Please ensure Javascript is enabled for purposes of website accessibility

Opinions – 2/13/12: 4th U.S. Circuit Court of Appeals

Civil Procedure

Offer of judgment

BOTTOM LINE: In plaintiff’s lawsuit seeking unspecified actual damages from defendants for alleged violations of the Fair Debt Collection Act, defendants’ offer of judgment under Federal Rule of Civil of Procedure 68, which offered plaintiff actual damages in the amount of $250 or an amount determined by the court, did not render plaintiff’s action moot because the offer was not unequivocal and deprived plaintiff of right to have damages determined by a jury.

CASE: Warren v. Rogers, No. 10-2105 (decided Jan. 11, 2012) (Judges MOTZ, Gregory & Floyd). RecordFax No. 12-0111-62, 18 pages.

COUNSEL: Anthony Majestro, Powell & Majestro, PLLC, Charleston, West Virginia, for Appellant/Cross-Appellee. Dauna Bartley, Ellis & Winters, LLP, Raleigh, North Carolina, for Appellees/Cross-Appellants.

FACTS: After her husband died in 2006, Margaret Warren learned of an overdue personal VISA credit card account at Branch Banking & Trust Co. (“BB&T”), which was listed in her husband’s name. Although the BB&T account listed only Warren’s husband’s name, BB&T at some point began sending Warren statements bearing the names of both her and her husband. Warren made several payments on the account but eventually ceased these payments.

In February of 2009, Warren began to receive communications from the debt collection law firm Sessoms & Rogers, P.A. (“S&R”). S&R sent her an initial collection letter stating that BB&T had retained S&R to assist in the recovery of the debt. Attorney Lee Rogers signed the letter on behalf of S&R. Warren also began to receive phone calls from S&R in regard to the debt. Warren disputed the debt in a March 7, 2009 letter to S&R. In the letter, she requested verification of the debt, and requested that S&R send all future correspondence directly to her attorney. Warren included the name and mailing address of her retained counsel. Thereafter, Rogers, on behalf of S&R, sent another collection letter directly to Warren.

On November 16, 2009, Warren filed suit in federal district court against S&R and Rogers, alleging they had violated the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et seq., by communicating with her when they knew she was represented by an attorney and had actual knowledge of her attorney’s name and address, failing to notify her in subsequent communications that the communication was from a debt collector, and using false, deceptive, or misleading representations or means in connection with the collection of the debt. Warren sought an award of unspecified actual damages, statutory damages of $1,000, costs, and attorney’s fees.

Prior to any discovery, the defendants made Warren an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure. The offer provided for judgment to be taken against the defendants for: actual damages in the amount of $250 or another amount determined by the court; statutory additional damages in the amount of $1,001; and attorney’s fees and costs. When Warren did not accept the offer, the defendants moved to dismiss the action, contending that the offer of judgment mooted Warren’s case and, in the alternative, that her complaint failed to state a claim upon which relief could be granted.

The district court dismissed Warren’s complaint, concluding that her allegations failed to show a material violation of the Act or that the defendants knowingly and willfully violated the Act. Warren appealed to the 4th Circuit, which reversed and remanded the case.

LAW: Although the district court did not rule on the defendants’ Rule 12(b)(1) motion to dismiss on mootness grounds, this question was the first and foremost matter before the Court of Appeals, because if Warren’s case was moot, the Court would lack subject-matter jurisdiction. See Iron Arrow Honor Soc’y v. Heckler, 464 U.S. 67, 70 (1983). Thus, the initial question in this appeal was whether the defendants’ Rule 68 offer of judgment mooted Warren’s case.

Rule 68 provides that, at least 14 days before trial begins, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. Fed. R. Civ. P. 68(a). To effectuate the purposes of Rule 68, an offer of judgment must specify a definite sum or other relief for which judgment may be entered and must be unconditional. Simmons, 634 F.3d at 764. When a Rule 68 offer unequivocally offers a plaintiff all of the relief she sought to obtain, the offer renders the plaintiff’s action moot. O’Brien v. Ed Donnelly Enters., Inc., 575 F.3d 567, 575 (6th Cir. 2009).

In this case, the defendants’ Rule 68 offer of judgment proposed a damage award in the amount of $250 or, in the alternative, actual damages in “an amount determined by the Court.” In her complaint, however, Warren sought an unspecified award of actual damages. The FDCPA places no statutory cap on a plaintiff’s actual damages. Thus, at this stage in the proceedings, before any evidentiary hearing or judicial fact-finding, it could not be presumed that Warren could not possibly recover more than $250 if her case proceeded to a jury trial. See Sibersky v. Borah, Goldstein, P.C., 242 F. Supp. 2d 273, 277-78 (S.D.N.Y. 2002). As such, defendants’ offer to pay $250 in actual damages did not moot Warren’s case.

The second option offered by the defendants conditioned the amount of actual damages on the district court’s determination. However, to moot a plaintiff’s case, an offer must be unequivocal. See Simmons, 634 F.3d at 766. The offer here, leaving the amount of damages to be determined by the Court upon plaintiff’s submissions, was not unequivocal but conditional, predicated on what the district court as fact-finder might or might not do. See id. Moreover, the defendants’ offer deprived Warren of her right to have a jury determine disputes of fact regarding actual damages.

As such, neither option offered by the defendants to satisfy Warren’s alleged actual damages mooted her case. Because Warren’s complaint sufficiently alleged violations of the FDCA, the judgment of the district court dismissing Warren’s action was reversed.

Labor & Employment

Arbitration agreement

BOTTOM LINE: Where agreement between mine workers’ union and coal company contained arbitration clause granting authority to an arbitrator to resolve any dispute alleging breach of the agreement, the court was the proper forum for determining whether union’s claim that coal company’s breached its duties under the agreement was arbitrable, and because coal company did not rebut the general presumption in favor of arbitrability, this presumption controlled, and parties’ dispute was subject to arbitration by arbitrator.

CASE: Peabody Holding Company v. United Mine Workers of America, No. 10-2134 (decided Jan. 11, 2012) (Judges Niemeyer, Wynn & DIAZ). RecordFax No. 12-0111-60, 17 pages.

COUNSEL: John Woodrum, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Washington, D.C., for Appellants. Deborah Stern, United Mine Workers of America, Triangle, Virginia, for Appellee.

FACTS: In 2007, United Mine Workers of America, International Union, entered into a limited job-preference agreement with Peabody Coal Company. The jobs agreement, which included an arbitration clause, also bound Peabody Coal’s parent company and the parent company’s subsidiaries. The arbitration clause extended dispute-resolution authority to a Jobs Monitor. Specifically, the arbitration clause provided that any dispute alleging a breach of the agreement, if not resolved by the parties, could be submitted to the Jobs Monitor for resolution. The Jobs Monitor’s resulting decisions were to be “final and binding” on all parties. The agreement forbade the Jobs Monitor to alter, amend, modify, add to or subtract from, or change in any way the provisions of the contract, and prohibited non-signatory companies, the Union, and miners from using any existing or future contractual grievance procedure to resolve any dispute that may arise concerning the interpretation or application” of the contract.

Positing that the parent company, Peabody Holding Company, LLC, and its subsidiary Black Beauty Coal Company had shirked their obligations under the agreement, the Union submitted a grievance to the Jobs Monitor. Peabody Holding, however, argued that its responsibilities under the Jobs Agreement had extinguished on October 31, 2007, well before the Union had raised its complaint. Peabody Holding contended that, as such, the dispute was no longer arbitrable by the Jobs Monitor.

The Jobs Monitor found that the matter was arbitrable but deferred a ruling on the merits. Peabody Holding and Black Beauty responded to the arbitrator’s ruling by seeking a declaratory judgment in federal court that the dispute was not arbitrable. The Union filed a counterclaim, requesting a declaratory judgment that Peabody Holding and Black Beauty were required to proceed before the Jobs Monitor. The district court entered judgment in favor of the Union.

Peabody Holding and Black Beauty appealed to the 4th Circuit, which affirmed the judgment of the district court.

LAW: Arbitrability disputes often necessitate a two-step inquiry. First, the reviewing court must determine whether a particular dispute is arbitrable by the arbitrator or by the court. Second, if the court concludes that the court is the proper forum in which to adjudicate arbitrability, it then must decide whether the dispute is, in fact, arbitrable.

Although Maryland has adopted a general policy-based, federal presumption in favor of arbitration, that presumption is not applied to resolve questions of the arbitrability of arbitrability issues themselves. Carson v. Food Giant, Inc., 175 F.3d 325, 329 (4th Cir. 1999). Indeed, the question of arbitrability is undeniably an issue for judicial determination. AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986). And, while parties can agree to arbitrate arbitrability, such agreement must “clearly and unmistakably” provide that the arbitrator shall determine what disputes the parties agreed to arbitrate. Carson, 175 F.3d at 329.

The “clear and unmistakable” standard is exacting, and the presence of an expansive arbitration clause, without more, will not suffice. See id. Therefore, an arbitration clause committing all interpretive disputes “relating to” or “arising out of” the agreement does not satisfy the “clear and unmistakable” test. Id. at 330. Applying these principles to the jobs agreement in the present case, the terms of the contract failed to satisfy the “clear and unmistakable” test. The jobs agreement provided for arbitration of any dispute alleging a breach of the agreement, and nothing in the agreement evinced a clear intent to arbitrate arbitrability. Therefore, it was for the Court, not the Jobs Monitor, to determine the arbitrability of the parties’ dispute.

With regard to the question of whether the dispute itself was arbitrable, federal courts have developed a robust presumption in favor of arbitrability. Although courts will not blindly apply the presumption in favor of arbitrability, in this case the jobs agreement was, at the very least, ambiguous as to whether the dispute was arbitrable. The jobs agreement provided that the parties must submit to the Jobs Monitor any dispute alleging a breach of the agreement. Thus, the agreement necessarily gave the Jobs Monitor the authority to interpret contractual language and analyze defenses raised by a party charged with breaching the agreement, including the defense asserted by Peabody Holdings that its obligations under the jobs agreement had expired prior to the time that the Union raised its present complaint.

Because Peabody Holding and its subsidiaries did not sufficiently rebut the ordinary presumption in favor of arbitrability, this presumption controlled. Accordingly, the judgment of the district court that the dispute was arbitrable by the Jobs Monitor was affirmed.

Labor & Employment

Mineral Mine Safety Act

BOTTOM LINE: Virginia’s Mineral Mine Safety Act, which provides for warrantless administrative inspections of surface mines to respond to complaints of violations of the Act, did not violate the Fourth Amendment protection against unreasonable search and seizure.

CASE: Slate v. Fehrer, No. 11-1112 (decided Jan. 13, 2012) (Judges King, GREGORY & Davis). RecordFax No. 12-0113-61, 13 pages.

COUNSEL: David Mitchel, Michael Brickhill, PC, Appomattox, Virginia, for Appellant. Wesley Russell, Jr., Office of the Attorney General, Richmond, Virginia, for Appellees.

FACTS: LeSueur-Richmond Slate Corporation operated a slate quarry in Virginia. Damien Fehrer and Vernon Harris were mineral inspectors for the Virginia Department of Mines. James Smith was an inspector supervisor at the Department, and Conrad Spangler was the Department director. The Department administered Virginia’s Mineral Mine Safety Act, which provides for warrantless administrative inspections of surface mines to respond to complaints of violations of the Act.

From December 2007 to June 2008, Fehrer conducted approximately 25 warrantless inspections of LeSueur-Richmond’s mining operation after receiving anonymous tips that the mine was not in compliance with Virginia regulations. He was, on some of those occasions, accompanied by Smith and Harris. As a result of these inspections, the Department issued 32 violations against LeSueur-Richmond.

In December 2009, LeSueur-Richmond filed a §1983 action against Fehrer, Harris and Smith, contending that the Department’s warrantless investigations violated both the federal and Virginia state constitutions. The defendants moved to dismiss the action on various grounds, and the district court granted the motion.

LeSueur-Richmond appealed to the 4th Circuit, which affirmed the district court’s dismissal of the claim.

LAW: LeSueur-Richmond alleged that Virginia’s Mineral Mine Safety Act, which provides for warrantless administrative inspections of surface mines to respond to complaints of violations of the Act, violated the Fourth Amendment.

While a state actor normally must procure a warrant before conducting a search, inspections in heavily regulated industries are permissible so long as certain conditions are met. Specifically, a statute permitting government agents to conduct warrantless searches in the context of a heavily regulated industry is constitutional so long as it satisfies the three-pronged test laid out by the U.S. Supreme Court in New York v. Burger, 482 U.S. 691 (1987).

Here, only the third prong of the Burger test, requiring that the inspection program provide a constitutionally adequate substitute for a warrant, was contested by LeSueur-Richmond.

To meet this third requirement, the regulatory statute must perform the two basic functions of a warrant: (1) it must advise the owner of the commercial premises that the search is being made pursuant to law and has a properly defined scope; and (2) it must limit the discretion of the inspecting officers. To perform this first function, the statute must be sufficiently comprehensive and defined that the owner of commercial property cannot help but be aware that his property will be subject to periodic inspections undertaken for specific purposes. In addition, the statute must be carefully limited in time, place, and scope. Id. at 703. Virginia’s Mineral Mine Safety Act met these requirements.

First, the Act clearly indicates that a mine operator’s property is subject to search by stating that mine inspectors and other employees of the Department may enter mines in order to respond to complaints of statutory violations. Burger, 482 U.S. at 711. The Act permits inspections at any time “to the extent deemed reasonable and prudent at a variety of hours of the day and days of the week, including evening and night shifts, weekends, and holidays.” Va. Code Ann. §45.1-161.292:58B. Several sister circuits have upheld statutes that have similarly expansive language with respect to time. See, e.g., United States v. Ponce-Aldona, 579 F.3d 1218, 1226 (11th Cir. 2009). Similarly, the Act’s open-ended timing provision is responsive to the fact that mining operations have both day and night shifts, and a time restriction might render the entire inspection scheme unworkable and meaningless. Id.

As for place and scope, the Act likewise provides sufficient restrictions. For one, the discretion of inspectors extends only to mines that are regulated by the Mineral Mine Safety Act. Moreover, inspectors may not inspect any location subject to the statute; rather, the Department must first receive a complaint before it undertakes an inspection. Finally, the statute permits warrantless inspections only for the purpose of finding violations of the Act; it does not contemplate searches conducted to find evidence of, for example, money laundering or assault.

As such, Virginia’s Mineral Mine Safety Act provided adequate safeguards for LeSueur-Richmond and did not violate the Fourth Amendment. Accordingly, the district court’s dismissal of LeSueur-Richmond’s complaint was affirmed.

Military Law

Habeas corpus petition

BOTTOM LINE: Ex-soldier who had available remedies within the military justice system was required to exhaust those remedies before petitioning federal district court for collateral review of his challenge to the Army’s court-martial jurisdiction over him.

CASE: Hennis v. Hemlick, No. 10-6400 (decided Jan. 17, 2012) (Judges King, Gregory & WYNN). RecordFax No. 12-0117-60, 19 pages.

COUNSEL: Eric Allen, Columbus, Ohio, for Appellant. Seth Wood, Office of the United States Attorney, Raleigh, North Carolina, for Appellees.

FACTS: On July 4, 1986, while serving as an enlisted Army soldier, Timothy Hennis was convicted of rape and premeditated murder, and was sentenced to death. On October 6, 1988, the Supreme Court of North Carolina reversed his conviction and ordered a new trial. On April 19, 1989, at retrial, Hennis was acquitted of all charges, and subsequently resumed his enlisted service in the Army. He was issued a discharge from the Army on June 12, 1989 and reenlisted one day later, on June 13, 1989. Hennis retired from the Army on July 13, 2004.

In 2006, a cold case review conducted by the North Carolina State Bureau of Investigation revealed that preserved DNA evidence obtained from the body of the victim Hennis had been accused of raping and murdering in connection with his 1986 and 1989 trials matched the DNA profile of Hennis. The Army recalled Hennis from retired status to active duty to face court-martial charges for triple murder. Before commencement of his court-martial, Hennis filed a motion before the military trial court seeking a dismissal of all military charges, arguing that the Army lacked jurisdiction over him. The military trial court denied the motion.

Hennis subsequently filed interlocutory petitions for a writ of mandamus, writ of habeas corpus, and writ of prohibition with the Army Court of Criminal Appeals. Hennis’s petitions asserted jurisdictional challenges to the Army’s court-martial authority and requested enjoinment of the court-martial proceedings. On May 19, 2008, the Army Court of Criminal Appeals issued an order staying the court-martial proceedings, but on June 25, 2008, it denied his petitions.

On July 15, 2008, Hennis submitted a writ-appeal petition to the military’s highest court, the Court of Appeals for the Armed Forces. On September 26, 2008, the Court of Appeals for the Armed Forces denied Hennis’s petition without prejudice to seek review of his claims, including his challenges to the Army’s jurisdiction, within the military justice system’s appellate review process afforded by 10 U.S.C. §§866, 867. On October 1, 2008, the Army Court of Criminal Appeals lifted the stay of Hennis’s court-martial proceedings.

On December 28, 2009, Hennis filed a petition for a writ of habeas corpus in district court, arguing that his discharge from the Army (i.e., his “break in service” between June 12, 1989 and June 13, 1989) deprived the Army of jurisdiction to court-martial him for conduct that occurred before June 13, 1989. The district court did not reach the merits of the matter because it determined that Hennis’s petition for a writ of habeas corpus should be dismissed on the basis of the abstention principles set forth in Schlesinger v. Councilman, 420 U.S. 738 (1975). The district court dismissed Hennis’s petition for a writ of habeas corpus without prejudice.

Hennis appealed to the 4th Circuit, which affirmed the judgment of the district court.

LAW: In Schlesinger v. Councilman, 420 U.S. 738 (1975), the Supreme Court held that principles of comity, respect for the expertise of military judges, and judicial economy weigh against federal court intervention in pending court-martial proceedings and in favor of requiring exhaustion of all available remedies within the military justice system before a federal court’s collateral review. This principle is known as Councilman abstention. In the present case, Hennis asserted that the district court abused its discretion in its application of Councilman abstention.

However, it was undisputed that Hennis did not exhaust his available avenues for relief within the military justice system. At each stage of the appellate review process within the military justice system, Hennis had the right to litigate his jurisdictional challenge. Notably, Hennis’s petition to the Court of Appeals for the Armed Forces was dismissed without prejudice such that military courts could review his claims, including jurisdictional challenges, within the normal appellate process afforded by 10 U.S.C. §§866, 867.

Moreover, once Hennis’s post-trial motions were resolved by the convening authority, the Army Court of Criminal Appeals would review, on an automatic, mandatory basis, Hennis’s guilty verdict and death sentence. Id. at §866. Thereafter, the Court of Appeals for the Armed Forces would review, on an automatic, mandatory basis, Hennis’s guilty verdict and death sentence. Id. at §867. After review by the convening authority, the Army Court of Criminal Appeals, and the Court of Appeals for the Armed Forces, Hennis had the right to petition for certiorari with the United States Supreme Court to review his guilty verdict and death sentence. 28 U.S.C. §1259.

Before petitioning a federal district court for collateral review of his challenge to the Army’s court-martial jurisdiction over him, Hennis was required to exhaust his opportunities within the military justice system to raise his jurisdictional challenge. As such, the district court properly applied Councilman abstention.

Accordingly, the judgment of the district court dismissing Hennis’s petition for a writ of habeas corpus without prejudice was affirmed.

Torts

Federal Tort Claims Act

BOTTOM LINE: Where parents of injured child were awarded damages for child’s future care costs in Federal Tort Claims Act (“FTCA”) action against government doctors, remedy of allowing government to retain a reversionary interest in the lump-sum, present-value judgment without remaining liable for gross costs of child’s future care sufficiently approximated California law, which controlled, in a manner consistent with FTCA.

CASE: Cibula v. United States, No. 10-1245 (decided Jan. 9, 2012) (Judges MOTZ, Gregory & Duncan). RecordFax No. 12-0109-62, 14 pages.

COUNSEL: William Cole, United States Department of Justice, Washington, D.C., for Appellant. Bruce Klores, Klores, Perry, Mitchell, PC, Washington, D.C., for Appellees.

FACTS: This Federal Tort Claims Act (“FTCA”) case returned to the 4th U.S. Circuit Court of Appeals after remand to the district court. The FTCA waives the federal Government’s sovereign immunity in tort actions, making the United States liable in the same manner and to the same extent as a private individual under like circumstances. The case had been remanded for the district court to apply California law and craft a remedy that would hold the government liable in the same manner and to the same extent as a private individual under like circumstances.

After the negligence of government, doctors in California caused significant and irreversible brain damage to minor J.C. Cibula, his parents filed an FTCA suit against the United States. The U.S. District Court found the United States liable for J.C.’s injuries and awarded the Cibulas damages, including $22,823,718 for future care costs. In determining the amount of the future care award, the court relied on the testimony of the Cibulas’ expert, Dr. Richard Lurito, a Ph.D. economist, to conclude that a present value award of $22,823,718 was amount necessary to pay for the care that J.C. would need each year, such that no money would be left at the end of his normal life expectancy.

The United States argued that California law permitted it to retain a reversionary interest in this future care award. The district court rejected this argument because it concluded that Virginia law governed and did not permit this remedy. Applying Virginia law, the district court ordered the $22,823,718 future care award be placed in a non-reversionary trust for J.C.’s benefit, to be established and managed by a court-appointed guardian ad litem.

On appeal to the 4th U.S. Circuit Court of Appeals, the United States contended that the district court should have applied California law and, pursuant to that state’s law, should have ordered that the present value future care award be placed into a reversionary trust. At that time, the 4th Circuit found that the district court had erred by not applying California law, and it remanded the case, instructing the district court to apply California law and craft a remedy appropriate under the FTCA. On remand, the district court requested proposals from the Cibulas and the Government as to how it should “craft a remedy” consistent with California law.

The Cibulas submitted two proposals, and the United States submitted its own proposal. However, the district court rejected all three proposals and concluded that it was unable to craft a suitable reversionary trust that reconciled the “competing objectives” of the FTCA and California law. Accordingly, the court ordered that the present value future care award of $22,823,718 be placed into a special needs trust for the benefit of J.C. to be administered by his guardian ad litem, but which contained no reversion provision.

The United States again appealed, contending that the district court erred by refusing to order that the future care award be placed into a reversionary trust. The 4th Circuit affirmed in part and reversed in part the district court’s judgment, and remanded the case for further proceedings.

LAW: California law, which controlled the manner and extent of the liability of the United States in this case, permits a private defendant in a medical malpractice action to elect not to make a lump-sum award but instead to compensate a plaintiff for future damages by periodic payments, which largely cease upon the plaintiff’s death. Cal. Civ. Proc. Code §667.7. Enacted as part of the Medical Injury Compensation Reform Act (“MICRA”), this provision serves the twin legislative purposes of providing compensation sufficient to meet the needs of an injured plaintiff for whatever period necessary, while eliminating the potential windfall from a lump-sum recovery which was intended to provide for the care of an injured plaintiff over an extended period who then dies shortly after the judgment is paid, leaving the balance of the judgment award to persons and purposes for which it was not intended. Id. §667.7(f).

The parties here, however, disagreed as to the amount necessary for a reversionary trust to approximate California law. The government proposed that the present value future care award (i.e., $22,823,718) be placed into a reversionary trust, contending that its proposal most closely resembled the liability of a private defendant under §667.7. By contrast, the Cibulas contended that to approximate California law, the corpus of the reversionary trust must be the gross future care costs, not the present value damages that the district court awarded.

Allowing the government to retain a reversionary interest in the lump-sum, present-value judgment without remaining liable for the gross costs of J.C.’s future care would sufficiently approximate California law. In exchange for release from a continuing obligation that the government could not undertake, the government would be required to make a large lump-sum payment to J.C.’s trust up front, and, thus, forgo the retention and investment benefits available to private defendants making periodic payments under California law. Requiring the Government to make this immediate large lump-sum payment would provide the Cibulas with the ability, unavailable to plaintiffs receiving periodic payments under California law, to invest this large sum throughout their child’s life. The district court expressly found that this amount would be sufficient, if invested conservatively, to provide for all of J.C.’s care during his lifetime.

Because granting the Government a reversionary interest in J.C.’s future care award would eliminate the potential for a windfall without in any way rendering the award less sufficient compensation for J.C., such a remedy would approximate §667.7 in a manner consistent with the FTCA.

Accordingly, the case was remanded with instructions for the district court to fashion such a remedy, and the district court’s judgment was otherwise affirmed.