New Fourth Circuit Nominee Stephanie Thacker

By Kirsten E. Small

Just in time for "On the Docket" to return from its summer hiatus ("hiatus" sounds so much more deliberate than "holy cow, I've been busy lately," doesn't it?), President Obama has officially announced a new pick for the Fourth Circuit: Charleston, West Virginia attorney Stephanie Thacker.

On paper, Ms.Thacker looks to be a very good choice for the Fourth Circuit. She has a solid background in civil practice and has handled some very tough cases during her time with the United States Attorney's office and the Department of Justice. As I've said before, I think it's critically important that judges have "real world" experience with the practice of law. There seems to be something of a pattern for nominations out of West Virginia--like Ms. Thacker, Judge Robert King and the late Judge Blane Michael (for whose seat Ms. Thacker is nominated) spent time in private practice and in the U.S. Attorney's office before ascending to the bench.

I spoke with Charleston attorney Tom Hurney, who confirms that reality matches the résumé. "She's a great pick," he said, because of her experience in criminal law and complex civil litigation. He predicted that she will be a "lawyer's judge"--one who has a deep sense of the interplay between legal principle and practical reality.

Now, of course, begins the long slog toward confirmation.

Jedi Mind Tricks in the Fourth Circuit

By Kirsten E. Small

Remember Obi-Wan Kenobi waving his hand at some baddie in the first Star Wars movie saying, "There is no droid"? Of course, there still was a droid, but the important thing was that the bad guy believed that there was no droid.

The Fourth Circuit employs its own Jedi-like powers in Grant Thornton, LLP v. FDIC, issued Friday. A truism of appellate litigation practice is that an appellate court is concerned not just about the case in front of it, but also about the rule that its decision will establish for future cases. In Grant Thornton, the Court affirmed a district court order finding an accounting firm liable for professional negligence, a ruling that has the potential of opening a few floodgates. So, the Court uses Force persuasion: it waves its hand (i.e., issues an unpublished opinion) and tells us there is no rule: The result is "driven by [the] unique facts" of the case, and "it should be well understood we do not announce any new rule of auditor liability and none should be implied."

So the question is, will potential litigants wander off in a haze muttering "there is no rule," or will they sneer back, a la Jabba the Hutt, "Your Jedi mind tricks will not work on me, court"?

The Fourth Circuit goes (almost) live.

by Kirsten E. Small

New Fourth Circuit Internal Operating Procedure 34.3 takes effect today. Beginning with the upcoming May term of court, recordings of oral arguments will be available for free on the Court's website, two days after argument.

The new rule takes effect just in time for the arguments on the health care law, which are scheduled for Tuesday, May 10.

Fourth Circuit rejects South Carolina's definition of "direct contempt"

By Kirsten E. Small

Last Friday, the Fourth Circuit affirmed a grant of habeas relief in favor of Donald Brandt. A South Carolina court summarily convicted Brandt of "direct" criminal contempt and sentenced him to six months' imprisonment, based on Brandt's use of a forged letter in a deposition. Brandt appealed his conviction, arguing that "direct" contempt applies only to conduct occurring in the presence of a judge. The South Carolina Supreme Court agreed with this proposition but held that the "presence" of the judge encompasses "all elements of the judicial system," including a deposition.

Not so much, says the Fourth Circuit. Y'all can do what you want as a matter of due process under the state Constitution, but the federal Constitution* allows a conviction for direct criminal contempt only when the judge actually sees the contemptuous conduct. Because that was not the case with Brandt (the contempt was proved to the court, in part, with expert testimony that the document was forged), direct criminal contempt was improper.

You might wonder if this decision is a hallmark of a more "liberal" Fourth Circuit, which one lawyer once referred to as a "black hole" of habeas jurisprudence. I don't think so. For one thing, the authoring judge (Agee) is a Bush appointee. For another, the decision was really a no-brainer. The law on what constitutes direct contempt is abundantly clear, and the South Carolina Supreme Court clearly applied the wrong definition.

*Any grammar gurus out there: what's the capitalization rule for the word "constitution" when combined with the modifiers "state" or "federal?" I know that constitution should be capitalized when referring to "the Constitution" (as in, the federal one), but beyond that, I'm lost. (Incidentally, Blogger's spell check seems to think that "constitution" should always be capitalized. Hmm.)

Exciting times in the Fourth Circuit

by Kirsten E. Small

Two items of note in my inbox this morning:

(1) South Carolina district court judge Henry F. Floyd has been nominated to the Fourth Circuit. Press release here. Once Judge Floyd is confirmed, the Fourth Circuit will have a full complement of judges, with all 15 of the available seats filled.

(2) The Fourth Circuit has granted expedited hearing in Virginia's challenge to the "minimum coverage" provision health care reform law (a/k/a the "individual mandate"). Argument will be during the court's May 2011 session, which runs from May 10-13. The panel (which is unknown and will not be announced until the morning of argument) will hear two cases back-to-back: Virginia v. Sebelius (No. 11-1057, Virginia's challenge to the minimm coverage requirement), and Liberty University v. Geithner (No. 10-2347, challenging both the employer mandate and the individual mandate).

Get Back to Where You Once Belonged: Fourth Circuit Upholds Application of Forum Selection Clause

by Kirsten E. Small

The Fourth Circuit yesterday affirmed a district court order remanding a case to the state courts of Virginia. FindWhere Holdings, Inc. v. Systems Environment Optimization, LLC (No. 09-2155)

FindWhere, a seller of global positioning systems, entered into a distribution contract with Homeland Security Systems. The contract included a forum selection clause, which provided that venue any suit under the contract "shall lie exclusively in, or be transferred to, the courts of the State of Virginia." After FindWhere sued Homeland in Loudoun County, Virginia, Homeland removed the action to the Eastern District of Virginia on the basis of diversity jurisdiction. The district court granted FindWhere's motion to remand, holding that the forum selection clause allowed suits only in state court. Homeland appealed.

The Fourth Circuit first held that it had jurisdiction over the appeal, holding that the general prohibition of appellate review of remand orders does not include remands based upon forum selection clauses. In so holding, the court joined every other circuit that has considered the issue.

The court then affirmed the remand order. Homeland argued that the "or be transferred to" language of the forum selection clause established that venue in federal court was proper, because only a federal court can "transfer" a case to another jurisdiction. In rejecting this argument, the court first applied the "widely accepted rule" that when a forum selection clause uses the phrase "of [a state]," venue is exclusively in state court; only the phrase "in [a state]" indicates an intent to allow suit in state or federal court.

The Fourth Circuit then rejected Homeland's argument that the reference to "transferring" a case was evidence of an intent to permit suits in federal court. Although the language of the opinion is not crystal clear, the court appeared to hold that a proper reading of the word "transfer" includes not just district-to-district transfers under 28 U.S.C. § 1404(a), but also remands from federal to state courts in Virginia.

A Tale of Two Doctrines (Res Judicata and Differing Capacities)

By Kirsten E. Small

On Friday, the Fourth Circuit issued a helpful primer on the differing capacities doctrine and its application in employment litigation. Brooks v. Arthur (No. 09-1551)

Virginia corrections officers Donald Hamlette, James Brooks, and Samuel St. John were fired by Lieutenant Howard Arthur, allegedly because they complained of discrimination by Arthur and Major Randal Mitchell. In administrative proceedings, the Department of Employee Dispute Resolution (EDR) reinstated each officer with back pay, concluding that the officers' misconduct (consisting of various instances of dereliction of duty) did not warrant termination. The EDR also found that none of the officers had established a connection between the protected activity and the termination.

Thereafter, the officers sued Arthur and Mitchel in their individual capacities, alleging civil rights violations (discrimination and witness intimidation) and tortious interference with contract. The district court dismissed, holding that because Arthur and Mitchell were in privity with the Department of Corrections, the EDR proceedings were res judicata as to the civil suit.

The Fourth Circuit reversed. Describing the problem as one of "transitive capacity," the court explained that the EDR proceedings could have preclusive effect only if Arthur and Miller in their individual capacities were in privity with the Department of Corrections, a state entity. Privity could exist only if (1) the Department was in privity with Arthur and Mitchell in their official capacities, and (2) Arthur and Mitchell in their official capacities were in privity with themselves in their individual capacities.

Relying on Andrews v. Daw, 201 F.3d 521 (4th Cir. 2000) ("Daw II"), the court concluded that the analysis failed at the second step: under the doctrine of differing capacities, Arthur and Mitchell could not be in privity with themselves. If sued in their official capacities, Arthur and Mitchell would serve as proxies for the Department of Corrections, the real party in interest. When sued in their individual capacities, however, Arthur and Mitchell would be personally liable for any damages. Additionally, the theories of liability and defenses would differ--for example, the Department of Corrections could claim sovereign (but not qualified) immunity, while Arthur and Mitchel could claim qualified (but not sovereign) immunity.

The court remanded for further proceedings.

Two plaintiffs and a petitioner walk into a courthouse...

by Kirsten E. Small

The Fourth Circuit issued three published opinions yesterday. Let's get to 'em.

The Plaintiff
For my money, the most noteworthy of the bunch is Coleman v. Maryland Court of Appeals. Former procurement officer Daniel Coleman alleged that the Court of Appeals violated the Family and Medical Leave Act by terminating him after he requested sick leave for "a documented medical condition." The Fourth Circuit held that the Eleventh Amendment barred the claim.

The court began its analysis by discussing Nevada Dep't of Human Resources v. Hibbs, 538 U.S. 721 (2003), in which the Supreme Court held that Congress validly abrogated states' sovereign immunity when it enacted the family-care provision of the FMLA (which entitles employees to leave to care for a spouse, child, or parent with a serious health condition). The Hibbs Court held that the family-care provision was a proper exercise of Congress' power to enforce the 14th Amendment because that provision was a necessary remedy for gender discrimination.

The Fourth Circuit recognized that Hibbs requires separate constitutional evaluation of each of the four FMLA entitlements (childbirth, adoption, family care, and self-care). Joining the 5th, 6th, 7th, and 10th Circuits, the Fourth Circuit held that there is no discrimination-based justification for the self-care provision, and hence Congress did not validly abrogate sovereign immunity in enacting the self-care provision.

The Other Plaintiff
JTH Tax, Inc. v. Frashier concerns the amount-in-controversy requirement. JTH Tax, owner of Liberty Tax franchises (the ones who put people on the side of the road in Statue of Liberty costumes), sued a former franchisee in federal court alleging $80,000 in damages. At summary judgment, JTH claimed damages of about $60,000, whereupon the district court dismissed for lack of subject matter jurisdiction. The Fourth Circuit reversed, noting first that there was no allegation of bad faith in JTH's original allegation. Second, the Court held that the actual damages claims, when combined with the value to JTH of injunctive relief, satisfied the jurisdicational threshold. No new law here, but a good walk-through of the relevant principles.

The Petitioner
Finally, in Barnes v. Holder, the Court held that the BIA has properly interpreted immigration regulations to require "an affirmative communication attesting to the alien's prima facie eligibility" before removal proceedings may be terminated.

"It's not fair" is not one of the canons of statutory construction.

by Kirsten E. Small

The Fourth Circuit issued one published opinion yesterday: West Va. Highlands Conservancy v. Huffman, No. 09-1474.

Coal miners in West Virginia (well, everywhere really) are required by the Clean Water Act to control acid mine drainage. When they fail to do so, the West Virginia Department of Environmental Protection forfeits the mine owner's performance bond and starts remediating the drainage itself.

Or at least, that's the theory. In actuality, WVDEP was allowing acid mine drainage to continue at 18 bond forfeiture sites. The West Virginia Highlands Conservancy sued, claiming that WVDEP was required to obtain a permit for such discharges. The district court agreed based on the very broad language of the CWA, which covers "any addition of any pollutant ... from any point source" by "any person" (defined to include states and municipalities).

The district court held that WVDEP was required to obtain a permit under the plain statutory language. On appeal, WVDEP resorted to playground rhetoric, arguing that the CWA shouldn't apply to it because: (1) it's a state agency ("the rules don't apply to me"); (2) it didn't cause the discharges in the first place ("he did it"); and (3) application of the CWA to it would produce "absurd" results ("it's not fair").

The Fourth Circuit rejected these "policy" arguments and affirmed.

4th Circuit creates "lost child" exception to warrant requirement

by Kirsten E. Small

May 1, 2009 was a bad day for Melvin Taylor, but it could have been a worse day for the 4-year-old daughter of Taylor's girlfriend. A cab driver found the child wandering on a busy street in Richmond, Virginia, and contacted the police. Officer Anthony Ratliff responded, and the girl took him to a nearby--and apparently empty--row house. Ratliff followed her inside, shouting "hello" periodically as he looked for an adult who might be responsible for the child.

The adult Ratliff found was Taylor, who was sleeping in an upstairs bedroom. The bag of bullets on the bedside table gave Ratliff some pause as to the "responsible" part, so he asked Taylor his name (he gave a false one) and if he knew the address of the house he was in (he claimed not to). Ratliff's concerns not having been allayed, he performed a protective sweep and found a handgun under Taylor's mattress.

About that time, Taylor's cell phone rang with a call from "Baby's Mama," who helpfully provided Ratliff with the name "Orlando Taylor," which Ratliff then traced back to Melvin Taylor, who turned out to have a prior felony which made his possession of the gun illegal.

Taylor appealed his subsequent conviction, arguing that Ratliff was required to have a search warrant, or at least probable cause, before entering the house. The Fourth Circuit rejected this argument, holding that a warrant was unnecessary because there was no criminal investigation afoot--just an attempt to reunite a lost child with her parents. Aside from the warrant requirement, the court concluded that the search was reasonable, in its occurrence and its scope, in light of the exigent circumstances.

The case is United States v. Taylor.

The limits of public nuisance: North Carolina v. TVA

by Kirsten E. Small

About a month ago, the Fourth Circuit vacated an injunction that required the Tennessee Valley Authority to immediately install emissions controls at four of its plants. The Court determined that the "defined standards of the Clean Air Act" preempted a common law public nuisance claim--"an ill-defined tort of last resort." (Judge Wilkinson is a poet, and he didn't even know it.) The Court also concluded that the district court had erred in applying North Carolina law extraterritorially.

I know next to nothing about environmental law, but evidently this decision is kind of a big deal. Law360 yesterday published an article explaining that the decision is significant because of how thoroughly it responds to the arguments in support of the tort of public nuisance for environmental claims.

Happy weekend, everyone!

Fourth Circuit holds that lay opinion testimony must be based on the witness' own perception

by Kirsten E. Small

Federal Rule of Evidence 701 permits lay opinion testimony when, among other things, the opinion is "rationally based on the perception of the witness." In United States v. Johnson,the Fourth Circuit held that a DEA agent's "training and experience" did not provide a basis for Rule 701 opinion testimony not based on the agent's own perceptions.

At Johnson's drug trafficking trial, the government presented testimony from DEA Agent Randy Smith regarding the meaning of certain words used by Johnson during recorded telephone conversations. Smith's interpretations were based on his "training and experience" as a DEA agent, not on his participation in surveillance of Johnson's alleged drug dealing activities.

The Fourth Circuit reversed Johnson's conviction, holding that because Smith did not personally participate in the investigation of Johnson, his testimony was not "based on the perception of the witness" as required by Rule 701.

The Court also rejected the government's argument that the error was harmless because Smith could have testified as an expert under Rule 702. Although Smith had the requisite qualifications, he provided no methodology or guiding principles for his interpertation of the phone calls, and therefore did not meet Rule 702's requirement that expert testimony must rest on reliable principles and methods.

Fourth Circuit rejects First Amendment challenge to SC's "sore loser" statute

by Kirsten E. Small

One of the things I love about being a lawyer is that I learn something new every day. Yesterday, I learned two things: (1) A candidate who appears on the ballot for more than one party (e.g., the Green Party and the Constitution Party) is a fusion candidate, and (2) a "sore loser" law prohibits a defeated primary candidate from appearing on the general election ballot for another party. South Carolina is one of only eight states that permit electoral fusion. All but three states prohibit failed primary candidates from appearing on general election ballots.

The Fourth Circuit yesterday rejected a constitutional challenge to South Carolina's sore loser law, S.C. Code Ann. § 7-11-10, by the South Carolina Green Party. SC Green Party v. SC State Election Comm'n, No. 09-1915 (July 20, 2010). In 2008, Eugene Platt sought the nomination for SC House seat 115 from the Democratic Party, the Green Party, and the Working Families Party. After the Green and Working Families Parties had selected Platt as their nominee for the seat, Platt was defeated in the Democratic Party primary election. As a result, the sore loser law prohibited Platt from appearing on the ballot for the Green and Working Families Parties.

The Green Party sued, claiming that Platt's removal from the ballot violated its First Amendment right to freedom of association.

The Fourth Circuit rejected this challenge, holding first that the burden on the Party's associational rights was only "moderate" (as opposed to "severe") because, while the Party was deprived of its ability to nominate a particular candidate, the SC sore loser law does not permit members of one political party to select the candidate of a rival party (as was the case with the "blanket primary" law struck down by the U.S. Supreme Court in California Democratic Party v. Jones, 530 U.S. 567 (2000)). Second, the court held that SC's sore loser statute is a reasonable, nondiscriminatory restriction that is justified by important regulatory interests. These interests, the court said, are in minimizing factionalism, avoiding voter confusion, and ensuring orderly, fair, and efficient procedures for the election of public officials.

One interesting procedural note: Judge Barbara Keenan, who has been on the court for all of four months, was the lead judge on the panel (the other two judges were Senior Judge Clyde Hamilton and District Judge Samuel Wilson).

Fourth Circuit upholds county furlough against Contract Clause challenge

by Kirsten E. Small

As the slow economy continues to put state and municipal governments under pressure to fund necessary services while maintaining balanced budgets, furloughs of government workers are increasingly common. In areas where local government workers are unionized, a furlough may run afoul of the Constitution's Contract Clause, which provides that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl. 1.

The Fourth Circuit addressed such a challenge in Fraternal Order of Police v. Prince George's County, No. 09-2187 (June 23, 2010). Nexsen Pruet represented the County; yours truly wrote the brief and the case was argued by William "Billy" Wilkins.

Faced with declining revenues and unable to raise taxes, Prince George's County declared a two-week furlough of all County employees during fiscal year 2009. The County acted pursuant to § 16-229 its Personnel Code, which allows furloughs when "required" by "an ascertained shortfall in revenue."

Approximately 80-95% of county employees are union members; the Unions challenged the furlough on the basis that the County was impairing its own contractual obligations (specifically, the wage and hour provisions of collective bargaining agreements) in violation of the Contract Clause. The Unions also argued that (1) the furloughs violated a county ordinance providing that specific terms of CBAs override contrary county law, and (2) the furloughs were not "required."

The district court rejected the Unions' claims under county law, holding (1) that the CBAs did not specifically prohibit furloughs, and therefore § 16-229 was incorporated into the CBAs as a matter of law; and (2) that the County properly determined that a furlough was "required."

However, the court held that the furlough violated the Contract Clause because (1) it impaired the County's obligations under the CBAs to pay certain wages, (2) the impairment was substantial, and (3) the impairment was not "reasonable and necessary to serve an important public purpose." U.S. Trust Co. v. New Jersey, 431 U.S. 1 (1977). The County argued on appeal that there could be no impairment because (as the district court held) § 16-229 was a term of the Unions' contracts. Alternatively, the County argued that the furlough was reasonable and necessary. A key dispute between the parties--and the aspect of the case most watched by locoal governments and unions across the country--was the degree of deference to which the County was entitled in making this determination.

The Fourth Circuit accepted the County's first argument, that the CBAs were not impaired because the furlough ordinance was, by operation of law, a term of the collective bargaining agreements. Because the CBAs therefore gave the County the right to furlough union employees when "required," and because the Unions had not cross-appealed the district court's holding that the furlough was "required" within the meaning of county law, the Fourth Circuit reversed the district court.

While this is a big win for Prince George's County, it is unclear how much help the decision will provide to other local governments facing budget shortfalls. The Court addressed only the narrow question of the impact of county law, and did not reach the larger question of when a furlough of union employees may be "reasonable and necessary" and, most importantly, the degree of deference to which a local government is entitled in making this determination.

A mom tomato and a dad tomato are walking down the street ...

Kirsten E. Small

Time to play a little "ketchup." While I have been busy vacationing and brief writing (thankfully, not at the same time), the Fourth Circuit has been busy issuing published opinions. Most of them have not been terribly noteworthy, but there are a few worth pointing out, to wit:

United States v. Richardson: Holds that AOL was not acting as a government agent when it reported (pursuant to a mandatory reporting statute) information it had acquired by use of an internally-developed, non-mandatory filtering program. The panel distinguished Skinner v. Railway Labor Execs. Ass'n, 489 U.S. 602 (1989), on the basis that Skinner involved a regulatory scheme that dictated certain procedures by the railway that were designed to preserve evidence for government use. The regulatory scheme challenged by Richardson was entirely passive ("If you find something, do please let us know") and thus did not create the kind of government involvement that sparks Fourth Amendment protections.

United States v. Joshua: Holds that a person is "in the custody of the Bureau of Prisons" for purposes of 18 U.S.C. § 4248 (authorizing indefinite civil commitment of sexually dangerous persons) only when in the BOP's legal custody. Joshua, who was convicted by a military tribunal and merely housed at a BOP facility as a "contractual boarder," was not in the BOP's legal custody and therefore not subject to civil commitment under § 4248.

In Norfolk Southern Railway v. City of Alexandria, the court held that the Interstate Commerce Commission Termination Act (ICCTA) preempted the City's attempts to regulate Norfolk Southern's transport of bulk ethanol. At least, I think that was the holding. It was kind of hard to stay awake all the way through.

Did you know there is a statute that provides a damages remedy for the wrongful conviction of an innocent person in federal court? Neither did I. The Fourth Circuit considered the application of the statute in United States v. Graham. Interesting stuff.

The guidelines are advisory, except not really--Fourth Circuit holds the Ex Post Facto Clause still applies

Kirsten E. Small

The Fourth Circuit issued two published opinions yesterday. In United States v. Roe, No. 08-5203, the majority found sufficient evidence to support Roe's conviction for impersonating a federal police officer, even though he was a federal security officer with arrest authority (albeit one out of his jurisdiction at the time of the alleged impersonation). Judge Gregory dissented.

Although Roe is certainly worth a perusal, the far more intersting case is United States v. Lewis, No. 09-4343, in which Judge King, joined by Judge Gregory, held that the Ex Post Facto Clause applies to the post-Booker advisory guidelines. Judge Goodwin dissented.

Those familiar with federal sentencing law will recall that in 2000, the Supreme Court held in Apprendi v. New Jersey that all facts necessary to the imposition of a certain sentence must be admitted by the defendant or proved to a jury beyond a reasonable doubt. Subsequently, in United States v. Booker, the Court held that a mandatory guidelines regime was inconsistent with the Sixth Amendment as interpreted by Apprendi, and declared them advisory.

Now, back to Lewis. Mr. Lewis was arrested for felon-in-possession in May 2006, at which time the applicable guideline range for his offense was 21-27 months. By the time Lewis was sentenced in 1998, however, the guidelines had been amended and the applicable guideline range was 41-51 months. Concluding that application of the amended guidelines would result in a retroactive increase in punishment, in violation of the Ex Post Facto Clause, the district court sentenced Lewis to 27 months imprisonment. The government appealed.

The majority affirmed, concluding that even though the guidelines are no longer "law," they "represent the crucial starting point, as well as the initial benchmark, for the regimented sentencing process." Slip op. at 10. Therefore, there was a "significant risk" that application of the amended guidelines would result in increased punishment, and therefore their application would violate the Ex Post Facto Clause. Judge Goodwin dissented, noting that if the guidelines do not have the force of law, then application of an amended guideline cannot possibly violate the Ex Post Facto Clause.

The majority cannot possibly be correct. If the guidelines are not "law" for the purposes of the Sixth Amendment, how then can they be "law" for purposes of the Ex Post Facto Clause? Of course they cannot, but the majority does not seriously dispute this. Instead, the majority ignores the clear limitation of the Clause to "laws" that retroactively increase punishment, holding that the controlling criterion for the Ex Post Facto analysis is whether there is a significant risk of increased punishment.

The case the majority relies on for its "significant risk" test, Garner v. Jones, 529 U.S. 244 (2000), does not support such a fundamental change in the jurisprudence of the Ex Post Facto Clause. Garner involved an extension of time (from 3 to 8 years) between parole hearings for certain offenders. The Court held that whether such an extension on its face violated the Ex Post Facto Clause depended upon whether it created a significant risk that an inmate's punishment would be increased. Significantly, the Court did not back off of the premise that before the Clause applies, the change must be a law, or have the effect of law--as the rule change extending the time between parole hearings unquestionably did.

In reaching this holding, the Fourth Circuit joined the D.C. Circuit and rejected the position of the Seventh Circuit. I imagine a cert. grant will be coming on this issue sooner or later.

Nominees Diaz and Wynn continue to wait

Kirsten E. Small

I was excited to see a hopeful line of text pop up in my Google Alert this morning: "[Senator] Kay Hagan says North Carolina judges Albert Diaz and James Wynn are on the next tier of judicial nominees who could come up for a full vote in the Senate." Unfortunately, the article as a whole is not so hopeful; you can read it here (scroll down to the bottom).

The essence of the piece is that Diaz and Wynn are still stuck in a "political logjam," with no estimated date of escape.

One could argue that, for the moment at least, there is no particular urgency to confirming Diaz and Wynn. The Fourth Circuit has completed its last sitting for the current term and will not again convene in Richmond until September. On the other hand, I imagine that Judges Wynn and Diaz would far prefer to get settled in their Fourth Circuit digs while activity at the court is relatively light, rather than during the rush of new business that precedes the September sitting.

The 4th Circuit holds that district courts should not employ "lodestar" analysis in contingency-fee cases.

by Kirsten E. Small

Only one published opinion from the Fourth Circuit yesterday (there were none Monday). In In Re Abrams & Abrams, P.A., the court vacated and remanded a district court order that reduced an award of attorney's fees from $6 million to $600,000. Primarily, the panel concluded that the district court had erred in calculating a "lodestar" hourly fee when the plaintiff and counsel had agreed to a 33% contingency fee.

Mark Pellegrin was severely brain damaged when a co-worker, driving a company truck while intoxicated, ran into him. Pellegrin's father ("Mr. Pellegrin"), as his guardian, sued the co-worker with the aid of two law firms. The firms and Mr. Pellegrin agreed to a 33% contingency fee, to be divided equally between the firms.

Counsel obtained a $75 million verdict after the company's insurer denied coverage and refused to provide a defense. Thereafter, counsel sought a declaration from the court that the insurer was liable for the entire amount pursuant to North Carolina law. The insurer removed the action to federal court, and the parties eventually reached a mediated settlement of $18, of which $6 milllion was intended to satisfy the 33 percent contingency arrangement between plaintiff and counsel.

Because the plaintiff was incompetent, the district court was required to approve the settlement. During the hearing, Mr. Pellegrin specifically approved the amount of the settlement allocated to counsel. Unimpressed, the court reduced the fee to $600,000, reverting the remaining $5.4 million to Pellegrin.

The Fourth Circuit reversed. Initially, the court rejected counsel's contention that fee awards in contingency cases should be enforced unless the resulting fee is "clearly excessive." Instead, the court adhered to the traditional standard of reasonableness, on the theory that if it ain't broke, don't fix it. (Judge Wilkinson did not phrase it quite that way, but that's the jist.)

Nevertheless, the panel concluded that the district court had abused its discretion, holding that "[t]he chief error in the district court's analysis was its failure to recognize the significance of the contingency fee in this case." The panel noted that contingency fee arrangements provide plaintiffs access to court they would not be able to afford if charged on an hourly basis; they do so by transfering the risk to the attorneys, who would be disinclined to accept such a risk if compensated on only an hourly basis. The court compared the attorney in a contingency-fee case to the realtor on commission, who knows that not every effort will result in a commission.

The panel next concluded that the district court had discounted the various difficulties involved in the merits of the case (including a strong contributory negligence defense) and the value of the results obtained (an $18 million settlement where the insurer had a $21 million policy limit). Further, the district court should have considered Mr. Pellegrin's satisfaction and specific approval of the award (an approval he felt so strongly about that he hired his own lawyer to seek reversal of the district court's fee decision on counsel's behalf).

Finally, the panel concluded that the district court erred in deciding that the "customary fee" for the case should be based on an hourly rate. Rather, the panel said, the proper analysis required the court to consider whether the 33% contingency fee arrangement was reasonable. In this vein, the panel noted that several North Carolina lawyers had submitted affidavits stating that they would have insisted on a 40% contingency fee for the case.

The panel did not specifically approve the fee as reasonable but rather vacated and remanded for "a more rigorous analysis" of the applicable factors, including a recognition of the value of contingency-fee arrangements.

Commentary: This decision surprises me a bit, especially given that the opinion was written by Judge Wilkinson. However, I think the panel got it entirely right. Lawyers who practice plaintiff-side personal injury work take cases knowing that they will lose some cases and win others, and that the fees in the cases that they win must be sufficient to offset their losses. This requires prudent case selection on the part of the attorneys, but it also mandates that courts respect reasonable fee arrangements between clients and counsel. Were it not for the fact that Pellegrin was rendered incompetent by the accident, the court would not have had a say in the reasonableness of the fee; that being so, the court should have given greater respect to Mr. Pellegrin's adamant support of the award.

Fourth Circuit continues to chip away at Carter

by Kirsten E. Small

In this post I summarized United States v. Hernandez, in which a panel of the Court relaxed U.S. v. Carter's apparently stringent requirements for explanation of within-Guideline sentences.

Yesterday, in United States v. Boulware, the Court further blunted Carter's force by holding harmless an inadequate explanation.

Boulware pleaded guilty to false statements in a bankruptcy proceeding and sought a below-guidelines sentence on the basis of family obligations. The district court rejected this request and imposed a sentence at the bottom of the advisory guideline range, noting in the process that it had "taken into account all the factors requied of me by Section 3553(a)."

Assuming that this explanation was inadequate and thus constituted a procedural flaw in the sentence (the panel did not cite Hernandez), the panel concluded that the error was harmless, i.e., it did not substantially and injuriously affect the outcome of the proceedings. Contrasting the facts before it to U.S. v. Lynn, 592 F.3d 572 (4th Cir. 2010), the panel found the error harmless because "the record ... leaves us with no doubt that the district court considered [Boulware's] argument for a below-guidelines sentence" and because Boulware's arguments for such a sentence "were very weak."

In short, the panel held that a Carter error is harmless so long as it appears from the record that the district court actually considered a defendant's arguments, even if it made no mention of them in the course of its sentencing decision.

It seems to me that this decision has the potential to substantially undermine Carter; we'll have to see how it plays out.

4th Circuit extends rule on curing improper removals.

by Kirsten E. Small

The Fourth Circuit issued one published opinion on May 3, holding in Moffit v. Residential Funding Company, LLC that the establishment of federal jurisdiction cures an improper removal even when the issue is brought to the court's attention before final judgment.

Plaintiffs filed this case in Maryland state court in 2003. In 2009, plaintiffs notified defendants by letter of their intent to file an amended complaint containing allegations that would establish jurisdiction in federal court under the Class Action Fairness Act. Defendants removed to federal court pursuant to 28 U.S.C. § 1446(b). Following removal, plaintiffs filed the amended complaint; they then sought remand on the basis that federal jurisdiction did not exist at the time of removal.

On interlocutory review, the Fourth Circuit affirmed the district court's denial of the motion to remand. Under settled authority, an erroneous removal is cured by the plaintiff's subsequent voluntary amendment of the complaint to allege facts giving rise to federal jurisdiction.

Plaintiffs acknowledged this authority but argued that the rule applies only after final judgment. The Fourth Circuit disagreed, holding that "this line of precedent is grounded not only in the interest of 'finality' but also in larger considerations of 'judicial economy.'" Because defendants would have had the right to remove even if the district court had granted the motion to remand, judicial economy favored application of the rule that an erroneous removal is cured by subsequent amendment of the complaint.