BOTTOM LINE: Where plaintiffs’ yacht was damaged following an allision with an army vessel, doctrine of constructive loss applied to limit plaintiffs’ awardable damages to the market cost of the yacht, because the cost of repairing the yacht exceeded the yacht’s pre-casualty fair market value and plaintiffs did not prove that their use of the yacht was so unique as to lack any market comparables.
CASE: F.C. Wheat Maritime Corporation v. United States, No. 10-1906 (decided Dec. 14, 2011) (Judges Shedd, DUNCAN & Osteen). RecordFax No. 11-1214-60, 18 pages.
COUNSEL: Patricia Smith, Law Offices of Patricia A. Smith, Alexandria, VA, for Appellants. Sarah Keast, United States Department of Justice, Washington, for Appellee.
FACTS: This appeal arose out of a case involving an allision (the nautical term for when a moving vessel impacts a stationary object) between a United States Army Corps of Engineers (“USACE”) vessel and a private yacht, the Marquessa, owned by F.C. Wheat Maritime Corp. (“Wheat Maritime”) and operated by its parent company, Wheat International Communications Corp. (“Wheat International”).
Wheat Maritime purchased the Marquessa in 1998 for $875,000 and made numerous modifications. Wheat Maritime ultimately chartered the vessel to Wheat International.
On February 2, 2008, a USACE vessel allided with the Marquessa, which was docked at a pier in Portsmouth, Virginia. The Marquessa was damaged significantly. Wheat Maritime and Wheat International brought suit against the United States under the Public Vessels Act, 46 U.S.C. §31101 et seq., and the Suits in Admiralty Act, 46 U.S.C. §30901 et seq., in district court. The United States admitted liability for the allision, and the matter proceeded to a bench trial on the issue of damages. The plaintiffs argued that they were entitled to $1,117,859.67 for actual repair costs and other related expenses.
However, the district court, found that under the doctrine of constructive total loss, which governs damages determinations in admiralty, plaintiffs were entitled to the fair market value of the vessel at the time of the allision, which the court found to be $440,000.
The United States moved to amend the judgment because the parties had previously stipulated that Wheat Maritime subrogated to its insurer its rights to recover $682,500 paid toward physical damage to the Marquessa. Should such damages be awarded, neither Wheat Maritime nor Wheat International could claim the right to recover the first $682,500 awarded. The district court granted the motion.
The plaintiffs appealed to the 4th U.S. Circuit Court of Appeals, which affirmed the damages judgment.
LAW: On appeal, the plaintiffs argued that the district court erred in applying the constructive loss doctrine to the case and limiting their awardable damages to $440,000. Specifically, plaintiffs contended that the doctrine is inapplicable where it can be shown that no vessel could provide an adequate replacement.
It is fundamental in the law of damages that the injured party is entitled to compensation for the loss sustained. Std. Oil Co. v. Southern Pac. Co., 268 U.S. 146, 155 (1925). Restoration of the injured party to the position it occupied before the wrong is the precept in fixing damages. Hewlett v. Barge Bertie, 418 F.2d 654, 657 (4th Cir. 1969). Accordingly, where repairs are practicable, the general rule followed by the admiralty courts is that the damages assessed against the respondent shall be sufficient to restore the injured vessel to the condition in which she was at the time the collision occurred. Id. In the event of a total loss, the injured party is restored to the position it occupied before the wrong if it receives the vessel’s pre-casualty fair market value. Std. Oil Co., 268 U.S. at 155. Similarly, if the cost of repairing the vessel exceeds her pre-casualty fair market value, the limit of compensation is the vessel’s fair market value at the time of the casualty. Hewlett, 418 F.2d at 657.
This rule flows from the principle that by receiving the vessel’s monetary equivalent in damages, the owner is put in as good a position pecuniarily as he would have been in if his property had not been destroyed. See Std. Oil Co., 268 U.S. at 155. Moreover, the rule limiting damages to market value in the event of constructive total loss is premised on the sound assumption that a ship owner of ordinary prudence would not go to the expense of repairing a vessel if the cost of repair would be greater than the fair market value of the vessel after repair. A plaintiff is therefore entitled to be made whole, but only in the least expensive way: market value or replacement cost, whichever is less. Cf. Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1353 (4th Cir. 1987).
Here, plaintiffs’ argument regarding the uniqueness of the Marquessa was not without some merit. Courts have awarded a vessel’s replacement cost, even when it is greater than her purported market value, where the person who suffered the loss proved a unique use for the vessel that would not be recognized in her market price. See King Fisher Marine Serv., Inc. v. NP Sunbonnet, 724 F.2d 1181, 1185-87 (5th Cir. 1984). In this case, however, plaintiffs did not prove that their use of the vessel was so idiosyncratic as to lack any market comparables, and the Marquessa possessed no special qualities that filled legitimate commercial needs that would not be recognized in her market price. Therefore, on these facts, the longstanding rule applied that if the cost of repairing a vessel exceeds her pre-casualty fair market value, the limit of compensation was the fair market value of the Marquessa at the time of collision.
Accordingly, the U.S. District Court’s judgment was affirmed.
Corporations and Partnerships
BOTTOM LINE: Dismissal was warranted where former shareholder sued the corporaton and its officers over the decline in share value, because he failed to allege facts showing the existence of a special duty between him and the defendants or that he suffered an injury separate and distinct from that suffered by other shareholders. Rivers v. Wachovia Corporation, No. 10-2222. RecordFax No. 11-1222-60, 14 pages.
CASE: Rivers v. Wachovia Corporation, No. 10-2222 (decided Dec. 22, 2011) (Judges WILKINSON, Mott & Duncan). RecordFax No. 11-1222-60, 14 pages.
COUNSEL: Ian Freeman, George Walker, Pratt-Thomas Walker, PA, Charleston, SC, for Appellant. Robert Fuller, Robinson, Bradshaw & Hinson, PA, Charlotte, NC, for Appellees.
FACTS: John Rivers, a former shareholder in Wachovia Corporation, filed suit against Wachovia Corporation (since acquired by Wells Fargo & Company) and four of its former officers in South Carolina state court, seeking to recover personally for the precipitous decline in value of his approximately 100,000 shares of Wachovia stock during the 2008 financial crisis.
The complaint listed seven causes of action including fraud, negligent misrepresentation and breach of fiduciary duty. The crux of the complaint, however, alleged that the defendants misrepresented the financial health of Wachovia and that, as a result, Rivers retained over 100,000 Wachovia shares until they lost nearly all value in the market downturn of 2008.
The action was subsequently removed to U.S. District Court. The federal court dismissed Rivers’ suit, concluding that the complaint stated a claim derivative of injury to the corporation and that he was therefore barred from bringing a direct or individual cause of action against the defendants.
Rivers appealed to the 4th U.S. Circuit Court of Appeals, which affirmed the judgment of the U.S. District Court.
LAW: A derivative action is an action brought by a shareholder in the name or right of a corporation to redress an injury sustained by, or to enforce a duty owed to, the corporation. 13 Fletcher Cyclopedia of the Law of Corporations §§ 5939-5940 (rev. ed. 2011).
In this case, however, Rivers declined to pursue a derivative action, under which any recovery would inure to the benefit of the corporation; instead, he sought a personal recovery for the decline in Wachovia’s share price on the theory that he had intended to sell his Wachovia stock before the collapse of the market but was induced not to by the defendants’ misrepresentations.
Rivers’ attempt to recover individually for the decline in Wachovia’s share price contravened firmly settled corporate law governing derivative claims. Under both North Carolina and South Carolina law, the well-established general rule is that shareholders cannot pursue individual causes of action against third parties for wrongs or injuries to the corporation that result in the diminution or destruction of the value of their stock. Barger v. McCoy Hillard & Parks, 488 S.E.2d 215, 219 (N.C. 1997). Instead, shareholders may pursue such claims as a derivative suit on behalf of the corporation. The Supreme Court has described such shareholder derivative suits as a remedy for those situations where the management, through fraud, neglect of duty or other cause declines to take the proper and necessary steps to assert the rights of the corporation. Meyer v. Fleming, 327 U.S. 161, 167 (1946).
Given these principles, Rivers had no valid basis for his individual claims. Allen ex. rel. Allen & Brock Constr. Co v. Ferrera, 540 S.E.2d 761, 766 (N.C. Ct. App. 2000). Rivers argued, however, that his suit fell within two well-recognized exceptions to the general rule against individual suits for injuries to the corporation. A shareholder may maintain an individual action against a third party for an injury that directly affects the shareholder, even if the corporation also has a cause of action arising from the same wrong: (1) where there is a special duty, such as a contractual duty, between the wrongdoer and the shareholder; or (2) where the shareholder suffered an injury separate and distinct from that suffered by other shareholders. Barger v. McCoy Hillard & Parks, 488 S.E.2d 215, 219 (N.C. 1997).
To support the right to an individual lawsuit, a “special duty” must be one that the alleged wrongdoer owed directly to the shareholder as an individual. Rivers argued that the individual defendants owed him a fiduciary duty to disclose and communicate truthful and accurate information about the financial condition and performance of Wachovia.
Under South Carolina law, officers and directors of a corporation have a fiduciary duty to act in the best interest of the corporation and its shareholders; however, a breach of this fiduciary duty must be pursued through a derivative, and not an individual, action. See, e.g., Brown v. Stewart, 557 S.E.2d 676, 684 (S.C. Ct. App. 2001).
Absent any allegation that Rivers was party to a separate contract with the defendants which created distinct duties personal to him, or that he was individually subject to misleading inducements outside the officer-shareholder relationship, Rivers failed to set forth any allegations which supported a special duty between him and the defendants. Energy Investors Fund, L.P. v. Metric Constructors, Inc., 525 S.E.2d 441, 444 (N.C. 2000).
Under the second, special injury exception to the general rule, the plaintiff must allege an injury “peculiar or personal” to him, separate and distinct from any damage suffered by the corporation. Barger, 488 S.E.2d at 220. Here, as noted, the decline in the Wachovia’s share value did not inflict any special or distinct injury on Rivers, but rather injured the corporation. See Barger, 488 S.E.2d at 220.
Rivers’ alleged injury of a “lost profit opportunity” was merely an opaque way of restating that Rivers was harmed by the decline in value of Wachovia stock. See Arent v. Distribution Scis., Inc., 975 F.2d 1370, 1373 (8th Cir. 1992). As such, the special injury exception was also inapplicable.
Accordingly, Rivers lacked any valid legal basis for pursuing individual claims against the defendants, and the district court judgment dismissing his complaint was affirmed.
BOTTOM LINE: Because jury could find from totality of evidence that defendant had a continuous buy-sell relationship with drug suppliers and a standing agreement with suppliers to bring their drugs to market in Virginia, evidence was sufficient to support defendant’s conviction of conspiracy to distribute and possess a controlled substance with intent to distribute.
CASE: United States v. Hackley, No. 10-4069 (decided Dec. 6, 2011) (Judges DUNCAN, Davis & Diaz). RecordFax No. 11-1206-60, 22 pages.
COUNSEL: Helen Phillips, McGlothlin and Phillips, PPLC, Lebanon, VA, for Appellant. Jean Hudson, Office of the United States Attorney, Charlottesville, VA, for Appellee.
FACTS: On April 22, 2009, a federal grand jury returned a seven-count indictment against defendant James Hackley, charging him with several offenses related to his sale of cocaine base to a government informant, David Jackson, and his subsequent efforts to have Jackson murdered.
The grand jury returned a superseding indictment on June 18, 2009. This indictment retained the original seven counts and added four additional charges.
Hackley was tried before a jury in Charlottesville, Virginia. At trial, after the government rested, Hackley moved for a judgment of acquittal on Counts Nine (solicitation to commit murder for hire) and Eleven (felon in possession of a firearm). The court denied the motion. On October 21, the jury found Hackley guilty on all eleven counts. Thereafter, Hackley made a renewed motion for judgment of acquittal on Count Nine, and this time also on Count One Count (conspiracy to distribute five or more grams of cocaine base). The district court denied the motion. On January 7, 2010, the district court sentenced Hackley to a term of 306 months in prison.
Hackley appealed the convictions to the 4th U.S. Circuit Court of Appeals, which affirmed.
LAW: Hackley appealed the district court’s denial of his motion for judgment of acquittal with respect to Count One, conspiracy to distribute and possess a controlled substance with intent to distribute, arguing that there was insufficient evidence to support his conviction.
In order to prove conspiracy in this case, the government was required to establish beyond a reasonable doubt that there existed an agreement to distribute and possess cocaine with intent to distribute existed between two or more persons, that Hackley knew of the conspiracy, and that Hackley knowingly and voluntarily became a part of this conspiracy. United States v. Yearwood, 518 F.3d 220, 225-26 (4th Cir. 2008). The presence of a knowing and voluntary agreement distinguishes conspiracy from the completed crime and is therefore an essential element of the crime of conspiracy. See Iannelli v. United States, 420 U.S. 770, 777 n. 10 (1975). Conspirators need not know all of the details of the conspiracy, provided that they know its “essential object.” United States v. Goldman, 750 F.2d 1221, 1227 (4th Cir. 1984). This agreement need only be a “tacit or mutual understanding” between the defendant and his accomplice. United States v. Ellis, 121 F.3d 908, 922 (4th Cir. 1997).
Circumstantial evidence alone is sufficient to support a conviction for conspiracy. Id. In drug conspiracy cases, evidence of a buyer-seller relationship, standing alone, is insufficient to support a conspiracy conviction. United States v. Townsend, 924 F.2d 1385, 1394 (7th Cir. 1991). However, evidence of a buy-sell transaction is at least relevant to the issue of whether a conspiratorial relationship exists. United States v. Mills, 995 F.2d 480, 485 n. 1 (4th Cir. 1993). Moreover, evidence of a continuing buy-sell relationship, when coupled with evidence of large quantities of drugs or continuing relationships and repeated transactions, creates a reasonable inference of an agreement. United States v. Reid, 523 F.3d 310, 317 (4th Cir. 2008).
In this case, the evidence of substantial quantities of drugs (two “golf ball-sized quantities of crack cocaine) was, on its own, too thin to support an inference of conspiracy. Nonetheless, the government’s evidence of continuing relationships and repeated transactions was sufficient to support an inference of an ongoing relationship between Hackley and the unnamed Maryland suppliers. Specifically, three pieces of evidence, taken together, formed the basis from which a jury could reasonably infer that Hackley had a continuous relationship with Maryland suppliers.
The first such evidence was Jackson’s testimony that Hackley told Jackson that he was getting his supply of crack from his “family” in Maryland. Second was Jackson’s testimony that Hackley was still getting cocaine, that he had known Hackley since 1992, and that they had discussed crack cocaine previously. Third was a conversation in which Hackley explained to another acquaintance that “not telling on people” was the whole principle of “the game” – by which, the acquaintance testified, Hackley meant “the drug game.”
From the totality of this evidence, a jury could find beyond a reasonable doubt that Hackley had a continuous buy-sell relationship with Maryland suppliers, and that Hackley had a standing agreement – i.e., a conspiracy – with unnamed Maryland suppliers to bring their drugs to market in Virginia.
Accordingly, the U.S. District Court’s judgment was affirmed.
BOTTOM LINE: Expert’s testimony and report, which included expert’s interpretation of raw data prepared by analysts not present at trial, did not violate the Confrontation Clause because expert’s opinion was an “original product” that could be and was readily tested through cross-examination.
CASE: United States v. Summers, No. 06-5009 (decided Dec. 16, 2011) (Judges KING, Shedd & Floyd). RecordFax No. 11-1216-60, 20 pages.
COUNSEL: Lauren Case, Office of the Federal Public Defender, Greenbelt, MD, for Appellant. Sujit Raman, Office of the United States Attorney, Baltimore, MD, for Appellee.
FACTS: In March of 2005, Kevin Summers was indicted for possession with intent to distribute crack cocaine (Count One) and possession of a firearm by a felon (Count Two). A superseding indictment of May 4, 2006, charged Summers with the additional offense of possession of a firearm during and in relation to a drug trafficking crime (Count Three).
Following a jury trial, Summers was found guilty of the drug and firearm possession charges underlying Count One and Count Two. The jury acquitted Summers on Count Three, concluding that he did not, beyond a reasonable doubt, possess the firearm during and in relation to a drug trafficking crime.
Summers appealed to the 4th Circuit, which affirmed the convictions.
LAW: Summers first contended that the district court erroneously admitted into evidence a jacket recovered from the vicinity of his arrest. In deciding whether the jacket was admissible, the district court needed only to satisfy itself that it was improbable that the original item had been exchanged with another or otherwise tampered with. United States v. Jones, 356 F.3d 529, 535 (4th Cir. 2004). At trial, the government introduced the testimony of three police officers, each of whom identified Government’s Exhibit 1 as the jacket that Summers was wearing the night of his arrest.
The officers’ testimony was more than enough to put the issue before the jury. The jury heard in counterbalance the expert testimony of Brendan Shea, a forensic examiner at the Quantico laboratory that performed tests on the recovered jacket, including Shea’s admissions, who admitted on cross-examination that he had no idea where the jacket had been prior to its receipt by the lab six or seven months following Summers’s arrest, or whether it had been tampered with. Thus, under the circumstances, the district court did not abuse its discretion in admitting the jacket into evidence.
The more substantial question raised by Summers on appeal was whether the absence at trial of the analysts responsible for performing the DNA tests on the jacket violated his rights under the Confrontation Clause. The data from the analysts’ DNA tests provided the basis for Shea’s testimony and the preparation of his report. However, raw data, such as the numerical information contained in the analysts’ DNA findings, is not susceptible to cross-examination and thus does not implicate the Confrontation Clause. United States v. Washington, 498 F.3d 225 (4th Cir. 2007).
Shea’s testimony and report were predominated by his own independent, subjective opinion and judgment. On the witness stand, Shea painstakingly explained the process whereby he, and he alone, evaluated the data to reach the conclusion that, to a reasonable degree of scientific certainty, Summers was the major contributor of the DNA recovered from the jacket. Far from being “a conduit or transmitter” of what his subordinate analysts had concluded about the jacket, Shea’s opinion was an “original product” that could be (and was) readily tested through cross-examination. United States v. Johnson, 587 F.3d 625 (4th Cir. 2009). As such, the admission of Shea’s testimony, in the absence of the other analysts, did not violate the Confrontation Clause.
Finally, a conviction need not be disturbed if the purported error was harmless beyond a reasonable doubt. See Chapman v. California, 386 U.S. 18, 24 (1967). Shea’s testimony was a mere glaze on the government’s “open-and-shut” case against Summers, which included nearly overwhelming evidence of his guilt. Therefore, even had the district court’s admission of Shea’s report constituted error, such error would surely be harmless beyond a reasonable doubt.
Accordingly, the district court’s entry of judgment on the jury’s verdict was affirmed.
BOTTOM LINE: While the search warrant application and police officers’ supporting affidavit were defective, the officers acted with objective reasonableness in relying on uncontroverted facts known to them but inadvertently not presented to the magistrate, and good-faith exception to exclusionary rule therefore applied.
CASE: United States v. Colline McKenzie-Gude, No. 10-4119 (decided Dec. 16, 2011) (Judges MOTZ, King & Duncan). RecordFax No. 11-1216-61, 17 pages.
COUNSEL: Gary Bair, Bennett & Bair, LLC, Greenbelt, MD, for Appellant. Arun Rao, Office of the United States Attorney, Greenbelt, MD, for Appellee.
FACTS: On July 23, 2008, Ludmila Yevsukov went to a police station in Montgomery County to report that her nephew, Patrick Yevsukov, had told her that Collin McKenzie-Gude had brought an AK-47 style assault rifle to the Yevsukov residence on July 21, 2008.
Yevsukov further informed the police that the rifle belonged to McKenzie-Gude’s father, Joseph Gude. A police officer then contacted Joseph Gude, who confirmed he had purchased an AK-47 rifle.
Four days later, on July 27, Yevsukov provided additional information in a letter she addressed to the police department. In the letter, she asserted that McKenzie-Gude was 18 years of age, lived at 6312 Rockhurst Road in Bethesda and had just graduated from high school in Washington, D.C. She advised the police that her nephew, Patrick, was an intern with the Montgomery County Police Department. In her letter, Ms. Yevsukov also asserted that McKenzie-Gude constantly discussed weapons and explosives with Patrick and had brought “dangerous chemicals” to the Yevsukov residence.
On July 29, Montgomery County Detective Edward Zacarek and Montgomery County Fire Marshal Jeffrey Ewart completed an application for a warrant to search the Rockhurst Road residence, along with the officers’ sworn affidavit. A state court judge issued the officers a warrant to search the Rockhurst Road residence that same day.
Executing the search warrant, the officers seized various items from McKenzie-Gude’s bedroom, including several weapons, assorted gun parts, two bullet-proof vests and hundreds of rounds of ammunition, as well as chemicals and other materials that could be used to make explosive devices and instructions for making such devices.
In November 2008, a federal grand jury indicted McKenzie-Gude for knowing possession of a firearm, in violation of 26 U.S.C. §5861(d). McKenzie-Gude moved to suppress the evidence seized from the Rockhurst Road residence, arguing that the search was illegal.
The court denied the motion to suppress. The court also denied McKenzie-Gude’s motion for a hearing.
McKenzie-Gude entered a conditional guilty plea, reserving his right to appeal these suppression rulings. McKenzie-Gude was sentenced to 61 months’ incarceration to be followed by three years of supervised release.
McKenzie-Gude appealed to the 4th U.S. Circuit Court of Appeals, which affirmed the conviction and sentence.
LAW: On appeal, McKenzie-Gude contended that the district court erred in refusing to suppress the evidence obtained during the search of the Rockhurst Road residence. Specifically, McKenzie-Gude argued that the warrant was invalid because the officers’ affidavit failed to link him and his alleged criminal activity to the Rockhurst Road residence. Specifically, although the affiant officers averred that they believed that evidence of the alleged crimes was contained in the Rockhurst Road residence, they failed to state that McKenzie-Gude or Joseph Gude lived at that address.
While the Government conceded the search warrant application and related affidavit in this case failed to provide the requisite nexus between McKenzie-Gude and the target residence, it requested that the Court apply the Leon good-faith exception to the exclusionary rule. See United States v. Leon, 468 U.S. 897, 925 (1984).
In Leon, the Supreme Court held that a court should not suppress the fruits of a search conducted pursuant to a subsequently invalidated warrant unless a reasonably well-trained officer would have known that the search was illegal despite the magistrate’s authorization. Leon, 468 U.S. at 922 n. 23. Thus, here, Leon required that an assessment as to whether the officers harbored an objectively reasonable belief in the existence of this factual predicate. Id. at 926.
Although the officers failed to state in their affidavit that McKenzie-Gude lived at the Rockhurst Road residence, they had good reason to believe that he did, based on the information in Ludmila Yevsukov’s letter. As such, the experienced officers, who swore out the affidavit and executed the search, acted with the requisite objective reasonableness when relying on uncontroverted facts known to them but inadvertently not presented to the magistrate. Given it was the affiant officers who also executed the search, the officers would have had no reason to second-guess the magistrate’s imprimatur of their application to search. Accordingly, the district court properly denied McKenzie-Gude’s motion to suppress the evidence of the search of the residence, and the judgment of the district court was affirmed.
BOTTOM LINE: Given the totality of the circumstances, which included gas station’s location in a high-crime area, suspect’s observation of attendant at 4:40 a.m. from an area not covered by the station’s surveillance cameras, and officers’ knowledge that the station had been the target of previous armed robberies, the stop-and frisk of suspect was supported by reasonable suspicion and did not violate Fourth Amendment.
CASE: United States v. Glover, No. 10-4462 (decided Dec. 9, 2011) (Judges WILKINSON, King & Diaz). RecordFax No. 11-1209-60, 12 pages.
COUNSEL: Matthew Segal, Federal Defenders of Western North Carolina, Asheville, NC, for Appellant. Richard Edwards, Office of the United States Attorney, Asheville, NC, for Appellee.
FACTS: Following a stop-and-frisk by police officers Aaron Skipper and Paul Archer at a gas station at approximately 4:40 a.m., Paul Glover was indicted for being a felon in possession of a firearm in violation of 18 U.S.C. §922(g)(1). Glover filed a pre-trial motion to suppress the evidence seized at the gas station. The district court denied the motion, and Glover entered a conditional plea of guilty.
Glover appealed the denial of his motion to suppress to the 4th Circuit, which affirmed the court’s decision.
LAW: Glover contended that the stop-and-frisk at the gas station parking lot violated the Fourth Amendment because Officers Skipper and Archer lacked reasonable suspicion of criminal activity.
However, the facts of this case created a reasonable suspicion that Glover was planning to commit an armed robbery, justifying the officers’ conduct. The Fourth Amendment’s bar against unreasonable searches and seizures does not prohibit police officers from engaging in a brief stop-and-frisk necessary to protect themselves and other prospective victims in situations where they may lack probable cause for an arrest. Terry v. Ohio, 392 U.S. 1, 24 (1968).
In Terry, a police officer patrolling downtown Cleveland noticed two men pacing back and forth in front of a store. Based in part on his experience with the neighborhood, the officer became suspicious that the men were casing the store in preparation for a robbery. Concerned they might be carrying a gun, he followed the men, asked them what their names were, and then briefly patted one of them down, whereupon he discovered a revolver in the suspect’s coat pocket. Id. at 5-7. The Supreme Court upheld this conduct as constitutional, holding that a protective stop-and-frisk is legitimate if a police officer has a reasonable suspicion that a suspect is armed and presently dangerous to the officer or to others. Id. at 24.
Terry balanced the government’s interest in protecting the public and the police from unnecessary risks and a suspect’s interest in avoiding a brief frisk of his person. See Terry, 392 U.S. at 20-25. When an officer has a reasonable suspicion that an armed robbery is about to occur, this balance favors the government. The Constitution does not command an officer to stand idly by and run the risk that a suspect will commit a violent crime on his watch. See id. at 24.
In the present case, based on their experience, Officers Skipper and Archer knew that the area in which the gas station was located was plagued by armed robberies and assaults; in fact, Officer Skipper had investigated a robbery there the previous year.
Officer Skipper also knew that in the early hours of the morning, the gas station remained open for business even though its doors were locked. On this occasion, however, the officers noticed the attendant was outside the protection of the locked building, checking the levels of the fuel tanks.
There were no vehicles in the parking lot, and aside from the attendant, the only person in the area was Glover, who was standing near the back corner of the station, between 45 to 60 feet away from the attendant, and appeared to be talking on a cell phone while watching the attendant.
Officer Skipper knew from investigating the previous robbery that this area was not covered by the gas station’s surveillance cameras. The officers agreed that Glover’s observation of the attendant was suspicious and were concerned about the possibility of the store being robbed. Officer Skipper suggested that they speak with Glover to find out what he was doing. The officers then drove away in their patrol car as if they were leaving, but instead circled back around and drove into the back parking lot of the gas station.
When the officers pulled back into the gas station lot, they saw that in the approximately five to six seconds that they were out of Glover’s sight, Glover had traversed the distance that had previously separated him from the attendant and was now standing directly over the attendant. Concerned that Glover was “stalking the clerk” and believing him to have a weapon, Officer Skipper informed Glover that he was going to pat him down. During the pat-down, Officer Skipper felt an object he believed to be a gun barrel. Officer Skipper retrieved a handgun from in Glover’s right pants pocket and placed him under arrest.
Based on the totality of the circumstances, Officers Skipper and Archer had reasonable suspicion to justify the stop-and-frisk of Glover. The setting of the stop, as well as the time of day, supported their suspicion that Glover was planning to engage in an armed robbery. Illinois v. Wardlow, 528 U.S. 119, 125 (2000). Given the setting and Glover’s conduct, Glover’s actions were sufficient to create a reasonable suspicion that criminal activity was afoot. Wardlow, 528 U.S. at 123. The stop-and-frisk performed by Officers Skipper and Archer was nothing other than good police work that may well have prevented a man from being robbed at gunpoint. Accordingly, the judgment of the U.S. District Court was affirmed.
BOTTOM LINE: Trial court erred in basing sentences for drug conspiracy on the total amount of oxycodone that had been legally prescribed to one of the defendants for back-pain management, since the government failed to show the entire quantity was within the scope of the conspiracy.
CASE: United States v. Bell, No. 10-4644; United States v. Gibson, No. 10-4651 (decided Dec. 21, 2011) (Judges DAVIS, Floyd & Hamilton). RecordFax No. 11-1221-60, 29 pages.
COUNSEL: Brian Beck, Office of the Federal Public Defender, Abingdon, VA; Michael Bragg, Abingdon, VA, for Appellants. Zachary Lee, Office of the United States Attorney, Abingdon, VA, for Appellee.
FACTS: Nancy Bell, a 65-year-old woman, had suffered from several back ailments since at least 2002. She received treatment for the pain resulting from those ailments at a medical center in Knoxville, Tenn. Doctors there prescribed Bell several narcotic pain relievers over the years, including OxyContin, a brand name version of oxycodone, the distribution of which in certain circumstances is unlawful.
Over the years, Bell did not consume all of the oxycodone pills she was prescribed, and sold a substantial number of them unlawfully. Twice a month Bell would travel from her home in Marnardsville, Tenn., to Jonesville, in Lee County, Va., where her daughter, Iris Gibson, lived. There, Bell and Gibson would either sell oxycodone pills for cash or front the pills to others who would sell them and return to Bell or Gibson with the proceeds.
Law enforcement eventually learned of the scheme, and in December 2009, a federal grand jury returned an indictment charging Bell, Gibson and six others with conspiracy to possess with intent to distribute oxycodone. Gibson and Bell both pled guilty to each count of the indictment.
In anticipation of sentencing, presentence reports (“PSRs”) were prepared. The principal consideration in calculating the base offense level under the United States Sentencing Guidelines (“U.S.S.G.”) was the quantity of drugs attributable to the conspiracy. In making its sentencing determination, the district court attributed the full quantity of OxyContin pills prescribed to Bell as the quantity of drugs attributable to the conspiracy.
Based on its determinations, the district court concluded that the final guidelines range for Bell was a sentence of 97 to 121 months, and the final Guidelines range for Gibson was a sentence of 70 to 87 months. The district court imposed sentences of 120 months for Bell (on all counts, concurrent) and 72 months for Gibson (on all counts, concurrent).
Bell and Gibson appealed to the 4th U.S. Circuit Court of Appeals, which vacated the district court’s judgments and remanded the cases for resentencing.
LAW: The Sentencing Guidelines include a Drug Quantity Table that provides base offense levels that correspond to certain quantities of enumerated controlled substances. U.S.S.G. §2D1.1(c). In conspiracy cases, base offense levels are determined based on all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant, as well as the reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity. For sentencing purposes, the government must prove the drug quantity attributable to a particular defendant by a preponderance of the evidence. United States v. Randall, 171 F.3d 195, 210 (4th Cir. 1999).
The Drug Quantity and Drug Equivalency Tables include controlled substances of all types, including those designated on Schedules I, II, III, IV and V under the Controlled Substances Act. Schedule I substances are those that have a “high potential for abuse” and “no currently accepted medical use in treatment in the United States.” 21 U.S.C. §812(b)(1). Schedule V substances, at the other end of the controlled-substances spectrum, have a currently accepted therapeutic medical use and a relatively low potential for abuse. Id. §812(b)(5). As an opiate pain-relieving medication, oxycodone is a Schedule II substance, meaning that it has a currently accepted medical use but has a high potential for abuse. Id. §812(b)(2).
The principal distinguishing characteristic between substances on Schedule I and those on the other Schedules is that non-Schedule I substances have at least one currently accepted medical use, and can therefore be possessed and sold legally in some circumstances. Congress has expressly stated that a person may not be prosecuted for simple possession of a non-Schedule I controlled substance when the person obtained the drug pursuant to a valid prescription, from a practitioner, while acting in the course of his professional practice. 21 U.S.C. §844(a).
This distinction potentially becomes critical in cases where a person is convicted of conspiracy to possess with intent to distribute a controlled substance. Where there is no evidence that any of the drugs obtained by members of a conspiracy were obtained or possessed legally, all reasonably foreseeable quantities possessed by conspiracy members with intent to distribute and within the scope of the criminal activity undertaken by a particular defendant may be considered “relevant conduct” attributable to that defendant. See, e.g., United States v. Iglesias, 535 F.3d 150, 160 (3d Cir. 2008). By contrast, where some or all of the non-Schedule I drugs possessed by one or more conspiracy members were obtained and possessed pursuant to a valid prescription, that general rule potentially breaks down, because “relevant conduct” includes only reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity. U.S.S.G. §1B1.3(a)(1)(B).
Here, there was no dispute that Bell received her pills using a valid prescription from a physician acting in the course of his practice, and the government did not present adequate and reliable evidence that the entire quantity prescribed to Bell was within the scope of the criminal activity she and her co-conspirators undertook.
Without such evidence, it would be improper to include in the drug quantity pills Bell lawfully consumed, either as to Bell, who lawfully possessed and consumed at least a portion of the oxycodone prescribed to her, or as to Gibson, whose sentence, like Bell’s, was calculated based on the full amount prescribed to Bell. Without a clear factual finding on how much of the prescription Bell herself consumed, there was an unacceptably high risk that the relevant total drug weight may have been inflated.
Accordingly, Bell’s sentence was vacated and the case remanded. Likewise, because it could not be reliably determined from the record whether the district court found that the full quantity of pills attributable to Bell was “reasonably foreseeable” to Gibson and within the scope of the criminal activity that Gibson jointly undertook, the U.S. District Court’s decision to attribute the full amount to Gibson could not be affirmed. Accordingly, Gibson’s sentence was also vacated and the case remanded.
Labor & Employment
Black Lung Benefits Act
BOTTOM LINE: The lower court properly gave retroactive application to §932(l) of the amended Black Lung Benefits Act, which provides that an eligible survivor of a miner who was receiving benefits at the time of his death is automatically entitled to survivors’ benefits without having to establish that the miner’s death was due to pneumoconiosis.
CASE: West Virginia CWP Fund v. Stacy, No. 11-1020 (decided Dec. 21, 2011) (Judges Traxler, WILKINSON & Wynn). RecordFax No. 11-1221-60, 23 pages.
COUNSEL: Kathy Snyder, Jackson, Kelly, PLLC, Morgantown, WV, for Petitioner. Ryan Gilligan, Wolfe, Williams, Rutherford & Reynolds, Norton, WV; Sean Bajkowski, United States Department of Labor, Washington, for Respondents.
FACTS: This case involved a widow’s claim for survivors’ benefits under the Black Lung Benefits Act, 30 U.S.C. §§901-944, as amended by the Patient Protection and Affordable Care Act (PPACA), Pub.L. No. 111-148, §1556, 124 Stat. 119, 260 (2010).
The PPACA amendments revived Section 422(l) of the Black Lung Benefits Act, 30 U.S.C. §932(l), which provides that an eligible survivor of a miner who was receiving benefits at the time of his death is automatically entitled to survivors’ benefits without having to establish that the miner’s death was due to pneumoconiosis, also known as black lung disease.
Howard Stacy mined coal in West Virginia for Olga Coal Company from 1975 until 1986. Shortly after leaving the mines, Stacy filed a claim for federal black lung benefits. The Department of Labor granted the claim, finding that Stacy was totally disabled as a result of pneumoconiosis arising from his coal mine employment. West Virginia Coal Workers’ Pneumoconiosis (CWP) Fund, as insurer for Olga Coal Company, paid Black Lung Benefits to Stacy for 20 years until his death in January 2007.
Stacy’s widow, Elsie Stacy, filed a claim for survivors’ benefits in 2007. At that time, the applicable regulations required her to prove that pneumoconiosis caused, contributed to, or hastened her husband’s death.
The administrative law judge ruled that Mrs. Stacy had failed to prove that her husband suffered from pneumoconiosis, and therefore denied the claim. Mrs. Stacy appealed the ALJ’s denial to the Benefits Review Board.
While Mrs. Stacy’s case was on appeal, the PPACA was enacted. Shortly thereafter, Mrs. Stacy filed a motion with the Benefits Review Board requesting that her case be remanded for a determination of benefits under the newly amended Black Lung Benefits Act.
The Benefits Review Board granted the motion, vacated the ALJ’s decision and remanded Mrs. Stacy’s claim for the entry of an award of benefits.
West Virginia CPW Fund appealed to the 4th Circuit, which affirmed the Benefits Review Board’s decision.
LAW: The black lung benefits program was enacted in 1969 to provide benefits for miners totally disabled due to pneumoconiosis arising out of coal mine employment. See 20 C.F.R. §718.201(a). The statute, now known as the Black Lung Benefits Act, also provides survivors’ benefits for miners’ dependents.
As initially enacted, the program required a survivor to prove entitlement by showing either that the miner’s death was caused by pneumoconiosis or that the miner was totally disabled by pneumoconiosis at the time of his death. See 30 U.S.C. §901 (1976).
In 1977, Congress introduced BLBA Section 422(l), 30 U.S.C. §932(l), the Black Lung Benefits Reform Act of 1977, §7(h) (1978), which provided that the eligible survivors of a miner who had been awarded disability benefits on a claim filed during his lifetime were automatically entitled to survivors’ benefits.
In this case, West Virginia CPW Fund argued that retroactive application of the automatic survivorship provision to claims filed after January 1, 2005, violated substantive due process because Congress did not provide any legitimate purpose for making the legislation retroactive and arbitrarily chose January 1, 2005, as the operative filing date. Legislative acts adjusting the burdens and benefits of economic life are presumed to be constitutional, and the burden is on one complaining of a due process violation to establish that the legislature has acted in an arbitrary and irrational way. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976). This is true even where that legislation is applied retroactively. Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984).
The Usery Court made plain that it is not arbitrary and irrational for Congress to compel operators who have benefitted from a miner’s labor in his productive years to care for that miner in his declining years and for his spouse or other eligible dependents after his death. Indeed, the wholly rational and legitimate purpose for applying amended §932(l) retroactively is to compensate the survivors of deceased miners for the effects of disabilities bred in the past. Usery v. Turner Elkhorn Mining Co., 428 U.S. at 18.
In this case, because retroactive application of amended §932(l) (the automatic survivorship provision) was not arbitrary and irrational, West Virginia CPW Fund’s substantive due process argument was unavailing.
Accordingly, the decision of the Benefits Review Board was affirmed.
Labor & Employment
Maryland Wage Payment and Collection Act
BOTTOM LINE: Maryland Wage Payment and Collection Law was not a fundamental Maryland public policy; therefore, choice of law provision in company profit-sharing plan designating New Jersey as forum for related lawsuits was enforceable against former employee seeking to recover shares that were unvested when her employment was terminated without cause.
CASE: Kunda v. C.R. Bard, Incorporated, No. 09-1809 (decided Dec. 23, 2011) (Judges Motz, GREGORY & Duncan). RecordFax No. 11-1223-60, 18 pages.
COUNSEL: Paul Evelius, Wright, Constable & Skeen, LLP, Baltimore, for Appellant. William Miossi, Winston & Strawn, LLP, Washington, for Appellee.
FACTS: This case involved an action by Hillary Kunda against her former employer, C.R. Bard Inc. While employed by the company, Kunda participated in the company’s long-term profit sharing plan, the “Optimum Program.” Kunda received four Premium Units per Elective Unit in calendar year 2002 and two Premium Units per Elective Unit in years 2003 and 2005.
In 2008, C.R. Bard terminated Kunda’s employment without cause. Apart from certain Premium Units from 2002 that C.R. Bard vested in Kunda on an accelerated schedule, Kunda’s Premium Units were unvested at the time of termination, and C.R. Bard deemed Kunda’s Premium Units forfeited.
Kunda filed suit against C.R. Bard in U.S. District Court, claiming that she was entitled to the remaining vested Premium Units not given to her upon termination. She argued that despite a New Jersey choice-of-law provision in the plan agreement, Maryland law applied to the contract because the Maryland Wage Payment and Collection Law (“MWPCL”) constituted a fundamental Maryland public policy.
The U.S. District Court granted C.R. Bard’s motion to dismiss pursuant to Rule 12(b)(6), finding that New Jersey law applied to the contract and that the unvested shares were not wages under New Jersey law.
Kunda appealed to the 4th U.S. Circuit Court of Appeals, which affirmed the lower court’s decision.
LAW: Kunda first challenged the U.S. District Court’s finding that New Jersey law, and not Maryland law, applied, arguing that Maryland law should apply because the MWPCL is a fundamental Maryland public policy.
Under §187 of the Second Restatement of Conflict of Laws, the law of the state chosen by the parties to govern their contractual rights and duties will be applied unless: (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has materially greater interest than the chosen state in the determination of the particular issue and which otherwise would be the state of applicable law in the absence of an effective choice of law by the parties. Not every statutory provision constitutes a fundamental policy of a state. Volvo Constr. Equip. of N. Amer., Inc. v. CLM Equip. Co., 386 F.3d 581, 607 (4th Cir. 2004).
No Maryland state court has yet evaluated whether the MWPCL embodies such a strong public policy. Sedghi v. Patchlink Corp., No. 07-1636, 2010 WL 3895472, at *4 (D. Md. Sept. 30, 2010). However, the U.S. District Court for the District of Maryland has thrice held that the Wage Law does not appear to represent a fundamental policy of the state of Maryland for the purpose of choice of law analysis. Taylor v. Lotus Dev. Corp., 906 F. Supp. 290, 298 (D. Md. 1995).
Maryland state courts have struck down contractual provisions contrary to a fundamental public policy in cases where the related statute contains an express statement that the law is a fundamental public policy, an anti-waiver provision, or similar language of clear legislative intent.
The MWPCL, by contrast, contains no express language of legislative intent that that law is a fundamental Maryland public policy. Furthermore, the MWPCL contains no language indicating that any contractual terms contrary to its provisions are void and unenforceable, or that any provision of the MWPCL may not be waived by agreement.
As such, the MWPCL is not a fundamental Maryland public policy, and the U.S. District Court’s holding that the choice-of-law provision must be upheld and New Jersey law applied was affirmed.
Kunda next argued that even if New Jersey law applied here, her unvested shares constituted “wages” which, under the New Jersey Wage Payment Law (“NJWPL”), C.R. Bard was not entitled to withhold upon her termination. N.J. Stat. Ann. §34:11-4.2 (2011). However, the NJWPL explicitly excludes any form of supplementary incentives and bonuses which are calculated independently of regular wages and paid in addition thereto. Id. §34:11-4.1.
New Jersey defines wages only as “the direct monetary compensation for labor or services rendered by an employee, where the amount is determined on a time, task, piece, or commission basis.” Id. Any Premium Units Kunda might receive through the Optimum Program were incentives for her to continue her employment at C.R. Bard, and not simply payment for the sales she completed. Thus, Kunda had no claim under the NJWPL and was limited to seeking a common-law remedy.
Kunda contended that the Optimum Program’s forfeiture clause was unreasonable and therefore invalid.
In fact, however, the forfeiture clause was both reasonable and enforceable, as it met the requirements set forth in Rosen v. Smith Barney, Inc., 925 A.2d 32 (N.J. Super. Ct. App. Div. 2007). The contract was in writing and all terms were fully disclosed prior to any participant enrolling; the risk of forfeiture was unambiguously disclosed; the period of delay for absolute ownership was neither onerous nor unreasonable; and the plaintiff freely, willfully, and knowledgably consented. Id.
Kunda received ample written documentation relating to the program prior to participation, including a prospectus, and the risk of forfeiture was clearly and repeatedly disclosed in all literature sent to Kunda. The seven-year vesting period was not unreasonable or onerous, and was in fact accelerated, as evidenced by the fact that some of Kunda’s Premium Units granted in 2003 had already vested by the time of her termination. For these reasons, the lower court’s grant of C.R. Bard’s motion to dismiss was affirmed.
Truth in Lending Act
BOTTOM LINE: Lender did not violate the Truth in Lending Act’s disclosure requirements in providing a refinancing borrower with a rescission-rights form intended for use with new mortgages, because the form actually used included all of the “effects of rescission” mandated by the TILA and Regulation Z.
CASE: Watkins v. SunTrust Mortgage, Incorporated., No. 10-1915, No. 10-1915 (decided Dec. 14, 2011) (Judges NIEMEYER, Wynn & Diaz). RecordFax No. 11-1214-60, 24 pages.
COUNSEL: Henry McLaughlin, Law Office of Henry McLaughlin, P.C., Richmond, VA, for Appellant; Mark Shuford, Kaufman & Canoles, P.C., Richmond, VA, for Appellee.
FACTS: This case involved the issue of whether a lender violates the Truth in Lending Act, 15 U.S.C. §1601 et seq., in providing notice to a borrower who is refinancing his mortgage of the right to rescind the transaction, using a form of notice substantially similar to Model Form H-8 in the Appendix to Regulation Z, 12 C.F.R. pt. 226, rather than using Model Form H-9, which was designed for refinancing transactions.
Edward and Danielle Watkins refinanced the loan with a new loan from SunTrust Mortgage, Inc., secured by a deed of trust on their house. SunTrust had also been the lender on the Watkinses’ prior loan. At the closing of the refinancing transaction, SunTrust gave the Watkinses written notices of their right to rescind the transaction, using a form of notice that was substantially similar to Form H-8 (“Rescission Model Form (General)”), as included in the Appendix to Regulation Z, 12 C.F.R. pt. 226. Model Form H-8 contained all of the information specified in the Truth in Lending Act and Regulation Z for disclosure of the right to rescind a secured consumer credit transaction, but it did not include some language specific to refinancing transactions that was included in Model Form H-9.
The Watkinses fell behind in payments on their loan, and SunTrust scheduled a foreclosure sale of the house.
In December 2009, the attorney for Edward Watkins announced that Edward Watkins was rescinding the refinancing transaction because SunTrust had provided the Watkinses notice of right to cancel applicable to a new extension of credit by a new creditor, while this transaction involved an extension of additional credit by an existing creditor with an existing lien on the home.
The letter claimed that SunTrust’s use of Form H-8 in lieu of Form H-9 was a material violation of the Truth in Lending Act disclosure requirements.
When SunTrust failed to take steps to rescind the transaction, Edward Watkins filed an action under the Truth in Lending Act, seeking a declaratory judgment that he was entitled to rescind the May 7, 2007 refinancing transaction and an award of statutory damages. SunTrust filed a motion to dismiss, which was granted by the district court.
Watkins appealed to the 4th U.S. Circuit Court of Appeals, which affirmed.
LAW: To facilitate the informed use of credit, the Truth in Lending Act requires lenders to “clearly and conspicuously” make a number of disclosures to borrowers, including the disclosure of the borrowers’ right to rescind a consumer credit transaction. 15 U.S.C. §§1601(a), 1635(a).
The Truth in Lending Act provides that a borrower has the right to rescind a consumer credit transaction in which the borrower gives the lender a security interest in the borrower’s principal dwelling. The right to rescind extends until midnight of the third business day after the closing or after delivery of TILA-required disclosure forms, but if the required disclosures are not delivered to the borrower, the borrower’s right to rescind expires three years after closing. Id.
The Truth in Lending Act requires the Federal Reserve Board to promulgate regulations to carry out the purposes of the Act, including offering “model disclosure forms” to facilitate compliance with the disclosure requirements. 15 U.S.C. §1604(b). However, the TILA states that a creditor is not required to use any of these model forms in giving notice of the right to rescind. Id.
In Regulation Z, 12 C.F.R. pt. 226, the Board itemized the notice requirements for disclosing the right of rescission. Specifically, Regulation Z requires that the notice of the right to rescind “conspicuously disclose” the following elements: (i) the retention or acquisition of a security interest in the consumer’s principal dwelling; (ii) the consumer’s right to rescind the transaction; (iii) how to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business; (iv) the effects of rescission; and (v) the date the rescission period expires. 12 C.F.R. §226.23(b)(1).
It was undisputed that the Watkinses’ May 7, 2007, loan transaction was a refinancing involving the same creditor that extended credit to the Watkinses on their prior loan. It was also undisputed that at the closing of the transaction, SunTrust provided the Watkinses with a disclosure of their right to rescind that was substantially similar to Model Form H-8 and that did not include the two additional sentences included in Model Form H-9.
However, SunTrust was not required to include in any notice the information contained in the two additional sentences included in Form H-9 for refinancing. Indeed, the two additional sentences were nothing more than a particularized restatement of what is contained in Form H-8, which is that the right to rescind applies to the entire consumer credit transaction.
Because SunTrust’s notice to the Watkinses fulfilled each requirement imposed by the Truth in Lending Act and by Regulation Z (indeed, nearly verbatim), its notice to the Watkins was not in violation of the TILA. See Santos-Rodriguez v. Doral Mortg. Corp., 485 F.3d 12, 18 (1st Cir. 2007).
Accordingly, the judgment of the U.S. District Court was affirmed.