty outdoor cell similar in size to the inmates’ living cells. Inmates had zero access to any group behavioral, educational, vocational, or religious services.

In August 2015, Defendants established new interim guidelines permitting death row inmates one-and-a-half-hour weekly contact visits with immediate family, one-and-a-half-hour weekend and holiday contact visits with other approved visitors, one-and-a-half-hour outdoor recreation sessions five days a week, daily one-hour indoor recreation sessions with up to three other inmates, and a daily fifteen-minute shower. Defendants built a new outdoor recreation area for group activities and an indoor recreation dayroom for group behavioral, educational, vocational, and religious services.

In December 2015, Plaintiffs and Defendants filed cross-motions for summary judgment. Defendants never explicitly moved for dismissal on the grounds of mootness. At the motion hearing, Defendants also noted that they would not take any action binding them to the new guidelines, stating instead that the fluid nature of corrections require that they be able to increase security back to “lockdown status” if need be.

In May 2016, the district court requested an update from Defendant’s on the status of the interim guidelines. Defendants filed an affidavit stating they had updated to new policies providing one-and-a-half-hour outdoor recreation five days a week, one-hour indoor recreation with up to four inmates daily, fifteen minute daily showers, weekly one-and-a-half-hour contact visitation sessions with immediate family and one approved other visitor, non-contact weekend and holiday visitation, and extended visitation sessions granted on a case-by-case basis. Per Defendants’ affidavit, the new policies will be reviewed annually and updated in no later than three years.

In July 2016, the district court granted summary judgment for Defendants’ despite the Defendants’ refusal to neither admit that the pre-2015 inmate conditions violated the Eighth Amendment nor offer any guarantee that the pre-2015 policies would not be restored. The lower court dismissed the Plaintiff’s cross-motion as moot, and Plaintiffs timely appealed.

Mootness Requires More Than a Voluntary Cessation of the Challenged Behavior

Under Article III § 2 of the United States Constitution, federal courts are deprived of subject matter jurisdiction when litigation ceases to involve a “case or controversy.” In other words, as noted by the United States Supreme Court in Powell v. McCormack, “a case is moot when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome.” 395 U.S. 486, 496 (1969).

However, in City of Mesquite v. Aladdin’s Castle, Inc., the Supreme Court also noted that “a defendant’s voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice.” 455 U.S. 283, 289 (1982). As noted by the First Circuit in ACLU of Mass. v. U.S. Conference of Catholic Bishops, a savvy litigant could otherwise render itself immune to litigation by voluntary ceasing a challenged behavior upon the filing of a complaint, then resume that behavior following dismissal for mootness. 705 F.3d 44, 54–55 (1st Cir. 2013).

Instead, a Defendant seeking dismissal for mootness must, pursuant to the Supreme Court’s holding in Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., meet the heavy burden of showing that “it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.” 528 U.S. 167, 190 (2000). This burden is not met if, as in the Fourth Circuit’s decision in Pashby v. Delia, a defendant retains the authority to reinstate a challenged policy. 709 F.3d 307, 316–17 (4th Cir. 2013).

Nothing here bars Defendants from returning to the original policies addressed in Plaintiff’s complaint. Indeed, they have stated that the policies may be reinstated in some form if a situation demanded “lockdown” of the inmates. Further, Defendants expressly refused to commit to the revised policies or admit that the original policies violated Plaintiff’s Eighth Amendment rights. The Fourth Circuit expressly declined to support or denounce the original policies, noting that there may be valid “penological rationale” for reverting to the original policies as described if a situation rendered those policies appropriate. However, the Fourth Circuit noted that this very possibility rendered the dismissal of Plaintiff’s complaint for mootness improper.

Disposition

The Fourth Circuit reversed the district court’s judgment and remanded for further proceedings. Since Defendants expressly retained the discretion to reinstate the policies challenged by Plaintiffs, the voluntary dismissal of those policies did not render the action moot.

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6Feb

Fourth Circuit Affirms Dismissal of Data Breach Lawsuit for Lack of Subject-Matter Jurisdiction

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By John Van Swearingen

On February 6, 2017, the Fourth Circuit issued a published opinion in the civil case Beck v. McDonald. The plaintiffs appealed the dismissal of their case for lack of subject-matter jurisdiction. In the United States District Court for the District of South Carolina, the plaintiffs brought suit under common-law negligence, the Privacy Act of 1974, 5 U.S.C. § 552(a) (2012) (“Privacy Act”), and the Administrative Procedure Act, 5 U.S.C. §§ 701–706 (2012) (“APA”) following data breaches at the William Jennings Bryan Dorn Veterans Affairs Medical Center (“Dorn VAMC”). The district court dismissed all claims against the Dorn VAMC, holding the court lacked subject-matter jurisdiction since, due to the speculative nature of the claimed injuries, the plaintiffs lacked Article III standing to bring their negligence and Privacy Act claims. The plaintiffs also could not establish standing for injunctive relief under the APA due to their speculative claims. The Fourth Circuit affirmed the district court’s dismissal, holding that the plaintiff’s claimed injuries were speculative, and therefore, the plaintiffs did not satisfy the injury-in-fact requirement for standing.

Facts and Procedural History

On February 11, 2013, a laptop containing the personal information of around 7,400 patients was either misplaced or stolen from the Dorn VAMC. The Dorn VAMC failed to utilize the proper procedures for handling and storing unencrypted patient data. Dorn VAMC notified every patient tested with the laptop and offered each affected individual a free year of credit monitoring. The laptop was never found.

Plaintiffs filed suit on behalf of themselves and the assumed class of 7,400 affected persons. The claims included common-law negligence, declaratory relief and monetary damages under the Privacy Act, and injunctive relief under the APA.

Regarding the Privacy Act claims, the plaintiffs alleged “embarrassment, inconvenience, unfairness, mental distress, and the threat of current and future substantial harm from identity theft and other misuse of their Personal Information.” Further, the plaintiffs claimed that they were required to purchase credit monitoring services, monitor financial statements, and move their bank accounts to different institutions.

Regarding the APA claims, the plaintiffs sought to enjoin the Dorn VAMC from transferring any new patient information until the facility could demonstrate adequate security measures. The plaintiffs also sought an order requiring the Dorn VAMC to identify and destroy any improperly-maintained records.

A second set of plaintiffs brought suit against the Dorn VAMC regarding the July 2014 loss of four boxes of pathology reports. The boxes contained the information of some 2,000 individuals. These plaintiffs sued on behalf of themselves and this second presumptive class. The claims involved almost identical factual and legal issues as those of the first set of plaintiffs, and the cases were consolidated.

The district court dismissed all claims against the Dorn VAMC for failure to allege injury-in-fact necessary to satisfy Article III standing requirements. Therefore, the district court held, it lacked subject-matter jurisdiction. The plaintiffs appealed.

Article III Standing for Threatened Injuries

The injury-in-fact requirement for Article III standing was recently explored by the Supreme Court in Clapper v. Amnesty Int’l USA, No. 11–1025, (U.S. Feb. 23, 2013). In Clapper, the Court held that a “threatened injury must be certainly impending” in order to satisfy the injury-in-fact requirement for Article III standing. Further, a plaintiff could not “manufacture standing” by taking preventative measures against a non-imminent, uncertain harm.

The Negligence and Privacy Act Claims

The Fourth Circuit analyzed the plaintiffs’ claims under Clapper and found that neither the common-law negligence claims nor the Privacy Act claims met the standard of “certainly impending” injury.

Here, the plaintiffs did not plead that the loss of their personal information resulted in any actual harm due to identity theft. The plaintiffs lack evidence of any kind to support that their information was stolen for the purposes of exploitation through identity theft. Thus, plaintiffs’ claims are only speculative in nature – they do not “certainly impending” harms.

Clapper also held that a plaintiff could establish injury-in-fact by showing that a “substantial risk” of impending harm forced the plaintiff to incur costs to mitigate or avoid the harm.

Here, the plaintiffs plead that one-third of health-care data breaches result in identity theft, and the Dorn VAMC’s offer of free credit monitoring was a concession that the risk to plaintiffs was reasonably likely.

The Fourth Circuit noted that, if one-third of breaches result in identity theft, two-thirds do not, and therefore, the risk is not substantial. Further, notion that a harm is “reasonably likely” to occur does not render that risk of harm “substantial” or “imminent.”

Finally, the Fourth Circuit noted that, since the risk of identity theft was merely speculative, the plaintiffs here could not manufacture standing by incurring costs associated with identity theft protection services. Thus, since the injuries claimed under common-law negligence and the Privacy Act were only speculative – and therefore not “certainly impending – the plaintiffs lacked Article III standing.

The APA Claims

The APA confers standing to any “adversely affected” party suing thereunder, and thus, the plaintiffs do not require Article III standing to sue under the statute. However, City of Los Angeles v. Lyons, 461 U.S. 95, 101–02 (1983), which governs the standing requirements of a plaintiff seeking injunctive relief, requires a plaintiff to show that the threat of injury must be “real and immediate.” A “conjectural” or “hypothetical” threat will not merit injunctive relief. The test, therefore, echoes the language of Clapper.

Here, the plaintiffs plead that their information was taken in two separate data breaches, but they lacked a factual basis to assert any future breaches by Dorn VAMC past a mere possibility. Thus, the plaintiffs lacked standing to seek injunctive relief under the APA.

                                                                    Disposition

The Fourth Circuit affirmed the district court’s dismissal of the plaintiffs’ claims for lack of subject-matter jurisdiction. The speculative nature of the plaintiffs’ claims under common-law negligence and the Privacy Act meant the plaintiffs failed to establish the “injury-in-fact” requirement for Article III standing. Further, the speculative nature of the plaintiffs’ claims under the APA failed to meet the standing requirement for injunctive relief. Thus, the plaintiffs failed to establish standing for all claims, and dismissal for lack of subject-matter jurisdiction was proper.

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26Nov

Fourth Circuit Vacates Dismissal of Declaratory Judgment for Lack of Subject Matter Jurisdiction

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By Mike Stephens

On Monday, November 21, 2016, the Fourth Circuit issued a published opinion in Pressl v. Appalachian Power Company, a civil case. The appellants, Theresa and Richard Pressl appealed the district court’s dismissal of their suit for declaratory judgment that the appellee, Appalachian Power Company (“APCO”), violated a property easement on the Pressls’ property. After filing suit in Virginia state court, APCO removed to the District Court of the Western District of Virginia. The district court found that it had subject matter jurisdiction under both 28 U.S.C. § 1331 and 16 U.S.C. § 825p and dismissed the claim under Virginia easement law. The Fourth Circuit vacated the dismissal and remanded the case, holding that the case did not “arise under” federal law and, as such, there was also no basis for jurisdiction under 16 U.S.C. 825p.

Facts and Procedural History

The Pressls owned property in Virginia that, for the most part, sat more than 800 feet above median sea level. However, some of their property sat below the 800-foot elevation contour that was subject to a flowage easement that the Pressls’ predecessors in interest granted in 1960 to APCO. The easement stated APCO’s intention to construct a dam that may affect the Pressls’ property below the 800-foot elevation contour. The easement granted APCO the right to remove buildings and structures on the Pressls’ property that sat below 800 feet median sea level. The Pressls wanted to a build a dock below the 800-foot elevation contour and APCO advised that the Pressls had to execute an agreement as a condition for building the dock.

The Pressls filed suit in Virginia state court asking for a declaratory judgment that APCO’s demands were in violation of the flowage easement. The complaint asked the court to declare the Pressls’ right to build a dock in a way that did not violate the easement’s purported purpose of allowing APCO to build and operate a dam. APCO removed the case to federal court and claimed the District Court of Western Virginia had subject matter jurisdiction because the property was within a boundary that APCO operates under a license issued by the Federal Energy Regulatory Commission (“FERC”). The district court held that it did possess subject matter jurisdiction and granted APCO’s motion to dismiss pursuant to Virginia state law. The Pressls appealed, claiming the district court lacked subject matter jurisdiction and that the district court’s dismissal was in error.

Federal Subject Matter Jurisdiction

Jurisdiction exists under § 1331 only when a question of federal law is presented “on the face of the plaintiff’s properly pleaded complaint.” However, under the “coercive action doctrine,” even though a plaintiff’s action for declaratory judgment may not present a question of federal law, § 1331 jurisdiction exists if the complaint alleges a claim arising under federal law that the defendant could bring against the plaintiff’s claim. In addition, a federal question may exist when a right under state law turns on “some construction of federal law.” APCO alleged that § 1331 jurisdiction exists because its rights under state law depends on the construction of its federal license issued by FERC. The Fourth Circuit applied the test from Gunn v. Minton where the Supreme Court of the United States held that federal jurisdiction exited when “the federal issue must be ‘(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.'” All four requirements must be met.

Necessarily Raised

APCO argued that the issue is necessarily raised because the complaint claims that APCO does not have the authority to regulate the construction of the Pressls’ dock. To resolve this question, APCO contended that a court must examine APCO’s authority under the federal license granted to it by FERC.

The Fourth Circuit found this argument lacked merit. The Court noted that the Pressls’ complaint did not challenge APCO’s duties pursuant to their federal license or APCO’s property rights granted to it pursuant to the flowage easement. The Court found that the complaint claimed that APCO simply had not acquired the property right to prevent the Pressls from constructing a dock because these rights must be acquired through condemnation or contract. Because neither federal law nor the FERC license granted APCO the property rights to operate the dam, the claim did not necessarily raise a federal question.

APCO claimed, alternatively, that interpreting the scope of the easement raised a federal question. APCO asserted that two of the easement provisions, when analyzed under Virginia law, raised a reasonableness inquiry based on the original purpose of the easement. APCO argued that a court must interpret the FERC license to determine the reasonable limit of its rights to allow it to maintain the dam project.

The Fourth Circuit also struck down this argument as well, holding that a claim under federal law is only necessarily raised when “every legal theory supporting the claim requires the resolution of a federal issue.” As such, because APCO’s argument for interpreting the easement under Virginia law did not involve an interpretation of federal law, the claim did not “arise under” federal law. The Court noted that Virginia law, and the district court’s holding, both look to the language of the easement when interpreting an easement. Therefore, the Court held that this case did not necessarily raise a federal issue because the easement did not require an analysis into the meaning of the FERC license to determine the limits of the easement.

Remaining Elements of the Gunn Test

The Fourth Circuit held that there was not a federal issue that was “actually disputed” because the claim did not dispute the validity of the FERC license nor did it dispute APCO’s obligations to FERC. In sum, the Court found this case was a dispute regarding state property law.

Additionally, the Fourth Circuit held that any federal interest in interpreting the easement was not substantial because state courts are better positioned to enforce property rights conveyed by state law.

Lastly, the Court held that allowing federal jurisdiction over cases like this would disrupt the federal-state balance because resolving property disputes in state court would not disrupt any federal interest. The Fourth Circuit noted any decision regarding APCO’s property rights granted to it pursuant to the easement would not affect any federal interest that may exist in overseeing the operation of dams.

Ultimately, the Court held that there was no basis for federal jurisdiction over this case found under 28 U.S.C. § 1331.

Jurisdiction Pursuant to 16 U.S.C. § 852p

16 U.S.C. § 825p grants federal jurisdiction over claims regarding the Federal Power Act. APCO argued that § 825p granted federal jurisdiction over this case because its hypothetical suit for declaratory judgment (enjoining the Pressls from constructing a dock) would “‘be brought to enforce [a] liability or duty created by’ the Federal Power Act.”

The Fourth Circuit also rejected this argument. In a recent Supreme Court decision, the Supreme Court noted that the “brought to enforce” language in § 825p should be interpreted in the same way as the “brought to enforce” language in § 27 of the securities Exchange Act of 1934. The Supreme Court held that the jurisdictional test for “brought to enforce” was the same as the test used for determining if a case “arises under” federal law under 28 U.S.C. § 1331. The Fourth Circuit held that there was no jurisdictional basis under 16 U.S.C. § 825p because the Court had already held the case did not “arise under” federal law.

Disposition

Thus, the Fourth Circuit vacated the district court’s judgment and remanded the case.

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1Nov

Government Contractor Defense Now Available in Failure to Warn Cases

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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.

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21Mar

Fourth Circuit Reverses Lower Court’s Sua Sponte Consideration of Diversity Jurisdiction

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By Daniel Stratton

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

The Case Bounces Between State and Federal Courts

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

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

Procedural or Jurisdictional: The Threshold Question for Reviewing Removal Orders

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

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

How Have Other Circuits Tackled This Question?

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

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

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

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

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

The Fourth Circuit Remands the Case Back to Federal District Court

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

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25Feb

Fourth Circuit Holds that Federal Motor Carrier Safety Administration’s Discretionary Decisions and Regulations Cannot Subject the Government to Suit Under the Federal Tort Claims Act

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By Whitney Pakalka

On February 25, 2016, in the civil case of Pornomo v. United States, the Fourth Circuit issued a published opinion affirming the district court’s dismissal of a wrongful death action filed under the Federal Tort Claims Act (FTCA) against the United States.   The plaintiff, Jonatan Pornomo, alleged that the Federal Motor Carrier Safety Administration (FMCSA) had been negligent in extending the period before an “unsatisfactory” safety rating became final for a passenger carrier. The Fourth Circuit concluded that the FMCSA’s decision to grant an extension fell within the FTCA’s discretionary function exception, and affirmed the district court’s dismissal for lack of subject matter jurisdiction.

Pornomo’s FTCA Claim and the District Court’s Dismissal for Lack of Subject Matter Jurisdiction

Sky Express, Inc., a commercial motor carrier based in Charlotte, North Carolina, operated buses that engaged in interstate passenger transportation. On April 12, 2011, the FMCSA notified Sky Express that it had received an “unsatisfactory” safety rating that would become final in forty-five days and require it to stop operations on May 28, 2011. On May 11, 2011, Sky Express submitted a Request for Change to Proposed Safety Rating, detailing its efforts to resolve safety issues.  A letter sent from the FMCSA on May 13, 2011 informed Sky Express that its request for a change in rating had been denied for failure to give adequate evidence that it had corrected all safety violations. The letter further stated that the FMCSA would conduct a follow-up compliance review before June 7, 2011. That same day, the FMCSA sent Sky Express another letter stating that it had extended the date on which the rating would become final by ten days, to June 7, 2011.

On May 31, 2011, a Sky Express bus traveling from North Carolina to New York went off the side of a Virginia highway when the driver fell asleep. The bus went down an embankment and rolled upside down, suffocating a passenger, Sie Giok Giang, whose head became trapped between the bus roof and the top of her seat.   On April 28, 2014, Pornomo, Giang’s adult son and the administrator of Giang’s estate, filed a wrongful death action against the United States in the District Court for the Eastern District of Virginia, pursuant to the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671–2780 (2012). Pornomo alleged that the FMCSA was negligent in issuing the ten-day extension because the FMCSA had no statutory authority to issue extensions for passenger carriers, and was thus an invalid regulation. Pornomo contended further, that even if the FMCSA had authority to issue an extension, the criteria for the issuance of an extension had not been met.

The district court granted the United States’ motion to dismiss for lack of subject matter jurisdiction, holding that the discretionary function exception of the FTCA applied to the FMCSA’s decision to grant the extension.   The court found that the plain language of the agency regulation granted the agency discretion to issue such an extension. Because the FMCSA concluded it could not make a final determination before the “unsatisfactory” rating became final, it granted an extension to allow for further review. As such, it was a discretionary decision that fell within the discretionary function exception, and the United States had not waived sovereign immunity. The district court did not address Pornomo’s argument that the regulation was invalid because the underlying statute does not permit extensions for passenger carriers.

FMCSA’s Safety Compliance Review Process

The FMCSA, acting pursuant to delegated authority from the Secretary of Transportation, promulgated regulations for compliance reviews of commercial motor carriers to ensure safe operation. Compliance reviews that result in an “unsatisfactory” rating indicate that the motor carrier’s lack of adequate safety management controls has resulted in safety violations. 49 C.F.R. § 385.5. Passenger carriers that receive an “unsatisfactory” rating do not have to cease operation immediately, but the rating will become final after forty-five days. At that point, the operator must cease operations until it is found to be “fit,” 49 C.F.R. § 385.13(a)(1), which it may attempt to demonstrate by submitting a request for an upgrade of its rating that provides a written description of remedial actions taken. 49 C.F.R. § 385.17(a)–(c). The FMCSA has discretion to grant a ten-day extension if the carrier submitted evidence of corrective actions and the FMCSA cannot make a final determination within the forty-five days before the rating becomes final. 49 C.F.R. § 385.17(f).

The Federal Tort Claims Act’s Discretionary Function Exception 

Although the United States, as a sovereign, is immune from all suits against it absent an express waiver of immunity, the FTCA permits the United States to be held liable in tort by providing a limited waiver of sovereign immunity. The FTCA contains several exceptions to this waiver of immunity, one of which excludes any claim “based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency . . . , whether or not the discretion involved be abused.” 28 U.S.C. § 2680(a). This discretionary function exception applies if two conditions are met. First, the conduct at issue must involve “an element of judgment or choice” by the government agency, as opposed to a specific course of action prescribed by statute, regulation, or policy. Berkovits v. United States, 486 U.S. 531, 536 (1988). Additionally, that “judgment or choice” must be “of the kind that the discretionary function exception was designed to shield,” which are judgments related to governmental action or decision “based on considerations of public policy.” Id. at 536­–37.

The Fourth Circuit Concludes that the FMCSA’s Decision to Grant an Extension Fell Within the Discretionary Function Exception

 On appeal Pornomo contended that FMCSA’s initial letter to Sky Express, indicating that the company failed to demonstrate that it had taken adequate corrective actions and that the FMCSA was “denying” its request, showed that neither condition of 49 C.F.R. § 385.17 was met. As a result, he argued that the FMCSA did not have discretion to grant an extension under its own regulation. However, the Fourth Circuit found that this argument “cut[] too fine a distinction.” It concluded that the regulation in question was not a “check list,” but is suffuse with discretion, in that the regulation leaves it to the FMCSA to determine whether a carrier’s submission provided evidence of corrective action and whether the agency could reach a final decision within forty-five days. The Fourth Circuit concluded that the “FMCSA made the judgments that Sky Express had submitted some ‘evidence that corrective actions have been taken,’ and that the FMCSA needed additional time to make a final determination,” and was thus “exercising discretion within the meaning of the FTCA.” Because the FMCSA’s action fell within the FTCA’s discretionary function exception, the Fourth Circuit affirmed the district court’s dismissal for lack of subject matter jurisdiction.

Pornomo also asserted that the regulation was invalid because the underlying statute barred the grant of such an extension to a passenger carrier. The Court reasoned that this argument is essentially a challenge to the validity of an agency regulation, and “[a]s such, it cannot be the basis of an FTCA claim.” The Court reasoned that Congress did not “intend[] that . . . the legality of regulations, or the propriety of a discretionary administrative act should be tested through . . . a damage suit for tort.” Dalehite v. United States, 345 U.S. 15, 27(1953).   Additionally, the Fourth Circuit noted that Congress gave the courts of appeals exclusive jurisdiction over the validity of all rules, regulations, or final orders that the Secretary of Transportation issued pursuant to the subchapter III of chapter 311 of title 49. 28 U.S.C. § 2342(3)(A). The Court thus rejected Pornomo’s challenge to the validity of the regulation on jurisdictional grounds, but further stated that even if Pornomo could challenge the regulation in the district court, the promulgation of the regulation was itself a discretionary act that would be protected by the discretionary function exception.

Finally, Pornomo challenged the regulation by contending that it is so plainly at odds with the statute under which it was granted that its promulgation could not have been an act of discretion. He noted that in 2012, the FMCSA removed the ten-day extension provision to make the regulations “consistent with the policy and . . . language” of its statutory mandate, 49 U.S.C. § 31144(c)(2) and (4). That provision provides the Secretary with discretion to extend operations for some carriers, but expressly excludes passenger carriers from that provision. However, the Fourth Circuit concluded that Pornomo’s conclusion was “by no means certain” because the statute “does not expressly proscribe or prescribe a particular course of action for the Secretary of Transportation.” The Court concluded that the statute Pornomo referred to does not bar the FMCSA’s action, because it exempts passenger carriers from sixty-day extensions, not the ten-day extensions in question. The Fourth Circuit noted that the FMCSA’s change to the rule indicated that the new regulation was a “better reading” of the statute, which is “not the same as a necessary one.”

The Fourth Circuit Affirmed the District Court’s Decision to Dismiss For Lack of Subject Matter Jurisdiction

The Fourth Circuit affirmed the district court’s dismissal for lack of subject matter jurisdiction, concluding that the FMCSA’s decision to grant a ten-day extension to Sky Express before its safety rating became final was a discretionary decision that fell within the discretionary function exception to the FTCA. It further concluded that the district court lacked jurisdiction to consider what was essentially a challenge to the validity of an agency regulation, making dismissal proper.

 

 

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25Jan

FCTA’s Discretionary Function Exception Applies to the Placement and Handling of Prisoners, According to Fourth Circuit

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By Daniel Stratton

On December 29, 2015, the Fourth Circuit affirmed in part, and reversed in part, a district court’s dismissal of an inmate’s Federal Tort Claims Act (“FCTA”) claim, after he was stabbed and severely beaten by fellow inmates  in the published civil case Rich v. United States. The appellant, Joshua Rich, argued on appeal that the district court incorrectly dismissed his claim after determining that the FCTA’s discretionary function exception applied to the prison officials’ conduct. The Fourth Circuit, after reviewing Rich’s appeal, affirmed the district court’s determination that the prison officials’ decisions on prisoner placement were shielded by the discretionary function exception, but reversed the lower court’s decision regarding Rich’s opportunity to engage in discovery about the prison officials’ claims that they properly searched Rich’s attackers before placing them in proximity to Rich.

Rich is Sentenced to Fifty-Seven Years, Claims He was Targeted by Aryan Brotherhood While Incarcerated

In 2008, Rich was sentenced by the U.S. District Court for the District of Utah to fifty-seven years’ imprisonment, following his conviction for armed bank robbery, and for carrying a firearm in relation to the crime. He entered the U.S. Bureau of Prison (“BOP”)’s custody in September 2008.

Rich alleges that he was targeted by the white supremacist group, the Aryan Brotherhood, almost immediately after entering the BOP’s prison system for refusing to participate in the group’s criminal activities. Rich was transferred to several prisons over the course of 2008 to 2011 and required separation from the Aryan Brotherhood. In February 2011, Rich was moved to a U.S. penitentiary in West Virginia, USP Hazelton. While at USP Hazelton, Rich was attacked by five inmates on August 5, 2011, after they were put into the same recreation area, or “cage.”

Rich was severely beaten and stabbed multiple times. His injuries included laceration to his liver, among others, and he underwent several invasive surgeries as a result. A nine-inch homemade knife was recovered in the cage where the attack occurred.

Rich sued the federal government under the FCTA, claiming negligence on the part of the prison officials when they failed to protect him from harm. He argued that the prison’s correctional officers should have kept him separated from his attackers, and that those officers had failed to properly screen or search the other inmates before placing them in the same cage as Rich. The government moved to dismiss Rich’s claim, asserting that the discretionary function exception applied to both the prison officials’ decisions about separating Rich and his attackers and to the way in which the officers searched the attackers. The district court agreed with the government, and additionally found that Rich was not entitled to any discovery about whether the prison had any directives mandating a particular approach to performing pat downs and searches. As a result, the district court granted the government’s motion to dismiss for lack of subject matter jurisdiction.

The FCTA, the Discretionary Function Exception, and Their Application to Federal Prisons

The United States is generally immune from suit under the legal doctrine of sovereign immunity, however the FCTA provides an exception. Under the FCTA, sovereign immunity is waived when the federal government “would be liable to the claimant in accordance with the law of the place where the act or omission occurred” for torts like negligence when they are committed by federal employees acting within the scope of their employment.  The FCTA’s discretionary function exception limits this waiver, however, in situations where an employee must perform a discretionary function or duty.

To determine whether conduct fits within this exception, courts generally apply a two-pronged test. First, the court determines if the challenged conduct involves an element of judgment or choice. If a statute, regulation, or policy sets out a specific course of action to the degree that there is no exercise of discretion, then the exception does not apply. If the action does involve an element of judgment, the court must then tackle the second prong, which is to determine whether the judgment was based on considerations of public policy. If it was, then a government employee defendant can assert that the court lacks subject matter jurisdiction under the exception.

If a defendant disputes the allegations in a complaint that could establish subject matter jurisdiction, a court may engage in an evidentiary hearing to determine if there are facts that support the jurisdictional allegations. Generally, under these circumstances, a plaintiff’s allegations in his complaint are not afforded a presumption of truthfulness. However, if the jurisdictional facts are intertwined with merit facts central to the complaint, a presumption of truthfulness will attach to the plaintiff’s claims. While the application of the discretionary function exception to decisions about the separation of prisoners is an issue of first impression for the Fourth Circuit, other circuits have weighed in on this issue previously.

The Fourth Circuit Decides that the Discretionary Function Exception Applies to Decisions about Separating Prisoners

The Fourth Circuit began its analysis by determining if the discretionary function exception applied to the prison officers’ decision to place Rich and his attackers in the same cage. The first step in this analysis was to apply prong one of the two-pronged test. Noting that the BOP is tasked with protecting and caring for all persons in its custody, the Fourth Circuit explained that the BOP retained discretion in implementing those tasks. Prison officials must consider and balance several factors when determining if an individual inmate may require separation. This, the Court concluded, satisfied the first prong of the test.

The Court, noting the issue of first impression, drew on other circuits’ experiences in determining whether the second prong was met. Other circuits, including the Seventh, Ninth, Eleventh have previously held that prisoner placement and potential threats to prisoners against one another was a standard part of the public policy considerations of maintaining order and security in federal prisons. Those circuits viewed factors such as available resources, proper classification of inmates, and appropriate security levels as inherent in various policy questions. Following in the other circuits’ footsteps, the Fourth Circuit agreed that prison officials should be afforded discretion in determining prisoner placement and separation. This, the Court held, meant that the discretionary function exception shielded prison officials from liability regarding whether they should have kept Rich separated from his attackers.  The Fourth Circuit, in turn, affirmed the lower court’s refusal to grant discovery on this issue.

Turning to the question of whether Rich should be granted discovery as to his allegations that the prison did not properly search the attackers before putting them in his recreation cage, the Fourth Circuit diverged from the district court. On this claim, the Fourth Circuit found that the disputed jurisdictional facts were intertwined with the merits of Rich’s claim that the prison had not properly executed pat downs of the attackers. Citing the fact that the prison officials’ signed declarations that they had performed pat downs of the attackers stood in contrast to Rich’s allegations, the Fourth Circuit explained that the allegations applied to both the merits of Rich’s claim as well as the jurisdictional questions over his claim.

The Court argued that a period of discovery would give Rich the opportunity to challenge the prison officials’ declarations that they carried out the searches. The Court also explained that even if they accepted the declarations as fact, those did not resolve the question about whether the pat down searches were carried out correctly. The Fourth Circuit reasoned that because the pat downs were to be conducted as outlined in the Correctional Services Manual, this suggested the existence of specific directives which Rich should be permitted to find in discovery.

Because inmates who have a history of weapons possession are required to undergo visual searches, including a body cavity search, prior to entering a recreation area, discovery could reveal whether any of the attackers had such a history and if such a search was undertaken.

The Court finally noted that Rich could potentially establish jurisdiction under this claim if he could show that the discretionary conduct engaged in by the prison officers was marked by carelessness or laziness, because such conduct cannot be grounded in policy decisions.

The Fourth Circuit Vacates and Remands to Allow Discovery on the Prison Officials’ Pat downs

While the Fourth Circuit affirmed that the discretionary function exception shielded the decision to place Rich and his attackers in the same recreation cage, the Court vacated and remanded to allow Rich to engage in discovery on the issue of whether and how prison officials performed pat downs and searches.

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26Mar

Fourth Circuit Affirms Dismissal of Claims by Target of Assassination Attempt

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By Patrick Southern

On March 25, the Fourth Circuit released a published opinion in the civil case of Johnson v. American Towers, LLC. In 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.

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18Feb

No Subject Matter Jurisdiction: Property Settlement Agreements Fall Within the Domestic Relations Exception

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By Carson Smith

On February 12, 2015, the Fourth Circuit, in an unpublished opinion, affirmed the District Court of South Carolina’s dismissal in Holmes v. Moore due to lack of subject matter jurisdiction.

Holmes Argued that the Domestic Relations Exception to Subject Matter Jurisdiction Did Not Apply

Holmes brought a breach of contract and promissory estoppel action against her former husband. She brought the case in federal court based on diversity jurisdiction. However, the district court dismissed the case, ruling that Holmes suit fell within the domestic relations exception. This exception has traditionally relieved federal courts from involvement in matters of divorce, child care, and custody.

On appeal, Holmes argued that the domestic relations exception did not apply in this case because the “property settlement agreement that she [sought] to enforce [did] not involve issues related to the divorce decree.” Instead, she argued, the settlement agreement stood alone as an issue of contract law.

Fourth Circuit Found No Reversible Error and Affirmed the District Court’s dismissal

The Fourth Circuit reviewed the issue of law de novo. After reviewing the record, the Fourth Circuit found no reversible error and affirmed the district court’s dismissal based on the domestic relations exception.

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3Feb

Fourth Circuit Holds that the District Court had Subject Matter Jurisdiction to Decide the Merits of a False Claims Act Claim

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By Taylor Ey

Today, the Fourth Circuit issued its decision in a published opinion in the civil case of United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist.  Appellant, Ms. Karen Wilson, brought this claim on behalf of the United States under the False Claims Act’s qui tam provision, alleging that the appellee, Graham County Soil and Water Conservation District, fraudulently took money from the government.  The Fourth Circuit reversed the district court’s decision, holding that the district court did have subject matter jurisdiction to decide this action brought under the False Claims Act.

History of the case

In February 1995, a storm hit parts of western North Carolina, causing significant flooding and erosion in the area.  North Carolina’s Graham and Cherokee counties applied for relief under the Emergency Watershed Protection Program (“EWP Program”).  The EWP Program provides financial assistance to eligible states “to relieve imminent hazards . . . created by a natural disaster that causes a sudden impairment of a watershed.”  7 C.F.R. § 624.2.

Both counties entered into a “Cooperative Agreement,” as required by 7 C.F.R. § 624.8(c), and each agreed to perform or contract out the necessary work.  The Soil and Water Conservation District (“SWCD”) of each county was responsible for ensuring compliance with the EWP Program.  Each county hired independent contractors to complete the required cleanup and remediation.

During this time, Ms. Karen Wilson, the appellant in this case, was a secretary at the Graham County SWCD.  She suspected fraud in the implementation of the program both by her colleagues at the SWCD and by the government officials responsible for overseeing the EWP Program.  The Graham County SWCD was also being audited by county auditors at that time.

In April 1996, the auditors issued a formalized report (“the Audit Report”), stating that the independent contractor was likely hired “in violation of the County’s code of conduct,” and that the SWCD did not keep proper documentation of the EWP contracts.  According to the cover letter of the Audit Report, the auditors supplied four copies of the Audit Report: two copies for the Graham County records, one for the Graham County SWCD, and one for the United States Department of Agriculture (“USDA,” the department overseeing the EWP Program).

Ms. Wilson continued to suspect foul play.  She reported her concerns to the USDA.  In August 1997, USDA’s Special Agent Golec completed a Report of Investigation.  The report was distributed to state and federal law enforcement agencies, but the report was “not to be distributed outside [those agencies] . . . without prior clearance from the Office of Inspector General, USDA.”

In 2001, Ms. Wilson filed suit under the False Claims Act’s qui tam provision, alleging that the federal government received fraudulent invoices under the EWP Program in Graham and Cherokee counties.  In 2006, Ms. Wilson filed her third amended complaint, the pleading at issue in this case, naming several other defendants.

Should the District Court Have Dismissed Ms. Wilson’s Claim for Lack of Subject Matter Jurisdiction?

The issue before the Fourth Circuit was whether the qui tam provision of the False Claims Act barred Ms. Wilson from bringing this suit in federal court.

The qui tam provision allows private citizens to bring suit on behalf of the United States “to recover from those persons who make false or fraudulent claims for payment to the United States.”  Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 283 (2010).  The public disclosure bar, 31 U.S.C. § 3730(e)(4)(A) (2006), requires claims be dismissed if the claims are brought under public disclosure, unless the claimant qualifies as an original source.

The case turns on the proper interpretation of “public disclosure” under the qui tam provision.

The District Court’s Findings of Fact and Decision

The district court considered three questions: (1) whether any relevant audits, reports, hearings, or investigations had been publicly disclosed, (2) whether Ms. Wilson based her claims on any such public disclosures, and (3) if so, whether Ms. Wilson nonetheless was an original source of her claims.  The court concluded that (1) the Audit Report and the Report of Investigation from the USDA Special Agent had been publicly disclosed, (2) that Ms. Wilson based her claims on those reports, and (3) that Ms. Wilson was not an original source.  Thus, the district court dismissed Ms. Wilson’s claim for lack of subject matter jurisdiction.

The District Court’s Legal Conclusions Are Reviewed De Novo

The Fourth Circuit could uphold the district court’s dismissal of Ms. Wilson’s claim only if it found that (1) all relevant reports were publicly disclosed, (2) Ms. Wilson based her claims on those reports, and (3) Ms. Wilson was not the original source.  However, the Fourth Circuit held that the district court applied the incorrect legal standard to the factual findings under (1), thus the district court reached the improper result that the reports were publicly disclosed.

What is the Meaning of “Public Disclosure?”

The False Claims Act removes actions under the qui tam provision if the reports were “publicly disclosed” before the action was filed.

The Fourth Circuit looked to the plain meaning of “public disclosure,” citing to Webster’s Dictionary to define “disclosure” as “to open up to general knowledge,” “to expose to view,” and “to make known.”

Thus, the Fourth Circuit reasoned that it was Congress’s intent to remove jurisdiction if reports were made known to the public at large.  Because neither the Audit Report nor the USDA Special Agent Report were made known to the public, and the cover letters clearly indicated that the reports were only to be distributed to a select list, the record did not support the conclusion that the reports were publicly disclosed.

Although the Seventh Circuit has adopted the view shared by the district court, that the reports were publicly disclosed because they were distributed to public officials representing the community, this view is not adopted by any other circuit.  The Fourth Circuit expressly rejected this interpretation.

The Fourth Circuit Reversed the District Court

The Fourth Circuit held that the district court had jurisdiction to hear Ms. Wilson’s case because no public disclosure deprived the district court of jurisdiction.  The holding was limited to the matter of jurisdiction only.

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15Jan

Personal Injury Suit Dismissal Affirmed

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By Evelyn Norton

Today, in Demetres v. East Construction, Inc., the Fourth Circuit affirmed a decision by the U.S. District Court for the Eastern District of Virginia dismissing a personal injury suit for lack of subject matter jurisdiction.

The Incident

Ashland Construction Co., a North Carolina corporation, hired East West, a Virginia corporation, as subcontractor to prepare a construction site in Virginia Beach.  James Demetres (“Mr. Demetres”), an employee of Ashland Construction Co., was designated as superintendent of the site.  On March 28, 2011, Mr. Demetres sustain significant injuries at the jobsite when a bulldozer operated by an East West employee backed over him.  Following the incident, Mr. Demetres received workers’ compensation benefits through his employment with Ashland Construction Co.

The District Court Dismissed the Personal Injury Suit

On March 27, 2013, Mr. Demetres filed a complaint against East West in the Eastern District of Virginia.  Mr. Demetres alleged negligence and sought $100,000,000 in damages.  East West filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), arguing that the exclusivity provision of the Virginia Workers’ Compensation Act (“VWCA”) barred Mr. Demetres personal injury suit.  The Eastern District of Virginia granted the motion.  Mr. Demetres timely filed an appeal.

The Fourth Circuit Found that the District Court Properly Applied Virginia Law Barring Suit.

The Fourth Circuit reviewed the dismissal for lack of subject matter jurisdiction de novo.

On appeal, Mr. Demetres argued that the district court should have applied North Carolina law in determining whether his suit was barred.  Mr. Demetres reasoned that Supreme Court of Virginia precedent allows the law of the state that paid benefits to apply, even if the injury occurred in Virginia.

However, the Fourth Circuit observed that, as a diversity action, the district court was required to apply the law of the jurisdiction in which it sits–Virginia law.  In Virginia, the applicable substantive law is the law of the jurisdiction in which the injury occurred.  Thus, because Mr. Demetres’ injuries occurred in Virginia Beach, Virginia substantive law must govern.

Furthermore, the Supreme Court of Virginia has interpreted the VWCA to bar suits where injured employees of a general contractor try to sue a subcontractor engaging in the general contractor’s business.  Applying this precedent, the Fourth Circuit found that East West was engaged in the same business as Ashland Construction Co.  Therefore Mr. Demetres, as employee of the general contractor Ashland Construction Co., could not sue the subcontractor East West under the VWCA.   Thus, the VWCA barred the suit.

Holding

The Fourth Circuit held that Virginia is not required to relax its more restrictive workers’ compensation bar to hear Mr. Demetres claim.  Thus, the Fourth Circuit affirmed the district court’s decision to dismiss.

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30Sep

Court Retains Subject Matter Jurisdiction over Employee’s “Reasonably Related” Retaliation Claim Against University

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By Kelsey Kolb

On September 24, in Hentosh v. Old Dominion University, the Fourth Circuit affirmed the United States District Court for the Eastern District of Virginia’s order granting summary judgment to Old Dominion University (“ODU”), defendant employer, in a retaliation suit brought by an employee, Patricia Hentosh. In doing so, the Fourth Circuit held that a court retains subject matter jurisdiction over an employee’s “reasonably related” Title VII retaliation claim against her employer even if it dismisses the employee’s underlying administrative claim of discrimination for lack of subject matter jurisdiction.

Hentosh originally filed a race discrimination claim against ODU with the United States Equal Employment Opportunity Commission (“EEOC”). The EEOC dismissed her charge as untimely. In the midst of the EEOC’s investigation, Hentosh applied for tenure at ODU, but was denied. Hentosh filed suit against ODU alleging that she was denied tenure on two theories: (1) the same discrimination that she claimed in her EEOC complaint; and (2) retaliation by ODU against her for engaging in an EEOC discrimination claim.

The district court granted in part ODU’s motion to dismiss on the ground that it did not have subject matter jurisdiction over either of Hentosh’s discrimination claims. The first discrimination claim, alleging specific acts of adverse conduct by ODU, was dismissed due to Hentosh’s failure to timely file her EEOC complaint within its required 300-day window. The district court found that it lacked subject matter jurisdiction because Hentosh’s untimely complaint led to her failure to properly exhaust her administrative remedies. The second discrimination claim, alleging that ODU’s denial of tenure was discriminatorily decided, was dismissed because this claim was “neither within the scope of the charge nor reasonably related to the charge” for it to be considered as exhausting her administrative options.

The point of contention in this appeal was the district court’s denial of ODU’s motion to dismiss Hentosh’s retaliation claim. The district court cited Nealon v. Stone, 958 F.2d 584 (4th Cir. 1992), and found that Hentosh’s retaliation claim could stand without filing a new EEOC charge, and therefore, be brought for the first time in federal court. After establishing jurisdiction over the retaliation claim, the district court granted summary judgment in favor of ODU because Hentosh failed to establish that ODU only rejected her tenure application due to its desire to retaliate against her for filing the EEOC claim.

Hentosh’s appeal argued that when the district court dismissed her two discrimination claims for lack of subject matter jurisdiction, it subsequently lacked subject matter jurisdiction over her retaliation claim and therefore, committed reversible error by failing to dismiss that claim as well. Hentosh cited to Mezu v. Morgan State Univ., 367 F. App’x 385 (4th Cir. 2010), an unpublished opinion, arguing that “retaliation claims cannot ‘relate to’ discriminatory conduct alleged in an untimely EEOC charge.”

The Fourth Circuit deemed the unpublished opinion “neither controlling nor persuasive” and further, in direct conflict with Nealon, the published precedent to which it ultimately deferred. Under Nealon, “a plaintiff may raise for the first time in federal court the claim that her employer retaliated against her for filing with the EEOC in violation of Title VII.” The rationale for allowing the retaliation claim to stand alone is that the court traditionally has jurisdiction over claims that are deemed “reasonably related to” allegations in an administrative charge. The court found that Hentosh’s retaliation claim was “like or related to” the discrimination claim brought by the untimely EEOC charge.

The Fourth Circuit ultimately held that the district court properly retained and exercised subject matter jurisdiction over Hentosh’s retaliation claim because it was “reasonably related to” her prior discrimination claims—that the court would have had jurisdiction over, had she timely filed. Therefore, the court affirmed the district court’s grant of summary judgment in favor of ODU.

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