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Law Digest — 4th Circuit, Court of Appeals, Court of Special Appeals — June 16, 2022

U.S. Court of Appeals for the 4th Circuit

Bankruptcy; dischargeability: Where the bankruptcy code provides that small business debtors are not entitled to discharge certain categories of debt, including debts “for willful and malicious injury by the debtor to another entity or to the property of another entity,” the debtor couldn’t discharge a $4.7 million judgment imposed for its intentional interference with contracts and tortious interference with business relations. Cantwell-Cleary Co. Inc. v. Cleary Packaging LLC, No. 21-1981 (filed June 7, 2022).  

Criminal; harmless error: Where the district court referred to statements from the defendant’s ex-wife during a sentencing hearing without balancing the interests of the parties, requiring a showing of good cause or first disclosing them to the defendant, that was error. Because the record provided no evidence that the district court would have imposed a lower sentence absent the improperly admitted statements, however, the error was harmless. United States v. Combs, No. 21-4064 (filed June 7, 2022).  

Sanctions; civil contempt: Where a jury found two companies’ statements about probiotic products constituted false advertising, the district court enjoined them from making further statements about the products. When they nevertheless made statements in violation of that order, the district court did not err in holding them in civil contempt. Cantwell-Cleary Co. Inc. v. Cleary Packaging LLC, No. 21-1981 (filed June 7, 2022).  

Maryland Court of Appeals 

Criminal; vehicle felony murder: Where a defendant convicted of running over a police officer with a vehicle argued that Maryland’s manslaughter by motor vehicle statute preempts all common law homicide charges based on an unintentional killing by a motor vehicle, including felony murder, his argument was rejected.  Harris v. State, No. 45, Sept. Term, 2021 (filed June 8, 2022).  

Maryland Court of Special Appeals

Domestic relations; marital property: Where the record showed the husband had sufficient marital property to fund a monetary award to the wife at the time the award was made, the trial court did not err or abuse its discretion in awarding $50,000 to wife. While husband may not have the money today, that’s not what’s required by case law. Ledbetter v. Ledbetter, No. 1161, Sept. Term, 2020 (filed June 7, 2022).

U.S. Court of Appeals for the 4th Circuit

Bankruptcy

Dischargeability

BOTTOM LINE: Where the bankruptcy code provides that small business debtors are not entitled to discharge certain categories of debt, including debts “for willful and malicious injury by the debtor to another entity or to the property of another entity,” the debtor couldn’t discharge a $4.7 million judgment imposed for its intentional interference with contracts and tortious interference with business relations.

CASE: Cantwell-Cleary Co. Inc. v. Cleary Packaging LLC, No. 21-1981 (filed June 7, 2022) (Judges NIEMEYER, Motz, King).

FACTS: When Cleary Packaging LLC filed a petition in bankruptcy under subchapter V of Chapter 11 as a “small business debtor,” seeking to discharge a $4.7 million judgment that Cantwell-Cleary Co. Inc. had obtained against it for intentional interference with contracts and tortious interference with business relations, Cantwell-Cleary opposed the effort. It argued that 11 U.S.C. § 1192(2) provides that small business debtors are not entitled to discharge “any debt . . . of the kind specified in section 523(a) of this title,” and that § 523(a) in turn lists 21 categories of debt that are non-dischargeable, including debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.”

Cleary Packaging argued, however, that because § 523(a)’s list of exceptions to dischargeability is applicable only to “individual debtor[s],” its $4.7 million debt as the debt of a corporation was not covered by the exception contained in § 1192(2) and therefore was indeed dischargeable. The bankruptcy court agreed with Cleary Packaging. It then certified a direct appeal to this court. The sole question on appeal is whether Cleary Packaging, as a subchapter V corporate debtor, can discharge its $4.7 million debt to Cantwell-Cleary “for willful and malicious injury.”

LAW: Section 1192(2) provides for the discharge of debts for both individual and corporate debtors. Despite this, the question remains whether the exception to such discharges — based on § 1192(2)’s reference to § 523(a) — applies to both individuals and corporations or to only individuals. And that question arises because the introductory language in § 523(a) limits its discharge exceptions to individual debtors. Specifically, § 523(a) provides that § 1192 “does not discharge an individual debtor” from a list of 21 specified debts, including “any debt . . . for willful and malicious injury,” implying that corporations are not subject to the discharge exceptions.

To address the question, the court begins by focusing on § 1192(2) as the provision specifically governing discharges in a subchapter V proceeding and on the scope of its incorporation of § 523(a). Section 1192(2) excepts from discharge “any debt . . . of the kind specified in section 523(a).”  The section’s use of the word “debt” is decisive as it does not lend itself to encompass the “kind” of debtors discussed in the language of § 523(a). This is confirmed yet more clearly by the phrase modifying “debt”— i.e., “of the kind.”

Thus, the combination of the terms “debt” and “of the kind” indicates that Congress intended to reference only the list of non-dischargeable debts found in § 523(a). As the government’s amicus brief notes, this interpretation of “of the kind” is in line “with the ordinary meaning of the word ‘kind’ as ‘category’ or ‘sort.’” Thus, the court concludes that the debtors covered by the discharge language of § 1192(2) — i.e., both individual and corporate debtors — remain subject to the 21 kinds of debt listed in § 523(a). To the extent that one might find tension between the language of § 523(a) addressing individual debtors and the language of § 1192(2) addressing both individual and corporate debtors — that the more specific provision should govern over the more general.

The context of § 1192(2) within the Bankruptcy Code and its structure further support the court’s interpretation. It is readily apparent from a review of different Bankruptcy Code chapters that Congress conscientiously defined and distinguished the kinds of debtors covered by each provision. Finally, the court’s interpretation of § 1192(2) in subchapter V makes particular sense when considering that subchapter’s juxtaposition in Chapter 11 with traditional Chapter 11 provisions, reflecting its distinctive purpose within that chapter.

Reversed and remanded.

Criminal

Harmless error

BOTTOM LINE: Where the district court referred to statements from the defendant’s ex-wife during a sentencing hearing without balancing the interests of the parties, requiring a showing of good cause or first disclosing them to the defendant, that was error. Because the record provided no evidence that the district court would have imposed a lower sentence absent the improperly admitted statements, however, the error was harmless.

CASE: United States v. Combs, No. 21-4064 (filed June 7, 2022) (Judges MOTZ, Quattlebaum, Heytens).

FACTS: In a hearing to determine whether to revoke Thomas Combs’ supervised release and sentence him to additional time in prison, the district court twice referred to out-of-court statements by Combs’ ex-wife. The court neither disclosed these statements to Combs’ counsel prior to the revocation hearing nor gave counsel the opportunity to cross-examine the speaker.

At the hearing, Combs never objected to the court’s introduction of the statements or requested a continuance during which he might discover information about them. Combs argues on appeal, however, that the introduction of his ex-wife’s statements during the revocation hearing constitutes plain error and asks that the court remand this case to the district court for resentencing.

LAW: Federal Rule of Criminal Procedure 32.1(b)(2)(B) states that a person subject to a revocation hearing “is entitled to . . . disclosure of the evidence against” him. Additionally, Rule 32.1(b)(2)(C) states that a person charged with a violation of the terms of supervised release “is entitled to . . . an opportunity to appear, present evidence, and question any adverse witness unless the court determines that the interest of justice does not require the witness to appear.” Thus, under subsection (C), “prior to admitting hearsay evidence in a revocation hearing, the district court must balance the releasee’s interest in confronting an adverse witness against any proffered good cause for denying such confrontation.”

The government primarily contends that the district court committed no error at all here because neither of these rules applies to the sentencing portion of the revocation hearing, as opposed to what the government calls the “guilt phase.” The court disagrees.

First, nothing in the text of the rule indicates that it applies only to the so-called “guilt phase.” Moreover, subsection (E) of the same rule provides a person charged with a violation of the terms of supervised release the right “to make a statement and present any information in mitigation.”

The government does not dispute that mitigation and allocution relate to sentencing. That Rule 32.1(b)(2) lists the right to allocution together with the rights to the disclosure of evidence and to question adverse witnesses in a single list of procedural protections — drawing no distinction between the guilt and sentencing phases of a revocation hearing — indicates strongly that the Rule applies to the entire proceeding. The origins of Rule 32.1 make that conclusion even more apparent.

The government nevertheless argues that it would be nonsensical to impose stricter procedural requirements during revocation sentencings than apply during ordinary sentencings. The government points to a prior decision in which this court stated that it has “repeatedly allowed a sentencing court to consider ‘any relevant information before it, including uncorroborated hearsay, provided that the information has sufficient indicia of reliability.’”

But as Combs notes, the two contexts are not comparable. A criminal conviction imposed after an initial criminal trial carries with it societal stigma and, often, the loss of civil rights like the rights to vote and serve on a jury. In contrast, the guilt phase of a revocation hearing involves few, if any, of these collateral consequences. The court thus rejects the government’s argument that these rules do not apply to the sentencing phase of a revocation proceeding and concludes that the district court erred in introducing N.D.’s statements without balancing the interests of the parties, requiring a showing of good cause or first disclosing the statements to Combs.

The question is whether, absent the improperly admitted statements, Combs has shown a reasonable probability that the district court would have imposed a lower sentence. The record provides no evidence of such a probability. Considering the wealth of information the district court already had before it as to Combs’ treatment of his ex-wife, the court’s heavy emphasis on the frequency of violations and the threat to public safety posed by Combs and the bottom-of-the-guidelines sentence it imposed, Combs has not shown a reasonable probability that the outcome of the proceedings would have been different absent consideration of the undisclosed statements.

Affirmed.

Sanctions

Civil contempt

BOTTOM LINE: Where a jury found two companies’ statements about probiotic products constituted false advertising, the district court enjoined them from making further statements about the products. When they nevertheless made statements in violation of that order, the district court did not err in holding them in civil contempt.

CASE: Cantwell-Cleary Co. Inc. v. Cleary Packaging LLC, No. 21-1981 (filed June 7, 2022) (Judges NIEMEYER, Motz, King).

FACTS: Claudio De Simone helped develop an eight-strain probiotic, which he patented in 1998. He licensed the probiotic’s formulation to VSL Pharmaceuticals Inc., which partnered with Leadiant Biosciences Inc., to market it under the name VSL#3. Leadiant later assigned its rights under the contract to Alfasigma USA Inc.

In 2015, De Simone cut ties with VSL, Leadiant, and Alfasigma. He began licensing his formulation to ExeGi, which marketed it under the name Visbiome. Meanwhile, VSL developed a new probiotic in Italy and began selling it under the name VSL#3. In May 2015, De Simone and ExeGi sued VSL, Leadiant and Alfasigma. A jury found Leadiant and Alfasigma liable for false advertising, awarding ExeGi $15 million, and VSL liable for violating the agreement, awarding De Simone $967,435.

Based on that verdict, the district court issued a permanent injunction, which enjoined Alfasigma and Leadiant from making certain statements. Less than four months later, ExeGi moved for a civil contempt order against VSL and Alfasigma. ExeGi identified multiple violations of the injunction including: (1) a letter Alfasigma sent to healthcare providers, (2) comments on Facebook  and (3) an Actial Farmaceutica S.r.l. press release. The district court found VSL and Alfasigma in contempt.

LAW: De Simone and ExeGi claim that, by not raising them before the district court, VSL and Alfasigma waived four arguments: (1) Alfasigma didn’t know the healthcare providers letter was accessible on its website after removing its internal links; (2) Alfasigma was unaware of the Facebook commentary; (3) the press release wasn’t promotional material and (4) VSL and Alfasigma shouldn’t be jointly liable for the fee award.

The court is satisfied that VSL and Alfasigma sufficiently raised the first three arguments before the district court. On the other hand, since VSL and Alfasigma didn’t contest below the district court’s ability to impose joint and several liability, they have waived it.

Turning to the civil contempt decision, among other elements, a party moving for civil contempt must establish by clear and convincing evidence that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations. VSL and Alfasigma argue the healthcare providers letter wasn’t contemptuous because they didn’t know of the violation and made reasonable efforts to comply with the injunction. However the letter was on Alfasigma’s website so Alfasigma constructively knew about the violation. Because Alfasigma had constructive knowledge, its actual knowledge is irrelevant.

VSL and Alfasigma next argue that Alfasigma took reasonable steps to comply with the injunction. They call the healthcare providers letter a “technical violation.” And they reiterate that Alfasigma removed its website’s links to the letter after the district court issued the injunction. But Alfasigma needed to take “all reasonable steps” to ensure compliance. Verifying that the letter wasn’t readily accessible via external links is a reasonable step. Turning to the Facebook commentary, the court finds that Alfasigma had constructive (if not actual) knowledge and that Alfasigma didn’t make a good-faith effort to comply with the injunction.

VSL and Alfasigma assert that De Simone and ExeGi waived their argument that the YouTube Materials were contemptuous by raising it for the first time in their reply before the district court. But the untimely argument was “intimately related” to the original grounds for the motion. And VSL and Alfasigma could have sought leave to file a sur-reply. VSL and Alfasigma next assert that the Actial press release doesn’t fall within the permanent injunction’s scope and their use of the term “generic” wasn’t prohibited. The court disagrees.

A party moving for civil contempt must also establish that it suffered harm by clear and convincing evidence. VSL and Alfasigma argue there’s no evidence that De Simone and ExeGi suffered harm because they didn’t show (1) a direct connection between each violation and the harm it caused and (2) that any consumers had seen the healthcare providers letter or Actial press release. The court rejects these arguments.

VSL and Alfasigma next contend that the district court lacked authority to award attorneys’ fees because they didn’t willfully disobey the injunction and the fees were punitive. Again, the court disagrees.

Affirmed.

Maryland Court of Appeals

Criminal

Vehicle felony murder

BOTTOM LINE: Where a defendant convicted of running over a police officer with a vehicle argued that Maryland’s manslaughter by motor vehicle statute preempts all common law homicide charges based on an unintentional killing by a motor vehicle, including felony murder, his argument was rejected.

CASE: Harris v. State, No. 45, Sept. Term, 2021 (filed June 8, 2022) (Judges Getty, Watts, HOTTEN, Booth, Biran, Battaglia, McDonald)

FACTS: When he was 16 years old, Dawnta Harris skipped school and joined three teenage companions in driving a stolen Jeep to commit a series of burglaries in Baltimore County. In an attempt to evade Baltimore County police officer Amy Caprio, who had responded to the location of one of the burglaries, petitioner drove the stolen Jeep into a neighborhood cul-de-sac. While officer Caprio tried to prevent petitioner from exiting the cul-de-sac, petitioner ran her over with the Jeep and killed her.

Petitioner was convicted by a jury of first-degree felony murder, first-degree burglary and the theft of the Jeep. He was sentenced to life in prison with the possibility of parole for the first-degree felony murder of officer Caprio, plus 20 years and five years, respectively, for his convictions of first-degree burglary and theft of the Jeep, to be served concurrently with the life sentence. The Court of Special Appeals affirmed petitioner’s convictions.

LAW: Petitioner argues that Maryland’s manslaughter by motor vehicle statute, Crim. Law § 2-209, preempts all common law homicide charges based on an unintentional killing by a motor vehicle, including felony murder.

Felony murder is an artificial legal concept whereby the intent to commit the underlying felony is transferred to the intent necessary for first-degree murder. When a killing occurs during the course of a felony, the court treats the individual who intended to commit the felony, as if he intended to kill the victim. In this way, felony murder is not an unintended homicide. Since felony murder is not an unintended homicide, it cannot be preempted by Crim. Law § 2-209.

This determination is aligned with the particular policy judgments that lie behind the felony murder rule. Permitting Crim. Law § 2-209 to preempt certain killings that occur during the course of a felony would directly conflict with the felony murder rule’s rationale of punishing all killings that occur during the course of the felony as if they were murder because of this court’s recognition of the seriousness of such offenses.

Petitioner has failed to offer any compelling rationale for why a killing perpetrated with a motor vehicle in furtherance of a felony should be treated differently than all other felony murders, simply because it was perpetrated with a motor vehicle. Neither has petitioner offered a compelling reason to believe that it was the General Assembly’s intent when adopting the manslaughter by motor vehicle statute to preempt a crime as serious as felony murder, with a criminal statute that provides comparatively minor penalties.

In this case the intent that petitioner had to commit felony burglary, was transferred to the intent necessary to find him guilty of the felony murder of officer Caprio. This is true regardless of whether petitioner actually intended to kill officer Caprio when he ran her over with the stolen Jeep.

Petitioner also argues that the sentence of life in prison with the possibility of parole for the felony murder of officer Caprio was unconstitutional under the Eighth Amendment. Critically, all the cases which are relied upon by petitioner concern juveniles sentenced to life in prison without the possibility of parole. They do not apply to the sentence imposed on petitioner, which was life in prison with the possibility of parole.

Further, although Miller v. Alabama, 567 U.S. 460 (2012), does not apply to the sentence imposed in the case at bar, petitioner received an adequately individualized sentencing proceeding as contemplated by Miller. Among other things, the sentencing court was provided with a 25-page pre-sentence investigation report, which included petitioner’s age and a comprehensive review of his criminal history, personal history, current family situation, educational history and mental health issues. Likewise, at the sentencing hearing, defense counsel advanced several mitigating arguments based on petitioner’s youth and its attendant circumstances.

The court additionally holds that Article 25 of the Maryland Declaration of Rights does not afford any greater protection for petitioner. Finally, the court does not agree with petitioner that his sentence was grossly disproportionate as applied.

Judgment of the Court of Special Appeals affirmed.

Maryland Court of Special Appeals

Domestic relations

Marital property

BOTTOM LINE: Where the record showed the husband had sufficient marital property to fund a monetary award to the wife at the time the award was made, the trial court did not err or abuse its discretion in awarding $50,000 to wife. While husband may not have the money today, that’s not what’s required by case law.

CASE: Ledbetter v. Ledbetter, No. 1161, Sept. Term, 2020 (filed June 7, 2022) (Judges FRIEDMAN, Ripken, Murphy).

FACTS: This case concerns the division of the parties’ marital property. Under Maryland law, a trial court may grant a monetary award after a three-step venture: first, the trial court identifies the marital property; second, the trial court determines the value of the marital property and third, the trial court makes an award if it determines that distribution of the marital property according to title would be inequitable.

In this case, however, husband does not complain that the trial court erred in identifying, valuing or determining that wife was entitled to a $50,000 monetary award. Rather, husband’s sole claimed error is that the monetary award of $50,000 is too much because it exceeds the value of the marital property he owned.

LAW: Husband is right, as far as that goes, that the monetary award cannot exceed the value of the marital property owned by the payor spouse. He is wrong, however, that $50,000, in fact, exceeds the amount of the marital property he owns.

Husband’s confusion is caused by an accident of timing. As often happens, parts of this case occurred on different dates. But the law treats the marital property analysis as if it happened, constructively, all at the same time. When properly treated as occurring at the same time, this court can see that the trial court identified $1,241,678 in marital property (including retirement assets), of which the record reflects that $86,104 was titled in wife’s name, $553,414 was titled in husband’s name and $602,160 was titled in both of their names (as tenants by the entireties). The record also reflects that the court considered the marital debt in ascertaining the value of the marital property.

The court concludes that there was evidence that, at most, the marital debt totaled $519,000. After subtracting the marital debt, therefore, husband had more than enough marital property from which to pay the monetary award. While husband may not have the money today, that’s not what’s required by case law. Rather, the court must ensure that husband had sufficient marital property to fund the monetary award at the time the award was made. The court therefore holds that the trial court did not err or abuse its discretion in awarding $50,000 to wife.

Husband also alleges that the trial court erred in determining that the minor child of the parties should continue in private school at the parties’ joint expense. Determinations about whether to continue private schooling are committed to the sound discretion of the trial court and, absent an abuse of that discretion, will not be overturned on appeal. After a careful study of the trial court record and the parties’ briefs, the court sees no such abuse of discretion.

Judgment of the Circuit Court for Prince George’s County affirmed.