4th Circuit: Disability benefits, discrimination, implied indemnification, more

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Administrative; SSI disability benefits

BOTTOM LINE: Where an administrative law judge sufficiently assessed an applicant’s capacity to work when it denied her application for disability benefits, that decision was affirmed.

CASE: Drumgold v. Commissioner of Social Security, Case No. 24-1394 (filed July 18, 2025) (Judges Wilkinson, RICHARDSON) (Judge GREGORY dissents).

FACTS: Dawn Drumgold applied for Social Security disability benefits. The administrative law judge, or ALJ, found that Drumgold’s functional capacity to work precluded disability benefits. The district court held that substantial evidence supported the ALJ’s decision.

LAW: ALJs deciding how much weight to give a medical source normally focus on the two factors they are required by rule to explain. This rule requires that ALJs “not defer or give any specific evidentiary weight, including controlling weight, to any medical opinion(s).” Instead, the ALJ primarily determines each source’s persuasiveness based on its supportability and consistency.

Supportability roughly means the amount of objective medical evidence supporting the medical opinion, and consistency roughly means how well the medical opinion lines up with other material in the record. Drumgold challenges the ALJ’s decision on both of these fronts.

Regarding supportabilty, substantial evidence supports the ALJ’s conclusion that the opinion of Drumgold’s mental-health counselor, Shideh Sarmadi, is unpersuasive because she didn’t support her opinion with “relevant, objective medical evidence and explanation.” Sarmadi included no objective medical evidence. Nor did she explain how she arrived at her conclusions. Sarmadi sent two, nearly identical, around300-word letters, and she attached some check-the-box forms to the second letter.

These forms list Sarmadi’s conclusion that Drumgold had limitations. But they do not explain why Sarmadi checked the various boxes. Nor did Sarmadi include notes from which her logic could even be inferred. Without more, as the district court explained, Sarmadi’s letters were “conclusory and provided without any explanation or support.”

Drumgold replies that Sarmadi’s letters deserved more weight because they constituted a “special report” akin to the treatment-notes alternative the ALJ had suggested. But even if Sarmadi’s submission constituted a “special report,” it remains a form of medical opinion.  And medical opinions must be evaluated for their supportability.  Merely attaching a label does not bypass consideration of the opinion’s supportability (or of its consistency).

Regarding consistency, Dr. Luther’s medical records show that Drumgold rarely complained of symptoms from depression, usually because it was in remission. Likewise, Dr. Montgomery and Dr. McClain, the two experts who evaluated the records, thought that Drumgold’s symptoms were not bad enough to keep her from working.

The ALJ was correct to recognize the inconsistency: “[n]otwithstanding the lack of supporting documentation, Ms. Sarmadi’s opinions that the claimant has marked mental limitations are not consistent with the totality of the evidence, which demonstrates routine and conservative mental health treatment and the claimant’s ability to engage in many activities of daily living.” The ALJ then followed this statement with a citation to conflicting evidence.

Drumgold counters that the ALJ’s characterization of her treatment as “routine and conservative” underestimates the severity of her limitations. But substantial evidence supports that characterization: The treatment was a typical course of care for her conditions. This ordinary care was consistent with the moderate limitations the record elsewhere described, and by the same token that treatment was inconsistent with Sarmadi’s (unsupported) view that Drumgold was markedly impaired.

Drumgold also complains that the ALJ should not have considered her daily activities. But as the Social Security rules explain, “daily activities” are one of the “factors relevant to your symptoms . . . which we will consider” when making the residual functional capacity determination. Drumgold’s ALJ did not improperly use her daily activities to discount an independent consultative examiner’s findings.

Rather, the judge gave less credence to Drumgold’s therapist’s conclusions because they were inconsistent with the bulk of the other evidence, which included Drumgold’s reported daily activities as well as years of medical records and the reasoned conclusions of an independent examiner and two independent evaluators. The ALJ did not improperly extrapolate from daily activities to functional capacity, but properly discounted one medical opinion based on others—and then reached a capacity determination based on the whole mix of record evidence.

Affirmed.

DISSENT: The majority has found that the ALJ’s denial of social security benefits was warranted because “the ALJ reasonably assessed the persuasiveness of Sarmadi’s work based on its supportability and consistency.” But I differ from the majority’s reasoning, and therefore dissent. Contrary to the majority’s holding, the ALJ failed to assess the persuasiveness of Sarmadi’s work based on its supportability and consistency.

Commercial; discrimination and retaliation

BOTTOM LINE: Where the parties disputed whether a private, gated community objected to a group home for elderly people with disabilities for legitimate reasons or whether its objections were pretexts for unlawful retaliation and discrimination, a jury will have to resolve these disputes.

CASE: Group Home on Gibson Island LLC v. Gibson Island Corporation, Case No. 23-2295 (filed July 15, 2025) (Judges Niemeyer, HARRIS, Berner).

FACTS: This case is the culmination of a long-running dispute between the Gibson Island Corporation, a homeowners association for a private, gated community on the Chesapeake Bay in Anne Arundel County, Maryland, and Craig Lussi, a long-time Gibson Island homeowner who operates three assisted living group homes for seniors with disabilities in other parts of the County.

This suit arose in 2020, when Lussi went forward with a plan to open another group home for elderly people with disabilities, this one on Gibson Island. The Corporation invoked a restrictive covenant prohibiting the use of Gibson Island homes for business purposes without the Corporation’s approval. When no resolution was reached, this suit followed.

The operative complaint alleges that the Corporation had violated the federal Fair Housing Act and Maryland’s fair housing laws by refusing to grant a reasonable accommodation for his group home, by retaliating against Lussi’s effort to provide such housing and by discriminating on the basis of disability. The district court granted summary judgment to the Corporation on all claims.

LAW: The district court granted summary judgment to the Corporation on Lussi’s reasonable accommodation claims because Lussi could not show the required “direct linkage” between his proposed group home and the provision of an equal housing opportunity for people with disabilities.

The district court reasoned the evidentiary record established that removal of the four disputed conditions on approval of Lussi’s project was not “necessary” to allow for the use of the proposed group home by future residents with disabilities. For instance, the district court found, Lussi’s compliance with the proposed septic condition – annual certifications and daily monitoring – would in no way compromise the enjoyment of his property by a disabled resident, making removal of the condition “unnecessary” as a matter of law.

The problem with this analysis is that the district court was asking the wrong question. What matters under the necessity prong is whether a proposed accommodation is necessary to provide equal housing opportunities. So here, the question is whether the accommodation actually requested by Lussi – an exception to the business-purpose covenant for his proposed group home – was “necessary” to provide prospective residents an equal opportunity to use and enjoy their housing of choice. By asking instead whether removal of the Corporation’s proposed conditions was “necessary,” the district court erred.

When focusing on the right question – whether an exemption from Gibson Island’s business-purpose covenant is “necessary” to provide Lussi’s prospective residents with equal housing opportunity – the record in this case admits of only one answer. The requested exemption from the business-purpose covenant is “necessary” because without it, Lussi will not be able to operate what would be the only facility that would allow elderly and disabled people an equal opportunity to enjoy the housing of their choice.

That leaves the question of “reasonableness,” on which there are material factual disputes that preclude summary judgment. Accordingly, the district court erred in granting summary judgment to the Corporation. When it comes to the “reasonableness” of Lussi’s proposed accommodation, this case presents a jury question.

The Corporation’s reasons for insisting on the disputed conditions are central to the reasonable accommodation inquiry. But the same questions are also relevant to Lussi’s remaining claims, with Lussi alleging that the disputed conditions are nothing more than pretexts for unlawful retaliation and discrimination. The court concludes that these overlapping inquiries, too, must be undertaken by a jury.

Focusing first on the retaliation claim, this record would allow a jury to find that the Corporation sought to block Lussi’s latest proposal because of Lussi’s advocacy for FHA-protected housing on or near Gibson Island. A jury could credit, but also could question, the Corporation’s stated rationales for refusing to approve Lussi’s project without the four disputed conditions.

This court also cannot agree with the district court that there is “no evidence,” direct or circumstantial, from which a reasonable jury could find discriminatory intent behind the Corporation’s refusal to approve what would be Gibson Island’s first and only assisted living facility for disabled people.

Vacated and remanded.

Commercial; implied indemnification

BOTTOM LINE: Where two companies were previously held jointly and severally liable for supplying contaminated eyewash, but one company’s culpable conduct was more extensive and of a different nature than the conduct of the other company, the first company must indemnify the second company.

CASE: KeraLink International Inc. v. Stradis Health Care LLC, Case Nos. 23-1181, 23-1246 (filed July 16, 2025) (Judges Harris, Quattlebaum, KEENAN).

FACTS: KeraLink International Inc., the operator of a national network of “eyebanks,” previously prevailed on its strict products liability claim against Stradis Health Care LLC and Geri-Care Pharmaceuticals Corporation, two suppliers of contaminated eyewash used to remove donated eye tissue for future transplant. Stradis and Geri-Care were held jointly and severally liable for the judgment amount of $606,415.49 plus prejudgment interest.

Stradis then claimed its liability to KeraLink was “secondary, passive, technical, or imputed,” while Geri-Care’s liability was “primary, active, and direct.” So, Stradis alleged that Geri-Care should bear full responsibility for the money judgment jointly and severally owed to KeraLink by the two tortfeasors.

The district court agreed with Stradis, granting its motion for summary judgment, and later denying Geri-Care’s motion to reconsider. But the court denied Stradis’ request to recover from Geri-Care attorney’s’ fees incurred in Stradis’ defense of KeraLink’s products liability action, and the court later denied Stradis’ motion to reconsider that ruling. Both parties appeal.

LAW: Maryland permits one joint tortfeasor to seek implied indemnity against another joint tortfeasor that is primarily culpable, provided that the party seeking indemnification is only secondarily culpable. No decisions from courts in Maryland directly address tort indemnity in the context of joint tortfeasors held liable for strict products liability. But Maryland’s intermediate appellate court has suggested that implied indemnity is available in some cases as a remedy between joint tortfeasors held strictly liable for distribution of the same defective product.

This court does not find any basis in Maryland law for excluding the availability of tort indemnification in cases of strict products liability. Cases in Maryland involving common law strict products liability, like cases alleging common law negligence, will have instances in which more than one tortfeasor will be held liable for the plaintiff’s injury and the degree of the different tortfeasors’ culpability may materially differ. In fact, as a practical matter, there likely will be more instances in the liability chain in a products case than in a simple negligence case in which the utility of, or need for, implied indemnity will be manifest.

And the principles of Maryland’s law of tort indemnity, which differentiate primary culpability from secondary or passive culpability, can be applied with equal facility to both causes of action. So, while Maryland’s courts have not directly addressed whether tort indemnity applies in a strict products liability action to indemnify a party who incorporates a defective product obtained from an upstream actual or apparent manufacturer into their own product, the court concludes that Maryland law permits such indemnification as allowed by the trial court in this case.

Here, the full factual record demonstrates that Geri-Care’s culpable conduct was more extensive and of a different nature than Stradis’ culpable conduct. Stradis remained the downstream distributor of the defective product apparently manufactured and warranted by Geri-Care, and continued to be secondarily culpable in both degree and kind to Geri-Care’s primary culpability in placing its branded eyewash in the stream of commerce.

Based on the facts presented, Stradis’ culpability was properly viewed by the trial court as being secondary to that of Geri-Care as a matter of law. The trial court’s conclusion also was consistent with the equitable nature of the remedy of implied indemnity under Maryland law, ensuring that Geri-Care was not “unjustly enriched” by Stradis’ exposure to payment of the entire judgment despite Geri-Care’s primary culpability.

However, given the facts presented in this case and the absence of Maryland law requiring otherwise, the district court did not commit an error of law in relying on the American Rule in concluding that Stradis was not entitled to indemnification for its attorney’s fees incurred in defending against KeraLink’s suit.

Affirmed.

Criminal; judgment of acquittal

BOTTOM LINE: Where the district court granted a defendant’s motion for judgment of acquittal, after the jury found him guilty on five counts of healthcare fraud, it erred.  There was sufficient evidence to support the jury’s verdict.

CASE: United States v. Elfenbein, Case No. 24-4048 (filed July 17, 2025) (Judges Agee, RICHARDSON, Nachmanoff).

FACTS: A grand jury indicted Dr. Ron Elfenbein for five counts of healthcare fraud in violation of 18 U.S.C. § 1347. Each count corresponded to one patient visit for COVID-19 testing conducted during the spring and summer of 2021. The United States alleged that Elfenbein billed insurers too much for the simple diagnoses he provided. And it alleged that Elfenbein supported his overbilling by sending insurers medical reports that reflected services his clinic never provided.

The jury returned guilty verdicts on all charges. The district court granted Elfenbein’s motion for a judgment of acquittal, finding that “the level 4 codes used to describe the five encounters” may or may not have been false because the codes’ definitions were ambiguous. And this, the district court concluded, required the government to prove that Elfenbein’s interpretation of the ambiguous guidance was unreasonable. The district court also conditionally granted Elfenbein’s motion for a new trial.

LAW: The government argued that Elfenbein first committed fraud by overbilling insurers by tacking high-level codes onto simple, low-level services. Elfenbein says he confronted an “undiagnosed new problem with uncertain prognosis.” But the government disputed that point, and both sides offered competing evidence on how to define this phrase and whether the five patient visits charged met the definition.

Elfenbein’s defense thus rested on whether he had the better of that debate— whether his patients presented undiagnosed new problems with uncertain prognoses. So the question the jury needed to answer was whether COVID-19 was, as a matter of clinicians’ usage in 2021, “a condition likely to result in a high risk of morbidity without treatment.”

Ample evidence let the jury conclude that it was not. Unlike cancer, plenty of evidence suggested that for most patients, COVID-19 did not pose a high risk of morbidity without treatment. True, COVID was scary to many and dangerous to some. But Elfenbein himself testified on direct that he weighed the risks associated with COVID-19 and concluded that “for the vast majority of our COVID patients . . . it was very low[,] minimal or low risk.”

That aligned with what Elfenbein saw as his clinic’s purpose: To handle the “simple and straightforward” task of testing patients for COVID-19, not to “solve complex medical issues.” A jury could have found these descriptions inconsistent with a pitched battle against a high risk of morbidity.

And the treatments Elfenbein prescribed matched his low-risk assessment. In his words, the management plan was “minimal.” For asymptomatic patients, Elfenbein recommended rest, hydration and Tylenol. And he seems to have prescribed the same treatments to all the patients whose visits the government charged, even though some of those patients did present symptoms.

Armed with a dose of common sense, the jury could reasonably have concluded that these treatments do not suggest a high morbidity risk. Elfenbein’s expert confirmed that these treatments did not correspond to high-risk diseases. Staff in Elfenbein’s clinic agreed.

The government also relied on a false-documentation theory; that Elfenbein allegedly supported those too-high codes with fake medical reports describing services his clinic never provided. The jury had enough evidence to reach that conclusion. Multiple patients testified that they did not receive the testing that was reflected on documents.

Because Elfenbein’s replies are unpersuasive, the district court erred when it granted Elfenbein’s motion for a judgment of acquittal.

At the close of the government’s case-in-chief, the jury had little of the key evidence—no clear, general explanation about what level-four codes required or the CPT Manual’s terms meant; no testimony about how Elfenbein and his staff used terms like “low risk” and only partial information about the treatments Elfenbein prescribed and his reasons for doing so. Most of that information came from Miscoe (Elfenbein’s expert) and Elfenbein himself, who took the stand in his defense.

That fact makes no difference to whether the jury could convict. But the district court is owed deference in granting a new trial under Rule 33. By that deferential standard, the weaknesses in the government’s case-in-chief lead this court to find no abuse of discretion in the district court’s decision to try the case again.

Affirmed in part, reversed in part and remanded.

Employment; misclassification

BOTTOM LINE: Where there was sufficient evidence to support the district court’s finding, after a multi-day bench trial, that a nursing staffing company misclassified approximately 1100 nurses as independent contractors, the nearly $10 million judgment was affirmed.

CASE: Chavez-Deremer v. Medical Staffing of America LLC, Case Nos. 23-2176, 23-2284 (filed July 17, 2025) (Judges KING, Floyd) (Judge RICHARSSON dissents).

FACTS: Following a multi-day bench trial, the district court held that Staffing of America LLC, which supplied licensed nurses to multiple healthcare facilities located in Virginia and surrounding states, contravened multiple provisions of the Fair Labor Standards Act, or FLSA, by failing to properly classify approximately 1100 nurses as Steadfast “employees.” Steadfast was adjudged liable for unpaid overtime compensation to its nurses in a sum of almost five million dollars, plus a nearly equal sum of liquidated damages.

LAW: This court has consistently endeavored to “capture the economic realities of the relationship between the worker and the putative employer” by applying a test designed to balance six factors: (1) the degree of control that the putative employer has over the manner in which the work is performed; (2) the worker’s opportunities for profit or loss dependent on his managerial skill; (3) the worker’s investment in equipment or material, or his employment of other workers; (4) the degree of skill required for the work; (5) the permanence of the working relationship and (6) the degree to which the services rendered are an integral part of the putative employer’s business.

Although Steadfast lacked control over certain specific aspects of the nurses’ work — such as day-to-day patient care tasks supervised by a client facility’s medical professionals — the evidence amply supports the proposition that the control factor weighs heavily in favor of their employee status. Perhaps most significantly, the court found that Steadfast unilaterally fixed the nurses’ hourly wages. Steadfast also controlled the nurses’ access to available shifts, thereby controlling when and where the nurses worked. And the evidence clearly demonstrates that Steadfast engaged in other actions consistent with exercising significant supervisory control over its nurses.

And at least four of the remaining five factors support the existence of an employment relationship between Steadfast and the Steadfast nurses. The totality of the circumstances clearly establishes an employer-employee relationship between the Steadfast nurses and Steadfast. The nurses are thus entitled to overtime wages under the FLSA.

Turning to damages, Steadfast maintains that the district court erred when it ruled that Steadfast was not entitled to a good faith defense for periods from August 2015 to June 2021 and June 2021 to January 2022. That ruling subjected Steadfast to an assessment of statutory liquidated damages for each of those periods.

Steadfast “could not have classified their nurses as independent contractors in good faith prior to seeking legal counsel in June 2018.” Prior to that date, Steadfast had neither sought legal advice on the classification of its nurses nor taken any proactive steps to educate itself on the FLSA. And Steadfast’s reliance on lawyer Bredehoft’s legal advice after June 2018 was neither in good faith nor objectively reasonable because Steadfast failed to provide him with the pertinent information needed for a “fully informed, reasonable legal opinion” concerning Steadfast’s employee classification practices.

Steadfast next argues that the district court erred in adopting the initial damages computations because they were “rife with false entries and prejudicial data entry errors.” Steadfast challenged the initial damages computations for the first time in its post-trial motion. The district court held that relief was unavailable under Federal Rules of Civil Procedure 52(b), 54(b) and 60(a)-(b).

It also then ruled that Steadfast had waived any right to contest the initial damages computations because it had declined to contest them in a timely manner, that is, before or during the bench trial. And Steadfast had opted not to present evidence to counter the Initial damages computations. Furthermore, Steadfast had failed to timely object in any respect to those damages computations or their underlying methodologies. The court agrees.

Affirmed.

DISSENT: The majority is wrong on the facts and wrong on the law. On the facts, the majority ignores crucial testimony and glosses over clear mistakes from the district court that form the heart of Steadfast’s argument on appeal. On the law, the majority dismisses careful distinctions in our precedent, relies instead on out-of-circuit cases, and stretches the factor test so far that it could cover most any economic arrangement. I respectfully dissent.