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UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8078
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
MICHAEL WALLACE RICE,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. Robert E. Payne, Senior District Judge. (3:05-cr-00011-REP-2; 3:08-cv-00403-REP)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Michael Wallace Rice, Appellant Pro Se. Elizabeth Wu, Assistant United States Attorney, Richmond, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Michael Wallace Rice seeks to appeal the district
court’s order denying relief on his 28 U.S.C.A. § 2255 (West
Supp. 2009) motion. The order is not appealable unless a
circuit justice or judge issues a certificate of appealability.
28 U.S.C. § 2253(c)(1) (2006). A certificate of appealability
will not issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Rice has not
made the requisite showing. Accordingly, we deny a certificate
of appealability and dismiss the appeal. We dispense with oral
argument because the facts and legal contentions are adequately
presented in the materials before the court and argument would
not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8126
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
KENYA JERMAINE THOMPSON,
Defendant - Appellant.
Appeal from the United States District Court for the District of South Carolina, at Columbia. Matthew J. Perry, Jr., Senior District Judge. (3:03-cr-00166-MJP-1; 3:06-cv-02285-MJP)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Kenya Jermaine Thompson, Appellant Pro Se. Stacey Denise Haynes, Assistant United States Attorney, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Kenya Jermaine Thompson seeks to appeal the district
court’s order denying relief on his 28 U.S.C.A. § 2255 (West
Supp. 2009) motion. The order is not appealable unless a
circuit justice or judge issues a certificate of appealability.
28 U.S.C. § 2253(c)(1) (2006). A certificate of appealability
will not issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Thompson has
not made the requisite showing. Accordingly, we deny a
certificate of appealability and dismiss the appeal. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8127
UNITED STATES OF AMERICA,
Plaintiff – Appellee,
v.
JOHN EDWARD DAVIS,
Defendant – Appellant.
Appeal from the United States District Court for the Western District of Virginia, at Roanoke. James C. Turk, Senior District Judge. (7:06-cr-00055-jct-mfu-1; 7:08-cv-80093-jct- mfu)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
John Edward Davis, Appellant Pro Se. Donald Ray Wolthuis, Assistant United States Attorney, Roanoke, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
John Edward Davis seeks to appeal the district court’s
order denying relief on his 28 U.S.C.A. § 2255 (West Supp. 2009)
motion. The order is not appealable unless a circuit justice or
judge issues a certificate of appealability. 28 U.S.C.
§ 2253(c)(1) (2006). A certificate of appealability will not
issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Davis has
not made the requisite showing. Accordingly, we deny a
certificate of appealability and dismiss the appeal. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8135
PHILLIP JACKSON,
Petitioner – Appellant,
v.
WARDEN, LIEBER CORRECTIONAL INSTITUTION,
Respondent – Appellee.
Appeal from the United States District Court for the District of South Carolina, at Greenville. R. Bryan Harwell, District Judge. (6:09-cv-00419-RBH)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Phillip Jackson, Appellant Pro Se. Alphonso Simon, Jr., OFFICE OF THE ATTORNEY GENERAL OF SOUTH CAROLINA, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Phillip Jackson seeks to appeal the district court’s
order adopting the recommendation of the magistrate judge and
denying relief on his 28 U.S.C. § 2254 (2006) petition. The
order is not appealable unless a circuit justice or judge issues
a certificate of appealability. 28 U.S.C. § 2253(c)(1) (2006).
A certificate of appealability will not issue absent “a
substantial showing of the denial of a constitutional right.”
28 U.S.C. § 2253(c)(2). A prisoner satisfies this standard by
demonstrating that reasonable jurists would find that any
assessment of the constitutional claims by the district court is
debatable or wrong and that any dispositive procedural ruling by
the district court is likewise debatable. Miller-El v.
Cockrell, 537 U.S. 322, 336-38 (2003); Slack v. McDaniel, 529
U.S. 473, 484-85 (2000); Rose v. Lee, 252 F.3d 676, 683-84
(4th Cir. 2001). We have independently reviewed the record and
conclude that Jackson has not made the requisite showing.
Accordingly, we deny a certificate of appealability and dismiss
the appeal. We dispense with oral argument because the facts
and legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8136
CORNELIUS MAURICE REGAN,
Petitioner - Appellant,
v.
TRACY JOHNS, LSCI; HARLEY LAPMAN, US Bureau of Prisons; LAURA P. TAYMAN, Assistant US Attorney, Eastern District of Virginia, et al.,
Respondents - Appellees.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. James C. Dever III, District Judge. (5:08-hc-02055-D)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Cornelius Maurice Regan, Appellant Pro Se. Michael Bredenberg, OFFICE OF THE UNITED STATES ATTORNEY, Rudolf A. Renfer, Jr., Assistant United States Attorney, Raleigh, North Carolina, Michael Lockridge, Special Assistant United States Attorney, Butner, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Cornelius Maurice Regan, a federal prisoner, appeals
the district court’s order denying relief on his 28 U.S.C.
§ 2241 (2006) petition. We have reviewed the record and find no
reversible error. Accordingly, we affirm for the reasons stated
by the district court. Regan v. Johns, No. 5:08-hc-02055-D
(E.D.N.C. Sept. 18, 2009). We dispense with oral argument
because the facts and legal contentions are adequately presented
in the materials before the court and argument would not aid the
decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8140
RECO TAYLOR,
Petitioner - Appellant,
v.
UNITED STATES OF AMERICA; M. L. RIVERA,
Respondents - Appellees.
Appeal from the United States District Court for the District of South Carolina, at Columbia. Joseph F. Anderson, Jr., District Judge. (3:08-cv-03610-JFA)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Reco Taylor, Appellant Pro Se. Stacey Denise Haynes, Assistant United States Attorney, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Reco Taylor, a federal prisoner, appeals the district
court’s order adopting portions of the report and recommendation
of the magistrate judge and denying relief on his 28 U.S.C.
§ 2241 (2006) petition. We have reviewed the record and find no
reversible error. Accordingly, although we grant leave to
proceed in forma pauperis, we affirm for the reasons stated by
the district court. Taylor v. United States, No. 3:08-cv-03610-
JFA (D.S.C. Oct. 1, 2009). We dispense with oral argument
because the facts and legal contentions are adequately presented
in the materials before the court and argument would not aid the
decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-8174
LARRY ARNOLD YOUNG,
Petitioner – Appellant,
v.
PATRICIA R. STANSBERRY, Warden,
Respondent – Appellee.
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Anthony John Trenga, District Judge. (1:09-cv-01276-AJT-TCB)
Submitted: March 16, 2010 Decided: March 23, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Larry Arnold Young, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Larry Arnold Young seeks to appeal the district
court’s order directing Young to provide evidence that he
exhausted his administrative remedies and to pay the filing fee
or his 28 U.S.C. § 2241 (2006) petition would be dismissed.
This court may exercise jurisdiction only over final orders, 28
U.S.C. § 1291 (2006), and certain interlocutory and collateral
orders, 28 U.S.C. § 1292 (2006); Fed. R. Civ. P. 54(b); Cohen v.
Beneficial Indus. Loan Corp., 337 U.S. 541 (1949). The order
Young seeks to appeal is neither a final order nor an appealable
interlocutory or collateral order. Accordingly, we deny leave
to proceed in forma pauperis and dismiss the appeal for lack of
jurisdiction. We dispense with oral argument because the facts
and legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
DISMISSED |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 10a0180n.06
No. 08-4264 FILED Mar 23, 2010 UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ) ) Plaintiff-Appellee, ) ) v. ) ON APPEAL FROM THE ) UNITED STATES DISTRICT RUSSELL PORTER, ) COURT FOR THE NORTHERN ) DISTRICT OF OHIO Defendant-Appellant. ) ) OPINION ) )
BEFORE: COLE, GILMAN and WHITE, Circuit Judges.
COLE, Circuit Judge. At issue in this appeal is whether the district court correctly denied
Russell Porter’s motion to suppress evidence uncovered during a patdown search. Because the
district court applied the incorrect legal standard when ruling on Porter’s motion, we VACATE and
REMAND so that it may consider the motion under the proper standard.
I.
Warren Police Department Narcotics Unit detectives spotted a grey Chevrolet Caprice parked
in the vicinity of 1653 Fremont Street in Warren, Ohio, on the afternoon of May 23, 2007. The
detectives considered this to be a high-drug trafficking area. They noticed a man, later identified as
Porter, sitting in the car’s passenger seat in a sleeveless T-shirt counting what looked like a large No. 08-4264 USA v. Russell Porter
amount of money. The detectives continued to watch the vehicle and saw another man, later
identified as Brian Poole, walk multiple times between the vehicle and one of the Fremont Street
houses. Suspecting that a possible drug transaction was in progress, the detectives contacted a
canine unit and requested that an officer be ready to proceed to the scene if a traffic stop ensued.
Poole then drove off in the car, with Porter in the passenger seat, and the detectives followed.
The detectives observed the vehicle cross a double yellow line and pass another vehicle in
a no-passing zone and pulled Poole over. They approached the stopped car and recognized the driver
from previous encounters as Poole. Poole gave an inconsistent answer when asked about his travel
plans. He was talking fast, appeared nervous, and sweat was dripping from his forehead and down
his face. Porter also appeared nervous and was sweating.
Once the canine officer arrived at the scene, she requested that Poole and Porter exit the car
so her dog could conduct a sniff. When Porter exited, a detective commenced a patdown for
weapons, during which a plastic baggie fell from Porter’s shorts onto the ground. Inside the baggie
were 55.9 grams of crack and 125 grams of cocaine.
The Government filed a two-count indictment against Porter. It charged him with
intentionally possessing with intent to distribute approximately 55.9 grams of crack in violation of
21 U.S.C. §§ 841(a)(1) and (b)(1)(A) and 18 U.S.C. § 2, and intentionally possessing with intent to
distribute approximately 125 grams of cocaine in violation of 21 U.S.C. §§ 841(a)(1) and (b)(1)(C)
and 18 U.S.C. § 2. Porter filed a motion to suppress the evidence found during the patdown search,
arguing that officers lacked any reason to believe that he was armed and dangerous. After a
suppression hearing, the district court entered an oral order denying the motion. The court concluded
No. 08-4264 USA v. Russell Porter
that because the officers could constitutionally conduct a canine sniff of the vehicle, and order the
driver and passenger to exit the vehicle, the subsequent patdown search of Porter also was
constitutional. The district court found that there was no need to determine whether there was
reasonable suspicion that Porter was armed and dangerous:
[T]he court finds it’s not necessary to find that there was reasonable belief to believe the passenger was armed and dangerous. I don’t believe that test applies in this case because of the legitimate use of the canine, and then the right of the officers to remove the occupants of the vehicle to complete the canine search and also the right of the officers to protect themselves during such an exercise and without the necessity of finding that the defendant was armed and dangerous.
(Dist. Ct. Doc. No. 41 at 86-87.)
Porter pleaded guilty to both counts, reserving his right to appeal the validity of the patdown
search, which he does now.
II.
The district court misidentified the appropriate legal standard. In the context of a traffic stop,
to justify “a patdown of the driver or a passenger[,] . . . just as in the case of a pedestrian reasonably
suspected of criminal activity, the police must harbor reasonable suspicion that the person subjected
to the frisk is armed and dangerous.” Arizona v. Johnson, 129 S. Ct. 781, 784 (2009). Rather than
decide for ourselves whether the detectives had reasonable suspicion that Porter was armed and
dangerous, we remand the issue to the district court so that it may consider the question in the first
instance.
No. 08-4264 USA v. Russell Porter
III.
We VACATE and REMAND this case with instructions that the district court conduct an
evidentiary hearing in connection with Porter’s motion to suppress using the legal standard
articulated in Arizona v. Johnson. |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 10a0182n.06
Nos. 08-1981/2580 FILED Mar 23, 2010 UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk FOR THE SIXTH CIRCUIT
ERICKSON’S FLOORING AND SUPPLY CO., INC., a Michigan corporation,
Plaintiff-Appellant, On appeal from the United States v. District Court for the Eastern District of Michigan BASIC COATINGS, INC., an Iowa corporation; ATLAS COMPANIES, INC., an Iowa corporation; NELS INGEBRIGTSEN, jointly and severally,
Defendants-Appellees,
BASIC COATINGS, LLC; BETCO CORP.; BETCO CORP., LTD.,
Appellees,
and
ERICKSON DECORATING PRODUCTS, INC., an Illinois corporation,
Defendant. /
BEFORE: RYAN, COOK, and WHITE, Circuit Judges.
RYAN, Circuit Judge. In two separate appeals, the plaintiff, Erickson’s Flooring
& Supply Co., Inc., asks that we reverse judgments in favor of the defendants (1) refusing
to reconsider an earlier summary judgment for the defendants, (2) declining to confirm an
earlier order holding the defendants in contempt of court, and (3) denying Erickson’s (Nos. 08-1981/2580) -2-
Flooring’s motion for relief from judgment pursuant to Federal Rule of Civil Procedure
60(b). We have consolidated the two appeals and we will affirm the district court’s
judgments in both.
I.
Erickson’s Flooring is a wholesale distributor of floor products and for approximately
15 years had an agreement with the defendant, Basic Coatings, Inc., to distribute Basic’s
floor coating products. During 2002 and 2003, the relationship between Erickson’s
Flooring and Basic soured, and in July 2003, Basic terminated the agreement.
In September 2003, Erickson’s Flooring filed suit against Basic and its parent, Atlas
Companies, Inc., alleging federal antitrust claims and a number of state-law claims. Six
months later, the district court dismissed Erickson’s Flooring’s complaint for lack of
prosecution. Within a few months, Erickson’s Flooring refiled its complaint alleging the
same claims as before, against the same defendants. While the case was pending, Atlas
sold Basic to Betco Corporation. Sometime in early 2005, although the specific date is
unclear, Basic’s business records shifted to Betco’s possession.
In July 2005, Erickson’s Flooring requested that Basic produce certain documents
relating to business it had done with Erickson’s Flooring. According to Erickson’s Flooring,
Basic at first denied the existence of the requested documents and then, admitting that the
documents existed, purposely misinformed Erickson’s Flooring as to their location. Basic
denies these allegations and claims the documents were not produced when requested
because the responsible personnel at Basic were unsure whether the documents were in
the possession of Basic, Atlas, or Betco. (Nos. 08-1981/2580) -3-
On April 28, 2006, before the discovery issues were resolved, the defendants
moved for summary judgment under Federal Rule of Civil Procedure 56(c). Erickson’s
Flooring responded that it was unable to properly contest the motion because the
defendants had not produced the documents that would demonstrate the genuine issues
of material fact that should be litigated. While the defendants’ Rule 56 motion was pending
decision, Erickson’s Flooring moved that Basic, Atlas, and Betco be held in contempt for
failing to produce the requested documents. At a hearing on August 31, 2006, the district
court held Basic, Atlas, and Betco in contempt and ordered all three companies to produce
the requested documents on or before September 11, 2006, in order to purge themselves
of contempt. The defendants’ Rule 56 summary judgment motion remained under
advisement.
On September 8, 2006, a flatbed truck carrying 164 bankers boxes of documents
arrived at the offices of Erickson’s Flooring’s counsel. According to Erickson’s Flooring,
examination of the contents revealed a vast array of disorganized papers and files, many
having nothing to do with Basic’s business with Erickson’s Flooring and therefore
immaterial to Erickson’s Flooring’s discovery request.
In a later motion to confirm the court’s contempt order, Erickson’s Flooring claimed
it was required to rent storage space for the 164 boxes and hire extra personnel to sift
through and log the disorganized documents in an effort to find those that were material
to the discovery request. Erickson’s Flooring argued that the defendants’ actions were a
deliberate and obvious effort to frustrate a legitimate discovery request, and designed to (Nos. 08-1981/2580) -4-
impose great inconvenience and substantial costs upon Erickson’s Flooring before it could
properly respond to the defendants’ summary judgment motion.
The defendants responded that they had difficulty locating the documents, and
ultimately found them in Betco’s possession in a disorderly state. They did the best they
could, they claimed, given Erickson’s Flooring’s overly broad discovery request, the lack
of specific direction from the district court, and the need to act quickly to comply with the
court’s deadline.
Six weeks after receiving the documents, Erickson’s Flooring submitted a status
report asking the court to continue to hold all three companies in contempt until Erickson’s
Flooring could determine whether the documents were in compliance with its discovery
request. During this period, Betco’s counsel attempted to contact Erickson’s Flooring or
its counsel, apparently by telephone and in writing, to inquire whether the documents were
satisfactory and whether there was anything else Erickson’s Flooring required, but
Erickson’s Flooring never responded.
On September 28, 2007, more than a year after Erickson’s Flooring received the
truckload of documents, the district court issued an order granting the defendants’ motion
for summary judgment, dismissing Erickson’s Flooring’s case. On November 2, 2007,
Erickson’s Flooring asked the court to reconsider its summary judgment ruling, on the
ground that Erickson’s Flooring had newly discovered evidence that supported its antitrust
claims and created genuine issues of material fact sufficient to defeat summary judgment
in the defendants’ favor. While that motion was pending, Erickson’s Flooring filed still (Nos. 08-1981/2580) -5-
another motion on February 22, 2008, this time asking the court to “confirm” its order
holding Basic, Atlas, and Betco in contempt.
On July 23, 2008, the district court denied Erickson’s Flooring’s motion to confirm
the earlier contempt order and refused to reconsider its summary judgment for the
defendants. Erickson’s Flooring then filed its appeal of these two rulings.
On September 19, 2008, notwithstanding its notice of appeal, Erickson’s Flooring
filed another motion to reconsider in the district court, but this time seeking alternate relief
from the adverse summary judgment pursuant to Federal Rule of Civil Procedure 60(b),
again on the ground that it had newly discovered evidence supporting its antitrust claims
and creating genuine issues of material fact sufficient to defeat summary judgment in the
defendants’ favor. The motion was denied and Erickson’s Flooring filed its second appeal.
The two appeals have been consolidated for our decision. Betco, though not a party to the
original suit, is an intervening party in the appeals.
II.
We will address first the issues raised in the first appeal: whether the district court
abused its discretion in (1) refusing to reconsider its summary judgment for the defendants
and (2) declining to confirm its order holding the defendants in contempt. We will then
move on to the question raised in the second of the consolidated appeals: whether the
district court abused its discretion in denying Erickson’s Flooring’s Rule 60(b) motion for
relief from the adverse summary judgment.
We review a district court’s decision denying a motion to reconsider under the
“abuse of discretion” standard. Gage Prods. Co. v. Henkel Corp., 393 F.3d 629, 637 (6th (Nos. 08-1981/2580) -6-
Cir. 2004). A district court’s decision on a motion for civil contempt is also reviewed for an
“abuse of discretion.” Elec. Workers Pension Trust Fund of Local Union #58 v. Gary’s
Elec. Serv. Co., 340 F.3d 373, 378 (6th Cir. 2003).
Considerable deference is accorded a district court’s exercise of discretion and we
do not disturb discretionary rulings unless we have “‘a definite and firm conviction that the
trial court committed a clear error of judgment.’” Amernational Indus., Inc. v. Action-
Tungsram, Inc., 925 F.2d 970, 975 (6th Cir. 1991) (quoting Davis v. Jellico Cmty. Hosp.
Inc., 912 F.2d 129, 133 (6th Cir. 1990)). According to well-settled precedent in this circuit,
“[a] district court abuses its discretion when it relies on clearly erroneous findings of fact,
or when it improperly applies the law or uses an erroneous legal standard.” Tompkin v.
Philip Morris USA, Inc., 362 F.3d 882, 891 (6th Cir. 2004).
A. Motion for Reconsideration of Summary Judgment Order
Erickson’s Flooring’s motion for reconsideration of the district court’s September 28,
2007, order granting summary judgment for the defendants was filed on November 2,
2007. The defendants point out, and Erickson’s Flooring concedes, that the motion to
reconsider was untimely because it was not filed within 10 days of the entry of the
summary judgment, as required by Eastern District of Michigan Local Rule 7.1 and Federal
Rule of Civil Procedure 59(e). Erickson’s Flooring argues, however, that the district court
should have considered the motion for reconsideration as one for relief from judgment
under Rule 60(b). In particular, Erickson’s Flooring claims it is entitled to relief under Rule
60(b)(2), on the ground of “newly discovered evidence.” Fed. R. Civ. P. 60(b)(2).
Erickson’s Flooring argues that the exhibits attached to its motion, consisting of selected (Nos. 08-1981/2580) -7-
pieces of business correspondence and corporate records obtained from the bankers
boxes, is “newly discovered evidence” sufficient to support relief under Rule 60(b)(2).
The district court made clear in its written opinion that it was denying Erickson’s
Flooring’s motion for reconsideration because the motion was untimely. But in footnote 2,
the court indicated that Erickson’s Flooring’s motion also failed on its merits because the
papers Erickson’s Flooring attached to its motion were not “newly discovered evidence”
within the meaning of Federal Rule of Civil Procedure 60(b)(2).
In order to prevail under Rule 60(b)(2), a party must demonstrate “that it exercised
due diligence in obtaining the information” and that “the evidence is material and controlling
and clearly would have produced a different result if presented before the original
judgment.” Good v. Ohio Edison Co., 149 F.3d 413, 423 (6th Cir. 1998) (internal quotation
marks and citation omitted). The district court stated Erickson’s Flooring had the bankers
boxes for more than 13 months before bringing their contents to the attention of the court
and offered no reason why the documents were not brought to the court’s attention earlier.
The district court observed that even if Erickson’s Flooring sorted through only one box a
day, it would not have taken a full year to go through all the records. Accordingly, the
district court found that the evidence Erickson’s Flooring presented in support of its motion
was not newly discovered.
We agree that even if the papers the defendants produced were unnecessarily
excessive and in disarray, in taking more than a year to go through the boxes, Erickson’s
Flooring did not exercise “due diligence” in obtaining the evidence it presented to the (Nos. 08-1981/2580) -8-
district court as “newly discovered.” The district court did not abuse its discretion in
rejecting the motion for reconsideration either on procedural or substantive grounds.
B. Motion to Confirm Contempt
Erickson’s Flooring contends that the district court abused its discretion when it
declined to “confirm” its earlier contempt order. It is unclear why Erickson’s Flooring,
having obtained a judgment for contempt against the defendants, albeit with a purge
condition, would have need of an order confirming the contempt. It seems logical that the
burden of proceeding would shift to the defendants to seek to have the contempt order set
aside. In all events, we will treat the district court’s refusal to confirm its contempt order
as the equivalent of a refusal to hold the defendants in contempt. This court has held that
contempt is warranted when the moving party produces “clear and convincing evidence”
that another party has “‘violated a definite and specific order of the court requiring him to
perform or refrain from performing a particular act or acts with knowledge of the court’s
order.’” Elec. Workers Pension Trust Fund, 340 F.3d at 379 (quoting NLRB v. Cincinnati
Bronze, Inc., 829 F.2d 585, 591 (6th Cir. 1987)). Erickson’s Flooring argues that Basic’s
and Betco’s actions merited contempt because the defendants purposefully attempted to
thwart Erickson’s Flooring’s discovery efforts by producing 164 bankers boxes containing
thousands of disorganized papers, some having nothing to do with the litigation, contrary
to Federal Rule of Civil Procedure 34. Erickson’s Flooring argues that the defendants’ use
of the familiar ploy of burying the plaintiff in a virtual haystack of thousands of disorganized
papers with the burden and costs of locating the “needle,” was the equivalent of purposeful
noncompliance with the court’s order. (Nos. 08-1981/2580) -9-
Although we might have reacted to the defendants’ behavior rather differently than
the district court did, we cannot say that the court abused its discretion in declining to
confirm its earlier contempt order, or stated differently, we think the court did not commit
a clear error of judgment. See Amernational Indus., 925 F.2d at 975. Erickson’s Flooring
filed its motion to confirm contempt on February 22, 2008, more than 17 months after it
had received the documents, and had not, in the meantime, made any complaint to the
defendants or to the district court that the delivered documents were not in compliance with
the court’s discovery order. Moreover, Erickson’s Flooring made no reply to the
defendants’ counsel’s several inquiries whether the materials produced were satisfactory
or whether Erickson’s Flooring needed anything further. The district court also found that,
besides bare allegations, Erickson’s Flooring offered no support for its contention that
Basic and Betco had deliberately produced the documents in a manner designed to
obstruct discovery. We agree with the district court that Erickson’s Flooring failed to
present clear and convincing evidence that contempt was warranted. We find no abuse
of discretion.
In its appellate brief, Erickson’s Flooring also argues that the district court should
have imposed sanctions under 28 U.S.C. § 1927. Sanctions may be imposed under this
section on attorneys who “unreasonably and vexatiously” multiply legal proceedings. 28
U.S.C. § 1927. Erickson’s Flooring argues that the defendants’ counsel did just that
because they purposefully attempted to thwart Erickson’s Flooring’s legitimate attempts to
obtain discovery. The district court found that there was no evidence supporting these
allegations, and we conclude that this finding was not clearly erroneous. The district court (Nos. 08-1981/2580) -10-
did not abuse its discretion under either the Federal Rules of Civil Procedure or 28 U.S.C.
§ 1927 in denying Erickson’s Flooring’s motion to confirm contempt.
C. Motion for Relief from Judgment
After filing its first appeal in this court, Erickson’s Flooring filed a Rule 60(b) motion
in the district court, arguing once again that the documents it had attached as exhibits to
its earlier motion for reconsideration were “newly discovered evidence” sufficient to support
a claim of relief from judgment. After the district court denied this motion, Erickson’s
Flooring filed its second appeal.
The district court held that it lacked jurisdiction to consider the 60(b) motion because
it was presented after the first notice of appeal was filed. In its appellate brief, Erickson’s
Flooring concedes that the district court was correct in finding that it lacked jurisdiction to
rule on the motion, but insists that the district court should nevertheless have considered
the merits of the motion for relief from judgment and issued a “discretionary opinion”
pursuant to the procedure set out in First National Bank v. Hirsch, 535 F.2d 343, 345-46
(6th Cir. 1976).
We review a trial court’s decision on a motion for relief from judgment under Rule
60(b) for an abuse of discretion. Doe v. Lexington-Fayette Urban County Gov’t, 407 F.3d
755, 760 (6th Cir. 2005). Erickson’s Flooring offers no support for the contention that a
district court is required to issue a discretionary opinion on a motion for relief from
judgment when it lacks the jurisdiction to rule on it, and we know of no such support. We
are satisfied that the district court did not abuse its discretion when it denied Erickson’s
Flooring’s September 19, 2008, motion for relief from judgment. (Nos. 08-1981/2580) -11-
III.
For the reasons stated, we conclude that the district court did not abuse its
discretion in denying Erickson’s Flooring’s motion for reconsideration, motion to confirm
contempt, and motion for relief from judgment. We therefore AFFIRM the district court’s
judgments. |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-3163
W ELLP OINT, INC., Petitioner-Appellant, v.
C OMMISSIONER OF INTERNAL R EVENUE,
Respondent-Appellee.
Appeal from the United States Tax Court. No. 13585-05—Diane L. Kroupa, Judge.
A RGUED F EBRUARY 9, 2010—D ECIDED M ARCH 23, 2010
Before P OSNER, R OVNER, and SYKES, Circuit Judges. P OSNER, Circuit Judge. The petitioner, WellPoint (suc- cessor to Anthem, Inc.), is a for-profit seller of health insurance policies through subsidiaries that include a number of Blue Cross Blue Shield insurance companies (licensees of the Blue Cross and Blue Shield Association). In the 1990s, the petitioner, when it was still Anthem, acquired three such companies, one each in Connecticut, Kentucky, and Ohio. Both the acquiring and the acquired 2 No. 09-3163
companies were at the time mutual insurance companies, so the mergers had no tax consequences; the members of Anthem and of the three acquired companies voted to merge and the mergers made them all members of Anthem, now WellPoint. The acquired companies had been formed many years earlier as nonprofit entities dedicated to providing health-related benefits on a charitable basis, and that was their status when they were acquired. But sometime after the acquisitions, the attorneys general of the three states of the acquired companies each sued WellPoint charging that it was using the acquired assets to make profits, in violation of the restrictions that the charitable status of the acquired companies had placed on the use of their assets. The cases were eventually settled by WellPoint’s paying $113,837,500 to the states. The Internal Revenue Service refused to allow WellPoint to deduct from its taxable income either that amount, or the legal expenses that it had incurred (another $827,595) in the litigation, as “ordinary and necessary” business expenses. 26 U.S.C. § 162(a). WellPoint challenged the ruling in the Tax Court and lost. The court held that WellPoint’s settlement payments were capital expendi- tures and so could not be deducted as ordinary and necessary business expenses. The parties disagree about the scope of appellate review of such a ruling. WellPoint argues that review should be plenary—we should give no deference to the Tax Court’s determination. The government argues that we should defer to the ruling unless convinced that it is clearly erroneous. No. 09-3163 3
Rulings on pure issues of law, such as the meaning of “ordinary and necessary business expense” or “capital expenditure,” are subject to plenary review, while findings of fact are reviewed just for clear error. Contro- versy persists over the proper scope of appellate review of the application of a legal standard to the facts of a particular case (such rulings are often referred to con- fusingly as “ultimate findings of fact” or resolutions of “mixed questions of law and fact”). The better view, we (and others) have said in previous cases, e.g., United States v. Frederick, 182 F.3d 496, 499 (7th Cir. 1999); Hartford Accident & Indemnity Co. v. Sullivan, 846 F.2d 377, 384 (7th Cir. 1988); Wright v. United States, 809 F.2d 425, 428 (7th Cir. 1987); Wright v. Commissioner, 571 F.3d 215, 219 (2d Cir. 2009); ASA Investerings Partnership v. Commissioner, 201 F.3d 505, 511 (D.C. Cir. 2000), is that the clear-error standard should govern the review of a decision that applies a legal standard to particular facts. The district court (or, as in this case, the Tax Court, the decisions of which are reviewed “in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury,” 26 U.S.C. § 7482(a)(1); see, e.g., ASA Investerings Partnership v. Commissioner, supra, 201 F.3d at 511) has a greater immersion in the facts of a case than the court of ap- peals. Also, when a decision is fact-specific, plenary review is not required in order to maintain uniformity of legal principles throughout the circuit. An appellate court’s “main responsibility is to maintain the uniformity and coherence of the law, a responsibility not engaged if the only question is the legal significance of a particular and 4 No. 09-3163
nonrecurring set of historical events.” Mucha v. King, 792 F.2d 602, 605-06 (7th Cir. 1986). This analysis implies that the clear-error standard should govern the review of a ruling that a particular expenditure was or was not an ordinary and necessary business expense as distinct from a capital expenditure. And so we held in Reynolds v. Commissioner, 296 F.3d 607, 612-15 (7th Cir. 2002). But we have to reckon with the Supreme Court’s statement that “the general characteriza- tion of a transaction for tax purposes is a question of law subject to review,” Frank Lyon Co. v. United States, 435 U.S. 561, 581 n. 16 (1978). (By “review” the Court must have meant plenary review, since factfindings are subject to review, albeit just for clear error.) Naturally this formula, given its sponsor, has been recited in subsequent cases. E.g., Wellons v. Commissioner, 31 F.3d 569, 570 (7th Cir. 1994); Dow Chemical Co. v. United States, 435 F.3d 594, 599 n. 8 (6th Cir. 2006). But what does “general characterization” mean? Classifying a particular expenditure as an expense on the one hand or as a capital expenditure on the other is applying a legal standard to facts. The Dow opinion interpreted “general characterization” to include such classifica- tions. We are dubious. A judge asked in a bench trial to decide whether the defendant was negligent applies a legal standard (the negligence standard) to the facts of the case—and appellate review is deferential, Thomas v. General Motors Acceptance Corp., 288 F.3d 305, 307-08 (7th Cir. 2002); Downs v. United States, 522 F.2d 990, 999 (6th Cir. 1975); see generally St. Mary’s Medical Center of No. 09-3163 5
Evansville, Inc. v. Disco Aluminum Products Co., Inc., 969 F.2d 585, 588-89 (7th Cir. 1992), as it should be according to our analysis. We don’t see how a negligence case differs in this respect from this tax case. We needn’t wade deeper into this mire, however. For this is not a case in which the standard of review deter- mines the outcome—a case in which we would affirm if the standard were clear error and reverse if it were mere error. We would affirm under either standard. We’ll begin our analysis by explaining the difference between a capital expenditure and an ordinary and necessary business expense, with the aid of examples. The cost of buying a building is a capital expenditure because a building has “a useful life substantially beyond the taxable year,” Treas. Reg. § 1.263(a)-2(a), which is the general understanding of “capital expenditure.” See, e.g., U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137, 1143-44 (7th Cir. 2001); Crosley Corp. v. United States, 229 F.2d 376, 379 (6th Cir. 1956); Bruns v. Commissioner, T.C. Memo 2009-168, 2009 WL 2030886, at *9. A capital expenditure is not deductible as a business expense in the year in which it is made; instead it must be depreci- ated over its useful life, and the amount of depreciation each year is all that is deductible that year. E.g., Crosley Corp. v. United States, supra, 229 F.2d at 379. In this way, cost is matched temporally with revenue, which is a desideratum of tax law. The purchase price of a capital asset is not the only example of a capital expenditure. Any expenditure is capital if its “utility . . . survives the accounting period” in 6 No. 09-3163
which it is made. Sears Oil Co. v. Commissioner, 359 F.2d 191, 197 (2d Cir. 1966); see also Clark Oil & Refining Corp. v. United States, 473 F.2d 1217, 1219-20 (7th Cir. 1973). So an expense incurred to enhance the value of a capital asset must be capitalized, and thus amortized over the asset’s remaining life. In contrast, business expenses incurred in day-to-day operations are deemed ordinary business expenses and so (if they also are necessary, which in this context just means “appropriate and helpful,” Commissioner v. Heininger, 320 U.S. 467, 471 (1943); Welch v. Helvering, 290 U.S. 111, 113-14 (1933) (Cardozo, J.)) they are deduct- ible from the business’s taxable income in the year in which they are incurred. Thus repairs to a building, which preserve but do not enhance the building’s value, can be expensed, while improvements intended to increase the building’s value have to be capitalized. Moss v. Commissioner, 831 F.2d 833, 835 (9th Cir. 1987) (“expenditures for permanent improvements or betterments made to increase the value of any property must be capitalized and depreciated over the useful life of the improvement”); Connally Realty Co. v. Commissioner, 81 F.2d 221, 221-22 (5th Cir. 1936); Difco Laboratories, Inc. v. Commissioner, 10 T.C. 660, 667 (1948); Appeal of Illinois Merchants Trust Co., 4 B.T.A. 103, 106 (1926); Treas. Reg. §§ 1.162-4, 1.263(a)-1(a), (b). As further explained in the Connally opinion, “Repairs to a building are neces- sary, and regarded as ordinary although occasioned in unusual degree by storm, flood, or the like. But this building fell into no disrepair, nor was it physically injured in any way requiring restoration. The city altered its street with detriment to the desirability of portions No. 09-3163 7
of the building for rent, but, so far as appears, without touching the building. The outlay was made in an effort to adapt the building to changed surroundings, but not to repair any physical damage to it.” 81 F.2d at 221. Just as repairs prevent a building from collapsing, so expenditures to defend title to the building (maybe someone is seeking specific performance of what he claims, and you deny, is your agreement to sell him the building) are incurred to protect the building against what from the owner’s standpoint might be a loss equiv- alent to its collapsing. But such expenditures, because incurred to defend (or assert) the ownership of a capital asset, cannot be expensed. The distinction may seem tenuous, but it is well estab- lished. See Lark Sales Co. v. Commissioner, 437 F.2d 1067, 1077 (7th Cir. 1970) (expenses “incurred for the purpose of defending and protecting the Medds’ title or property rights in the Dairy Queen trade name and a trade phrase originated by the Medds . . . were capital in nature and not deductible as a business expense”); Burch v. United States, 698 F.2d 575, 579 (2d Cir. 1983); Redwood Empire Savings & Loan Ass’n v. Commissioner, 628 F.2d 516, 520-21 (9th Cir. 1980); Melcher v. Commissioner, T.C. Memo. 2009- 210, 2009 WL 2950820, at *4-5; Treas. Reg. § 1.212-1(k) (“expenses paid or incurred in defending or perfecting title to property, in recovering property (other than investment property and amounts of income which, if and when recovered, must be included in gross income), or in developing or improving property, constitute a part of the cost of the property and are not deductible ex- penses”); Treas. Reg. § 1.263(a)-2(c). 8 No. 09-3163
The particular expenses involved in this case were incurred in defending a lawsuit. A business that is sued for unpaid taxes, say, or unpaid rent, is allowed to deduct its expenses in defending the suit as “ordinary” business expenses. Trust Under the Will of Binham v. Com- missioner, 325 U.S. 365, 376 (1945); see also Commissioner v. Tellier, 383 U.S. 687, 689-90 (1966); Commissioner v. Heininger, supra, 320 U.S. at 471-72; A.E. Staley Mfg. Co. & Subsidiaries v. Commissioner, 119 F.3d 482, 487-91 (7th Cir. 1997); Hauge v. Commissioner, T.C. Memo 2005-276, 2005 WL 3214581 at *5-6. They are the sort of expense that is incurred to preserve the operation and profit- ability of the business rather than to acquire or retain or improve a specific capital asset, and thus are “ordinary and necessary” even though they are not as regular and predictable as costs of labor and materials. WellPoint claims that the cost of the settlement, and (what need not be discussed separately) the legal expenses that it incurred in the litigation, were “ordinary” because it was defending against claims that it was using its property—the assets of the acquired BCBS compa- nies—improperly. On this view, WellPoint was like a landlord who is sued for violating the building code by failing to maintain his building properly. But the gov- ernment argues that WellPoint was defending its title to the acquired assets, and we said that expenses incurred in defending title to a capital asset are not ordinary ex- penses. WellPoint ripostes that the attorneys general never questioned its title but merely its use of the assets for profit-making rather than charitable purposes. Such disputes over characterization are resolved by application of what is called the “origin of the claim” No. 09-3163 9
doctrine: costs incurred in defending a lawsuit are classi- fied as expenses or as capital expenditures depending on the nature of the claim that gave rise to the litigation. United States v. Gilmore, 372 U.S. 39, 48-49 (1963); Dower v. United States, 668 F.2d 264, 266 (7th Cir. 1981); Clark Oil & Refining Corp. v. United States, supra, 473 F.2d at 1219- 21; cf. A.E. Staley Mfg. Co. & Subsidiaries v. Commissioner, supra, 119 F.3d at 489. In our hypothetical building-code case the landlord’s litigation expenses were in lieu of proper maintenance, so they are treated like the repair expenses for which they are a substitute, and thus can be expensed. But if the landlord were defending against a suit for specific performance of a contract to sell the building, he would be defending the ownership of his capital asset and so the origin of the claim would be a dispute over title. In each of the three suits out of which the present dispute arises WellPoint had acquired assets that were held in a charitable trust. Two of the suits asked that the assets be taken out of WellPoint’s hands entirely and placed in charitable entities with which WellPoint would have nothing to do. The third, the Ohio suit, asked that the assets be placed in a charitable trust but left open the possibility that WellPoint might be the trustee. But whether the origin of a claim is a dispute over a capital asset or over the day-to-day operations of the business is not to be decided by reference to the outcome of the suit. United States v. Gilmore, supra, 372 U.S. at 48-49; McKeague v. United States, 12 Cl. Ct. 671, 674 (1987), affirmed, 852 F.2d 1294 (Fed. Cir. 1988); Colvin v. Commissioner, T.C. Memo. 2004-67, 2004 WL 516195, at *4-5. 10 No. 09-3163
Otherwise, as the Supreme Court explained in the Gilmore case, “if two taxpayers are each sued for an automobile accident while driving for pleasure, deductibility of their litigation costs would turn on the mere circumstance of the character of the assets each happened to possess, that is, whether the judgments against them stood to be satisfied out of income- or nonincome-producing property. We should be slow to attribute to Congress a purpose pro- ducing such unequal treatment among taxpayers, resting on no rational foundation.” 372 U.S. at 48. The remedy that the parties to a lawsuit seek, obtain, or agree on if they settle the case will sometimes be unrelated to the nature of the claim out of which the suit arose, as in Barr v. Commissioner, T.C. Memo 1989-420, 1989 WL 90207; see also Lucas v. Commissioner, 388 F.2d 472, 476 (1st Cir. 1967); Yates Industries, Inc. v. Commissioner, 58 T.C. 961, 971-72 (1972); Treas. Reg. § 1.212-1(m). Imagine a suit to establish the plaintiff’s ownership of a building, and the parties agree in settling the suit that the defendant can retain the building but the plaintiff will be allowed to occupy it as a tenant. The origin of the claim would be a dispute over a capital asset, namely ownership of an asset that has a useful life of more than a year, even though the remedy would be what one might expect in a dispute between a landlord and a tenant over the terms of the lease. The parties’ litigation expenses would have been incurred to secure or defend ownership of a capital asset, whatever the terms of the settlement. Still, the remedy sought or ordered or agreed to can be a clue to the nature of the claim. Lange v. Commissioner, No. 09-3163 11
T.C. Memo. 1998-161, 1998 WL 217892, at *3; Estate of Block v. Commissioner, T.C. Memo. 1988-159, 1988 WL 33528; cf. Boagni v. Commissioner, 59 T.C. 708, 713 (1973). And that might seem to be the case here, at least with respect to the settlement in the Ohio suit. WellPoint says it shows that the attorney general was just trying to prevent a misuse of the acquired assets. But this misses the distinction between legal and beneficial ownership. A trustee has title to the assets of the trust, but the beneficiaries are the real owners because they are entitled to the income or other benefits that the assets of the trust yield, minus only the trustee’s reasonable fee for managing the assets. Hatcher v. Southern Baptist Theological Seminary, 632 S.W.2d 251, 252 (Ky. 1982) (“when property is held in trust the trustee holds the legal title and the beneficiary or beneficiaries are considered to be owners of the equitable title”); Guitner v. McEowen, 124 N.E.2d 744, 747 (Ohio App. 1954); Restatement (Third) of Trusts § 2 and comments d, f (2003); George Gleason Bogert, George Taylor Bogert & Amy Morris Hess, The Law of Trusts and Trustees § 1 (3d ed. 2009). The attorneys general were trying to strip WellPoint of its equitable ownership—its right to use the acquired assets for profit. Whether WellPoint remained the trustee was a detail. Moreover, although the state officials settled for money, they did not claim that WellPoint had (yet) caused any harm to anyone by operating the acquired BCBSs for profit—that it had charged higher insurance premiums or provided less coverage or treated claims less gener- ously. The $113 million that the attorneys general received (and handed over to charitable entities to hold and man- age) was not damages; it was in lieu of their recovering the acquired assets. 12 No. 09-3163
A note of confusion has been injected by the plaintiffs’ characterizing their claims as “cy pres” claims. The cy pres (“as near as”) doctrine allows a court to alter a charity’s objective if the original objective can no longer be achieved. The Earl of Craven—having in “mind the sad and lamentable visitation of Almighty God upon the kingdom, but more especially upon the Cities of London and Westminster, in the year 1665 and 1666, by the pesti- lence and great mortality, and the great necessity that there was for providing a pest house for the sick, and burying-place for the dead”—had established a trust for the maintenance of a pest house and plague pit. But when the Black Plague no longer ravaged the poor residents of St. Martin’s-in-the-Fields, the trust was permitted to use some of its assets to help treat persons with other conta- gious diseases. Attorney-General v. Earl of Craven, 21 Beavan 392, 52 Eng. Rep. 910, 912, 918-19 (Ch. 1856); see also National Foundation v. First National Bank of Catawba County, 288 F.2d 831, 834-36 (4th Cir. 1961). But the trust would not have been allowed to substitute, for its pest house and plague pit, a shelter and burying place for homeless tabby cats, since that objective would not have been near its original and now unattainable one. The doctrine has no application to this case. The dispute is remote from the standard cy pres case, in which the issue is whether charitable assets can be kept out of the hands of the residuary legatees even though the original objective of the charitable bequest can no longer be achieved. Rice v. Stanley, 327 N.E.2d 774, 784-85 (Ohio 1975); Ministers & Missionaries Benefit Board of American No. 09-3163 13
Baptist Convention v. Meriden Trust & Safe Deposit Co., 94 A.2d 917 (Conn. 1953); Citizens Fidelity Bank & Trust Co. v. Isaac W. Bernheim Foundation, 205 S.W.2d 1003, 1007-08 (Ky. 1947); Restatement (Third) of Trusts § 67 (2003). The original charitable objective of the acquired enti- ties—namely the provision of health insurance—is not unattainable. What has happened rather is that the assets devoted to its attainment have been (according to the suits) unlawfully used to provide health insurance for profit; it’s as if the assets had been stolen. Before concluding we need to consider the alternative ground for affirmance—or purported ground for affirmance—advanced by the government in its brief and strongly urged by its lawyer at argument. More precisely, we need to consider whether we can consider the alter- native ground. The ground is that the settlement with WellPoint was in effect a partial restoration of the acquired assets to their rightful owners and that like any other repayment of money it was not a capital expenditure and therefore should have no tax consequences at all. Although the government asks us to affirm the Tax Court’s judgment rather than to modify it, were we to accept the alternative ground this would amount to repudiating the court’s holding that the costs incurred by WellPoint were capital expenditures, and would place a cloud over Well- Point’s seeking to deduct the cost in the future as a capital expenditure to be amortized over the life of the acquired assets that WellPoint retains by virtue of having coughed up $113 million to keep them. Litigation 14 No. 09-3163
expenses designed to obtain or protect a capital asset are added to the basis (essentially, the cost) of the asset and thus increase the amount of depreciation that the owner of the asset can take as a deduction from taxable income over its remaining life. 26 U.S.C. § 1016; Woodward v. Commissioner, 397 U.S. 572, 574-79 (1970); Lange v. Commissioner, supra, at *3; Noel v. Commissioner, T.C. Memo 1997-113, 1997 WL 93310, at *7-9. That’s WellPoint’s fallback position, should we rule (as we have ruled) that it is not entitled to deduct the settlement and associated legal fees as ordinary and necessary business expenses. Had the government wanted us to modify the Tax Court’s judgment, it would have had to file a cross-appeal. E.g., El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473, 479 (1999); Morley Construction Co. v. Maryland Casualty Co., 300 U.S. 185, 190-92 (1937) (Cardozo, J.); Doll v. Brown, 75 F.3d 1200, 1207 (7th Cir. 1996); cf. Eugene Gressman et al., Supreme Court Practice 489-94 (9th ed. 2007). An appellant is permitted to file a reply brief after the appellee files his brief, and so an appellee who is also an appellant—that is, who is also seeking relief against the lower court’s judgment—should have the same right to respond to his opponent’s brief, and he invokes that right by filing his own appeal, called a cross-appeal. The filing of a cross- appeal also serves to alert the court to the dual role of the parties in the appeal. But the government is not seeking relief against the Tax Court’s judgment—though this conclusion depends on precisely what the “judgment” in a case is. The judgment is not the court’s opinion or reasoning; it is the court’s No. 09-3163 15
bottom line, which in this case is the denial of the deduc- tion sought by WellPoint in the tax years in question. The government asks us to modify the reasoning of the Tax Court so that in some future tussle with the Internal Revenue Service WellPoint will not be allowed to deduct depreciation of the settlement and litigation expenses. But this just illustrates “that the appellee may, without taking a cross-appeal, urge in support of a decree any matter appearing in the record, although his argument may involve an attack upon the reasoning of the lower court or an insistence upon matter overlooked or ignored by it.” United States v. American Railway Express Co., 265 U.S. 425, 435 (1924) (Brandeis, J.) (emphasis added); see also United States v. New York Telephone Co., 434 U.S. 159, 166 n. 8 (1977); Ruth v. Triumph Partnerships, 577 F.3d 790, 796 (7th Cir. 2009); Moss v. Kopp, 559 F.3d 1155, 1161 n. 6 (10th Cir. 2009). To rule otherwise would lead to endless dis- putes over whether arguments by an appellee ostensibly defending the judgment were planting time bombs under the appellant. The cross-appeal rule is not so vital that it justifies haggling over borderline cases. Doubts should therefore be resolved against finding that the appellee’s failure to file a cross-appeal forfeited his right to argue an alternative ground. See 15A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3904, pp. 198-209 (2d ed. 1992); see also Pearl v. Keystone Consolidated Industries, Inc., 884 F.2d 1047, 1052-53 (7th Cir. 1989); Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 439 (7th Cir. 1987). Otherwise courts 16 No. 09-3163
will be sucked into inconclusive debates over whether something said in a district court opinion, though not preclusive by operation of res judicata or collateral estoppel (or stare decisis, because district court decisions do not have the force of precedent, e.g., Boyd v. Owen, 481 F.3d 520, 527 (7th Cir. 2007); Colby v. J.C. Penney Co., Inc., 811 F.2d 1119, 1124 (7th Cir. 1987); NASD Dispute Resolu- tion, Inc. v. Judicial Council, 488 F.3d 1065, 1069 (9th Cir. 2007)), nevertheless affects the rights of the appellee. United States ex rel. Stachulak v. Coughlin, 520 F.2d 931, 937 (7th Cir. 1975), is a case that illustrates when the filing of a cross-appeal is required. The appellee, confined in the psychiatric ward of a state prison, brought a federal habeas corpus proceeding to gain his freedom. The district court found merit in his case and ordered him released from the prison unless the state gave him another commitment proceeding (in which the state’s burden of proof would be greater) within 60 days. Without cross-appealing, the appellee argued that the statute under which he was confined was unconstitutional root and branch. We held that he could not make this argu- ment without filing a cross-appeal because if his argument were accepted it would require his immediate release and preclude a further commitment hearing and thus change the judgment from conditional release in 60 days to unconditional release immediately. In this case, in contrast, the judgment does not require that WellPoint be permitted to treat its settlement and litiga- tion expenses as a depreciable (and therefore over time a deductible) capital expenditure, and so the govern- No. 09-3163 17
ment’s argument that they shouldn’t be so treated does not challenge the judgment, as distinct from reasoning by the Tax Court that might influence decision in a future case but would require no alteration in the judgment in the present one. The strongest case that we’ve found (though not strong enough) for requiring the appellee to file a cross-appeal even though he isn’t seeking to alter the judgment is EEOC v. Chicago Club, 86 F.3d 1423 (7th Cir. 1996). The defendant prevailed in the district court and on appeal argued an alternative ground for affirmance without having filed a cross-appeal. We rejected the alternative ground because the appellee did not have standing to raise it, and then remarked that “the fact that the [appellee] did not file a cross-appeal would also complicate our ability to resolve [the] important issue [raised by the appellee] even if standing were present.” Id. at 1431-32. This was a dictum that even on its own terms did not go so far as to state that the appellee was required to file a cross-appeal. And so we can address, at last, the merits of the gov- ernment’s alternative ground. We can be brief, as the ground is—groundless. It is true that if you receive money as a loan and repay it, the repayment is not deductible from your taxable income, because you never claimed to own the money you had borrowed. Commissioner v. Tufts, 461 U.S. 300, 307 (1983); Vukasovich, Inc. v. Commissioner, 790 F.2d 1409, 1413 (9th Cir. 1986); Brenner v. Commissioner, 62 T.C. 878, 883 (1975). But WellPoint always claimed (it still claims) to have equitable title to the assets it ac- 18 No. 09-3163
quired. The expenses that it reasonably incurred to defend that claim—the claim to own the assets free and clear—are capital expenditures, not repayments. A FFIRMED.
3-23-10 |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-2483
E STATE OF W AVIE L USTER by its personal representative, Rick Gikas, Plaintiff-Appellant, v.
A LLSTATE INSURANCE C OMPANY, Defendant-Appellee.
Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:07-CV-226-RLM—Robert L. Miller, Jr., Judge.
A RGUED D ECEMBER 4, 2009—D ECIDED M ARCH 23, 2010
Before P OSNER, R IPPLE, and W OOD , Circuit Judges. P OSNER, Circuit Judge. This diversity suit for breach of an insurance contract was dismissed on summary judg- ment. The suit is governed, so far as the substantive issues are concerned, by Indiana law, and the plaintiff’s appeal presents issues of both contract interpretation and Indiana insurance law. 2 No. 09-2483
Mrs. Luster was a widow living alone in her house in Merrillville, Indiana. She had a homeowner’s insur- ance policy from Allstate. In October 2001, when she was 83, she was injured in a fall and after being released from the hospital moved into an extended-care facility. She executed a power of attorney to her lawyer, Rick Gikas, who is the representative of her estate in this litigation. She never returned home, and died in April 2006, some four and a half years after her fall. Gikas had notified Allstate of his power of attorney and had directed the company to bill the insurance premiums to his law office. No one lived in the house after she left it. Three months after her death—her house still unoccu- pied—a fire caused extensive damage. Gikas submitted a claim on behalf of the estate. An investigation indicated that the fire may well have been started by burglars, but the plaintiff denies this and the district judge made no finding. In the course of the investigation Allstate discovered that the house had been unoccupied for four and a half years before Mrs. Luster’s death, and denied the claim, precipitating this suit. Allstate continued billing Gikas for premiums, however, and he continued paying them until October 2008, more than two years after the fire, when Allstate—which claims not to have known that the policy was still in force until its lawyers read the estate’s summary-judgment brief that month—purported to cancel the policy retroactively to November 2001, and returned the premiums for the subsequent period to the estate. No. 09-2483 3
The appeal requires us to consider four provisions of the insurance policy: 1. The insured “must . . . inform [Allstate] of any change in title, use or occupancy of the residence premises.” 2. “If [the insured] die[s], coverage will continue until the end of the premium period for . . . [the in- sured’s] legal representative while acting as such.” 3. There is no coverage for loss to property “con- sisting of or caused by . . . any substantial change or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person.” 4. There is no coverage for loss to property “con- sisting of or caused by . . . vandalism or malicious mischief if [the insured’s] dwelling is vacant or unoc- cupied for more than 30 consecutive days immediately prior to the vandalism or malicious mischief,” unless the dwelling is under construction. 1. Gikas didn’t notify Allstate until after the fire that the house was unoccupied. He argues that the notice he gave Allstate, shortly after Mrs. Luster left the house for good—that he had a power of attorney and premiums should be billed to his office—gave the insurance company constructive notice that the house was unoccu- pied, or at least obligated the company to inquire about its occupancy. That is a frivolous argument. Allstate knew that Luster was 83, so it would come as no surprise to learn that she had executed a power of attor- ney and that the holder of the power would be 4 No. 09-2483
handling her finances. That did not indicate that she’d moved out of the house. Alternatively, Gikas argues that anyway the house was not unoccupied, because right up until her death Luster expressed the intention of returning to live there when her health permitted. “Occupancy” in Indiana law (as in insurance law generally) implies “the presence of human beings as at their customary place of abode, not absolutely and uninterruptedly continuous, but that must be the place of usual return and habitual stoppage,” Home Ins. Co. v. Boyd, 49 N.E. 285, 291 (Ind. App. 1898). “A person’s dwelling constitutes not the boundaries but the focal point of his life. He does not cease to have a home when he is temporarily absent therefrom, nor does his home cease to be an occupied dwelling. It is not his physical presence but the habitual recurrence of that presence that renders a dwelling occupied.” Foley v. Sonoma County Farmers’ Mutual Fire Ins. Co., 5 P.2d 1, 3 (Cal. 1941) (Traynor, J.); see also 6A Couch on Insurance §§ 94:118-19 (3d ed. 2005). But though there is no “require[ment] that some person must be living in [the house] every moment, . . . there must not be a cessation of occupancy for any con- siderable period of time.” Insurance Co. v. Coombs, 49 N.E. 471, 473 (Ind. App. 1898). Most of the cases in which the insured prevails involve absences of no more than three months. Monarch Ins. Co. v. Rippy, 369 P.2d 622, 624-25 (Okla. 1962); Republic Ins. Co. v. Watson, 70 S.W.2d 441, 443- 44 (Tex. Civ. App. 1934); Phoenix Ins. Co. v. Burton, 39 S.W. 319 (Tex. Civ. App. 1896). The insurer tends to win when the absence is longer and the owner’s plans to return No. 09-2483 5
are uncertain or indefinite, as in Schoeneman v. Hartford Fire Ins. Co., 267 P. 815 (Ore. 1928), where the insured’s farm was unoccupied for two years and the owner in- tended to return only when he could “see [his] way clear to make the payments on the debt that was still against it, pay the interest and the taxes and keep up the place, and eventually that way get it paid for.” The present case is similar; the insured was away for years, and her intention to return was conditional on improving health that, as the years rolled by, became less and less probable. See also Speth v. State Farm Fire & Casualty Co., 35 P.3d 860, 864 (Kan. 2001); Stivers v. National Am. Ins. Co., 247 F.2d 921, 924-26 (9th Cir. 1956) (California law); Washington Fire Ins. Co. v. Cobb, 163 S.W. 608, 614 (Tex. App. 1914). Regardless of the owner’s intentions, a house that stands unoccupied for four and a half years can hardly be described as “occupied” throughout that period, particu- larly when one considers the risk of theft, vandalism, fire, water damage, and so forth when a house is left empty for years on end. We need not try to pinpoint the date on which, regardless of the owner’s intentions, a house has to be considered to have undergone a “change in . . . occupancy” within the meaning of the policy, triggering the duty of the insured (or, in this case, her representative) to notify the insurance company. Four and a half years of continuous absence of human occupa- tion constitutes a change in occupancy. The duty-to-notify provision entitled Allstate to cancel the policy in the event the house became unoc- cupied. Yet while arguing compellingly that Gikas had a duty to notify it that the house was unoccupied, Allstate 6 No. 09-2483
is seeking to avoid coverage only on the basis of clauses 3 and 4 of the policy. The district judge, who found that the duty of notification had indeed been breached, attached no consequences to that breach but instead based his decision on clause 3. (We’ll see later in this opinion that the issue of cancellation is raised mainly by the plaintiff, as presenting an alternative ground for recovery.) Although the policy expressly authorizes the insurer to cancel it for a violation of any of its terms, it also re- quires the insurer to give 30 days’ notice of intention to cancel, and Allstate failed to do that after discovering in the wake of the fire that the house had been unoccupied for years. The requirement of notice of intent to cancel is important; it gives the insured an opportunity to prevent a lapse of coverage, by taking steps to reinstate the policy or obtain a substitute policy from another insurer. Conrad v. Universal Fire & Casualty Ins. Co., 686 N.E.2d 840, 842 (Ind. 1997); Krueger v. Hogan, 780 N.E.2d 1199, 1203 (Ind. App. 2003). Retroactive termination is inconsistent with the requirement of advance notice. Plumlee v. Monroe Guaranty Ins. Co., 655 N.E.2d 350, 355- 56 (Ind. App. 1995); Green v. J.C. Penney Auto Ins. Co., 722 F.2d 330, 332-33 (7th Cir. 1983) (Illinois law). It might be argued that the duty to notify the insurer of a change in occupancy is a condition the breach of which cancels the entire policy. But the remedy of cancel- lation (“rescission” is the technical legal term) must be sought by the wronged party, and Allstate did not seek to cancel the policy when it learned of the change in occu- pancy. The insured’s actions cannot by themselves void No. 09-2483 7
the contract. Prudential Ins. Co. v. Smith, 108 N.E.2d 61, 64 and n. 3 (Ind. 1952); New Life Community Church of God v. Adomatis, 672 N.E.2d 433, 438 (Ind. App. 1996). It would be paradoxical to allow the wrongdoer’s action to deprive the victim of the opportunity to sue for damages for breach or take other action that might be better from the victim’s standpoint than rescinding the contract. “The contract is voidable at the election of the injured party. If he elects to affirm the transaction, he has his remedy by way of damages. If he elects to rescind, he must return back what he has received, and in turn he is entitled to receive what he has parted with.” Prudential Ins. Co. v. Smith, supra, 108 N.E.2d at 64. Rather than attempt to cancel the policy, Allstate, the party claiming to have been injured or wronged by the change of occupancy of which it had not been notified, accepted premiums for years after learning of the estate’s breach. It cannot now be permitted to rescind the contract ab initio—that would be a confession that it should not have accepted the premiums. It is not even clear that a change in occupancy is the kind of breach of contract that would entitle Allstate to rescind the policy. The Indiana cases limit rescission to breaches that go “to the heart of the contract,” Collins v. McKinney, 871 N.E.2d 363, 371 (Ind. App. 2007); Gabriel v. Windsor, Inc., 843 N.E.2d 29, 45 (Ind. App. 2006), or that result in a “complete failure of consideration.” Smeekens v. Bertrand, 311 N.E.2d 431, 435 (Ind. 1974); Van Bibber Homes Sales v. Marlow, 778 N.E.2d 852, 860 (Ind. App. 2002). Damages are the default remedy for breach of contract; injunctive and other relief, including rescission—an equita- ble remedy and thus similar to an injunction, Seymour 8 No. 09-2483
Water Co. v. City of Seymour, 70 N.E. 514, 517 (Ind. 1904); Stevens v. Olsen, 713 N.E.2d 889, 891 (Ind. App. 1999); see Collins v. McKinney, supra, 871 N.E.2d at 371; New Life Community Church of God v. Adomatis, supra, 672 N.E.2d at 438—is reserved for extraordinary cases, such as a complete failure of consideration, which excuses the performing party from having to perform, because he’s receiving nothing in return. When one considers the very limited circumstances in which the Indiana legislature has approved cancellation of homeowner policies even when there is notice by the insurer, see Ind. Code § 27-7-12-6, as there was not here, it seems unlikely that the Indiana courts would permit cancella- tion in a case like ours. 2. The plaintiff argues that even if coverage lapsed, the death clause reinstated it, because Luster died before the fire. The argument misunderstands the purpose of the clause. It is to prevent a lapse of coverage when the insured dies. If coverage had lapsed earlier, the clause has no significance. 3. The district judge ruled that leaving the house unoccu- pied constituted a “substantial change or increase in hazard” within the meaning of clause 3 (no coverage for loss to property “consisting of or caused by . . . any substantial change or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person”). The judge seems to have thought that to leave a house unoccupied for however short a time causes an “increase in hazard” as a matter of law. Allstate takes the more moderate position that any gap No. 09-2483 9
in occupation of more than 30 days increases hazard as a matter of law. Neither position is correct. Houses are rarely occupied continuously. A homeowner might take a 31-day trip; Allstate implies that if a fire occurred during that period the insured would be uncovered. That is not the law. (In addition to the cases we cited earlier, see Hill v. Ohio Ins. Co., 58 N.W. 359 (Mich. 1894).) A person who owns a vacation home may spend the summer months away from his primary home; the homeowner’s policy on his primary home doesn’t lapse. See Farmer’s Mutual Protec- tive Ass’n v. Wright, 702 S.W.2d 295 (Tex. App. 1985); cf. Ohio Farmers’ Ins. Co. v. Vogel, 76 N.E. 977, 979 (Ind. 1906) (“a condition against vacancy and unoccupancy, usually found in insurance policies, must be construed with relation to the character or class of property to which it relates”). What is true is that a homeowner’s policy is site-specific; a homeowner who has a second (or a third or a fourth, etc.) home will have either to add each one as an endorsement to the homeowner’s policy on his primary home or buy a separate policy covering his other home(s). Allstate’s argument thus implies that if you have a second home the homeowner’s policy on your primary residence is illusory; you’re away a lot and so coverage lapses. That’s nonsense. And even if the house is unoccu- pied in the relevant sense—the sense that triggers the duty to notify the insurance company of a change in occupancy—it doesn’t follow that you have created a “substantial . . . increase in hazard.” Maybe you fitted the 10 No. 09-2483
house with an array of locks and alarms and hired a security company to check on the house daily and so made the house more secure than when you were living there—an especially plausible inference if you happen to be an elderly person who might if in residence damage it inadvertently by leaving appliances on or failing to remove combustibles like cans containing paint or oil- soaked rags or to attend to defects in the electrical wiring of the house. There is no rule that moving out of a house per se increases the hazards against which the insurance company has insured you. Smith v. Peninsular Ins. Co., 181 So. 2d 212, 214 (Fla. App. 1965); cf. German Fire Ins. Co. v. Stewart, 42 N.E. 286, 288 (Ind. App. 1895). The court in Kinneer v. Southwestern Mutual Fire Ass’n, 185 A. 194, 195 (Pa. 1936), did say that “it is a matter of common knowledge that there is more danger of an unoccupied house being destroyed by fire than of one occupied.” But this is in general rather than in every case. To make it a flat rule of law would be inconsistent not only with the cases but also with the language of the insurance policy. That clause 3 was not intended to create a conclusive presumption of increased hazard after 30 days of nonoccupancy is confirmed by clause 4, which excludes coverage for loss caused by vandalism or mischief committed more than 30 days after the house became unoccupied. Were there an automatic inference of greater hazard when a house has been empty for 30 days, there would be no need specifically to exclude loss caused by vandalism or mischief, as distinct from other loss-causing events, such as fire. Allstate has in effect merged provisions 3 and 4 into a rule that any No. 09-2483 11
break of more than 30 days in continuous occupancy voids the policy. That’s rewriting the policy. 4. There may well have been vandalism, by burglars, and if so it occurred more than 30 days after the house became unoccupied, whenever precisely occupancy ceased—sometime during the four and a half years be- tween Luster’s fall and her death. But we do not know whether the vandalism caused the loss—there is no judicial finding that the fire that was the immediate cause of the loss was the result of vandalism. To decide whether it was will require an evidentiary hearing, as will Allstate’s alternative ground that nonoccupancy substantially increased the risk of loss. So the plaintiff is entitled to a remand, but it wants more and argues that Allstate waived denial of coverage by continuing to collect premiums for more than two years after learning, when the fire occurred, that the house had long been unoccupied. Eventually, as we know, it did return all the premiums that it had col- lected since 30 days after Luster had moved out of the house. Allstate’s argument that it did not receive notice that the policy was in force because its employee in the claims department whom Gikas advised of Luster’s death failed to relay the information to the responsible department in the company fails; the information was properly provided and Allstate’s careless handling of it cannot be charged to the Luster estate’s account. See Madison County Bank & Trust Co. v. Kreegar, 514 N.E.2d 279, 281 (Ind. 1987); Sunnyside Coal & Coke Co. v. Reitz, 43 N.E. 46, 49-50 (Ind. App. 1896); Cange v. Stotler & Co., 826 12 No. 09-2483
F.2d 581, 592 n. 8 (7th Cir. 1987) (Illinois law); Prudential Ins. Co. v. Saxe, 134 F.2d 16, 31 (D.C. Cir. 1943). Allstate’s delay in returning the premiums was not a deliberate attempt to keep money that Gikas had paid on behalf of Luster under the assumption that the insurance policy was in force (which in fact it was). In any event the delay does not bar Allstate from denying coverage of the loss caused by the fire. Although Allstate concedes that it was obligated to return all the premiums that it had collected after it cancelled the policy, Bushnell v. Krafft, 183 N.E.2d 340, 343 (Ind. App. 1962); Aetna Ins. Co. v. Robinson, 10 N.E.2d 601, 605 (Ind. 1937); Arkwright-Boston Mfrs. Mutual Ins. Co. v. Calvert Fire Ins. Co., 887 F.2d 437, 441 (2d Cir. 1989) (North Carolina law); 6A John Alan Appleman & Jean Appleman, Insurance Law and Practice § 4189, pp. 578-85 (1972), the premise of the concession is that it did cancel the policy, retroactively to long before the fire occurred, and we said earlier that retro- active cancellation is not possible. Continued acceptance of premiums after cancellation can, as we also said, fool the insured into thinking he’s covered and therefore deflect him from seeking sub- stitute protection. And if as a result of being deceived in this way he fails to obtain substitute coverage and incurs a loss as a result, the company is estopped to deny cover- age. Home Ins. Co. v. Strange, 123 N.E. 127, 129 (Ind. App. 1919); Sur v. Glidden-Durkee, 681 F.2d 490, 493-94 (7th Cir. 1982) (Indiana law); see also Hargis v. United Farm Bureau Mutual Ins. Co., 388 N.E.2d 1175, 1179 (Ind. App. 1979); C.A. Enterprises, Inc. v. Employers Commercial Union Ins. Co., No. 09-2483 13
376 N.E.2d 534, 536 (Ind. App. 1978). But since Allstate could not cancel the policy retroactively, it remained in force until October 2008, when Allstate cancelled it pro- spectively, as the policy permitted it to do. So during that period the Luster estate remained covered by the policy except (because the house continued to be unoccu- pied) for losses attributable to an increase in hazard by reason of nonoccupancy, or to vandalism. The coverage was not as comprehensive as it would have been had the house not been unoccupied; but that was not Allstate’s fault. Insurance coverage is not illusory just because the insured has done something to bring himself within an exclusion. That is why an insurer doesn’t have to return premiums for the period in which the insurance policy is in force even if an exclusion (or exclu- sions) is (are) in effect and the policy is later cancelled. Red Men’s Fraternal Accident Ass’n of America v. Rippey, 103 N.E. 345, 347 (Ind. 1913); Continental Life Ins. Co. v. Houser, 89 Ind. 258, 260 (Ind. 1883); Aetna Life Ins. Co. v. Doerr, 115 N.E. 700, 703 (Ind. App. 1917). Allstate did the estate a favor by returning the premiums. Since Gikas knew from the beginning that the house was unoccupied and knew that a change in occupancy within the meaning of the policy could eliminate Allstate’s liability under the vandalism and increase-in- hazard exclusions, there is no basis for estopping Allstate to deny coverage. Ticor Title Ins. Co. v. Graham, 576 N.E.2d 1332, 1337 (Ind. App. 1991); Johnson v. Payne, 549 N.E.2d 48, 51-53 (Ind. App. 1990). The doctrine of estoppel bars a person from enforcing a legal right only if enforcing it would give him a benefit to which he is not entitled. E.g., Brown v. Branch, 758 N.E.2d 48, 51-52 (Ind. 2001); Employers 14 No. 09-2483
Ins. v. Recticel Foam Corp., 716 N.E.2d 1015, 1027-28 (Ind. App. 1999); Steuernagel v. Supreme Council of Royal Arcanum, 137 N.E. 320, 322-23 (N.Y. 1922) (Cardozo, J.). There is no suggestion that an Allstate agent said some- thing to Luster or Gikas to suggest that the company wouldn’t rely on the vandalism or increase-in-hazard exclusions. Some Indiana cases speak of an “implied waiver” rather than of estoppel, see, e.g., Tate v. Secura Ins., 587 N.E.2d 665, 671 (Ind. 1992); and generally a waiver is enforceable without regard to prejudice or wrongful conduct. Johnson v. Spencer, 96 N.E. 1041, 1043 (Ind. App. 1912); Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995). But that is because “waiver” in normal legal usage is a voluntary relinquishment of a known right, Indiana State Highway Comm’n v. Curtis, 704 N.E.2d 1015, 1019 (Ind. 1998); T-3 Martinsville, LLC v. US Holding, LLC, 911 N.E.2d 100, 116 (Ind. App. 2009); cf. United States v. Olano, 507 U.S. 725, 733 (1993), rather than an accidental, though perhaps careless, failure to assert a right. The latter type of failure is a forfeiture, United States v. Richardson, 238 F.3d 837, 841 (7th Cir. 2001), and is often excused if no prejudice results. E.g., Lander Co. v. MMP Investments, Inc., 107 F.3d 476, 479-80 (7th Cir. 1997); Lorenzen v. Employees Retirement Plan of the Sperry & Hutch- inson Co., 896 F.2d 228, 232-33 (7th Cir. 1990). An “implied waiver” is neither waiver nor forfeiture; in Indiana insurance law it is a synonym for estoppel and so requires proof of reliance. Tate v. Secura Ins., supra, 587 N.E.2d at 671; Summers v. Auto-Owners Ins. Co., 719 No. 09-2483 15
N.E.2d 412, 414-15 (Ind. App. 1999); United Services Auto- mobile Ass’n v. Caplin, 656 N.E.2d 1159, 1162-63 (Ind. App. 1995). Pennsylvania has a similar rule. Goodwin v. Hartford Life Ins. Co., 491 F.2d 332, 333 n. 1 (3d Cir. 1974) (“under Pennsylvania law an implied waiver exists only when the elements of an estoppel are present . . . . [T]he two doctrines have precisely the same requirements”). In most states, it is true, implied waiver is a confusing hybrid of waiver and estoppel. Tibbs v. Great Central Ins. Co., 373 N.E.2d 492, 493 (Ill. App. 1978); Continental Assur- ance Co. v. Hendrix, 20 So. 2d 851, 853-54 (Ala. 1945); Schwab v. Brotherhood of American Yeomen, 264 S.W. 690, 692 (Mo. 1924); 9 Holmes’ Appleman on Insurance 2d § 57.3, pp. 382-83 (1999). But in Indiana it is a synonym for estoppel, and that is all that matters. The plaintiff cites cases that say that a failure of prompt return of premiums waives the insurance company’s right to deny coverage, whether or not the company’s failure prejudiced the insured. Farmers’ Conservative Mutual Ins. Co. v. Neddo, 40 N.E.2d 401, 405 (Ind. App. 1942); Buehler Corp. v. Home Ins. Co., 495 F.2d 1211, 1213 (7th Cir. 1974) (Indiana law); Lititz Mutual Ins. Co. v. Lengacher, 248 F.2d 850, 854 (7th Cir. 1957) (Indiana law). The cases are inapposite. In Neddo and Lilitz the insurer would have had to cancel the policy retroactively in order to prevail, not just, as in this case (and Buehler, a case much like this—and decided in favor of the insurer), to deny cover- age for a specific loss. Failure to attend to the distinction between cancellation and a denial of coverage is the Achilles’s heel of the plain- 16 No. 09-2483
tiff’s argument that the continued collection of premiums barred Allstate from denying coverage for the loss caused by the fire. A denial of coverage is governed by estoppel (or its synonym in Indiana, “implied waiver”), and relief from the denial requires proof of prejudice in order to avoid conferring windfalls on insureds. (Besides the cases cited earlier, see Terre Haute First Nat’l Bank v. Pacific Employers Ins. Co., 634 N.E.2d 1336, 1338 (Ind. App. 1993); Allstate Ins. Co. v. Tozer, 392 F.3d 950, 956 (7th Cir. 2004) (Indiana law).) There is no such proof in this case. Cancellation is governed by waiver in its conventional sense of the voluntary relinquishment of a known right. By accepting premiums for years after learning (or being deemed to have learned, since it was properly notified, even if the notice got lost in Allstate’s bureaucracy) of the change of occupancy that would have entitled it to cancel Mrs. Luster’s policy, Allstate waived its right to cancel, as we said. Each check that Gikas sent and that Allstate cashed after it knew the house was unoccupied was an offer made and accepted to continue the policy in force. The right to cancel is not an exclusion of coverage for particular losses but, as we explained earlier, an option for the insurer to exercise or not as it pleases. Aetna Ins. Co. v. Robinson, 10 N.E.2d 601, 605 (Ind. 1937). The insurer’s continuing to accept premiums after learning that circumstances entitling it to exercise its option have arisen is evidence that he’s decided not to exercise it; and after a reasonable time has elapsed, the right to exercise the option (like any other contract offer) lapses, Farmers’ Conservative Mutual Ins. Co. v. Neddo, supra, No. 09-2483 17
40 N.E.2d at 405; Lititz Mutual Ins. Co. v. Lengacher, supra, 248 F.2d at 854. The problem for the plaintiff is that the district court’s decision was based not on can- cellation but on the hazard exclusion. Still, the plain- tiff is entitled to a hearing on whether the exclusion applies (and Allstate to a hearing on the applicability of the vandalism exception, should the hazard exclusion be found inapplicable), and therefore the judgment is reversed and the case remanded. R EVERSED AND R EMANDED.
3-23-10 |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-2423
JANICE M. F LESZAR, Petitioner, v.
U NITED S TATES D EPARTMENT OF L ABOR, Respondent.
Petition for Review of a Decision of the Administrative Review Board Nos. 07-091 & 08-061
A RGUED F EBRUARY 12, 2010—D ECIDED M ARCH 23, 2010
Before E ASTERBROOK, Chief Judge, H AMILTON, Circuit Judge, and SPRINGMANN, District Judge.^ E ASTERBROOK , Chief Judge. The American Medical Association fired Janice Fleszar, who complained to the Department of Labor that the discharge violated §806 of the Sarbanes-Oxley Act, a whistleblower-protection provision. This law applies to a “company with a class of
^ Of the Northern District of Indiana, sitting by designation. 2 No. 09-2423
securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or . . . required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d))”. 18 U.S.C. §1514A(a). The Department declined to investigate Fleszar’s allega- tions, concluding that the AMA, a nonprofit membership association that does not issue stock, is not covered. See 29 C.F.R. §1980.104(b). An administrative law judge agreed, as did the Administrative Review Board, which made the agency’s final decision. Fleszar does not contend in this court that the AMA has “a class of securities registered under” §12 of the 1934 Act. Section 15(d) provides that the SEC may require any “issuer” of securities that has registered them under the 1934 Act to file periodic reports for investors’ infor- mation. Because the AMA does not have any outstanding traded securities, it is not an “issuer,” and it is corre- spondingly difficult to see how §15(d) could apply. Instead of arguing that the record demonstrates that the AMA is covered, Fleszar contends that the ALJ should have ordered the Secretary to conduct an investiga- tion—one that Fleszar hopes might turn up a connection between the AMA and an issuer that would make §1514A applicable. The Association formerly had an affiliated broker-dealer (AMA Investment Advisers), through which it offered mutual funds to its employees and members for their retirement plans. The AMA told the Department that it divested this affiliate during the 1990s and that, since 2002, it has not filed, or been required to file, any reports with the SEC—and that the reports it No. 09-2423 3
used to file were required by ERISA rather than the Securities Exchange Act of 1934. Fleszar believes that there is a possibility that more evidence might show that the AMA remains obliged to file reports (though under what statute or regulation Fleszar does not say). And §1514A(a) provides that its whistleblower-protection rules apply to any “contractor, subcontractor, or agent” of an entity that has stock covered by §12 or must file reports under §15(d). Fleszar believes that an investiga- tion by a team of bloodhounds at the Department of Labor might turn up facts showing that the AMA is such a “contractor, subcontractor, or agent”. There is some question whether Fleszar’s complaints to the Department (she filed two), and her administrative appeals, were timely. We need not decide whether she acted with the required dispatch, however, because the Department does not ask us to dismiss the petitions on account of any problems in the administrative process. Belated administrative filings are not a jurisdictional defect. Arbaugh v. Y&H Corp., 546 U.S. 500 (2006); Zipes v. Trans World Airlines, Inc., 455 U.S. 385 (1982). The Supreme Court distinguishes between mandatory case- processing rules and true jurisdictional requirements. See, e.g., Reed Elsevier, Inc. v. Muchnick, No. 08-103 (U.S. Mar. 2, 2010) (collecting authority). Rules of admin- istrative procedure are in the former category. See Union Pacific R.R. v. Brotherhood of Locomotive Engineers, 130 S. Ct. 584 (2009). That is as far as Fleszar gets, however. She was the applicant in the administrative process, so she bore the 4 No. 09-2423
burdens of production and persuasion. Director, OWCP v. Greenwich Collieries, 512 U.S. 267 (1994); Harp v. Charter Communications, Inc., 558 F.3d 722 (7th Cir. 2009); Allen v. Administrative Review Board, 514 F.3d 468, 475–76 (5th Cir. 2008). She did not satisfy either burden. Her pro- posal to transfer those burdens to the Secretary not only is incompatible with the Administrative Procedure Act but also neglects the vital point that the Secretary’s deci- sion whether to investigate and prosecute is not sub- ject to review by an administrative law judge. 29 C.F.R. §1980.109(a). Nor is it open to judicial review. Prosecutorial decisions are committed to agency discre- tion. See 5 U.S.C. §701(a)(2); Heckler v. Chaney, 470 U.S. 821 (1985). (This aspect of the APA applies to whistle- blower claims through a chain of references. See 18 U.S.C. §1514A(b)(2)(C), incorporating 49 U.S.C. §42121(b), which in turn incorporates Chapter 7 of the APA.) Fleszar believes that it would improve enforcement of the Sarbanes-Oxley Act if the Secretary were more aggres- sive in nosing out violations. But courts are not in the business of inventing procedures that agencies must follow; it is enough to enforce the statutes and regulations on the books. Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519 (1978). An agency must be allowed the authority to decide where its investigative and prosecutorial resources are best applied. Judges do not know what is on the agency’s menu and so cannot displace the agency’s choices among projects. What sense would it make to direct the Department to investigate the AMA, which almost cer- tainly is not covered by §1514A? That would just reduce No. 09-2423 5
the resources available to investigate and vindicate claims by employees of publicly traded companies, the statute’s main objects. We don’t share Fleszar’s belief that the phrase “con- tractor, subcontractor, or agent” means anyone who has any contract with an issuer of securities. Nothing in §1514A implies that, if the AMA buys a box of rubber bands from Wal-Mart, a company with traded securities, the AMA becomes covered by §1514A. In context, “con- tractor, subcontractor, or agent” sounds like a reference to entities that participate in the issuer’s activities. The idea behind such a provision is that a covered firm, such as IBM, can’t retaliate against whistleblowers by con- tracting with an ax-wielding specialist (such as the char- acter George Clooney played in “Up in the Air”). But whether or not this is the right way to understand “con- tractor, subcontractor, or agent”, Fleszar did not produce evidence that the AMA fits this category, and the Secretary was not legally obliged to assist her. Fleszar’s reply brief contends that, if the Secretary did not have to pitch in, the ALJ should have lent aid by advising her how to conduct discovery more effectively. She did not make such a request of the ALJ, however, or contend on appeal to the Administrative Review Board that the ALJ erred in this respect. Nor did Fleszar make such an argument in her opening brief in this court. Accordingly, we need not consider whether—and, if so, when—an ALJ should depart from the role of a neutral arbiter and act as a complainant’s legal adviser. Cf. McNeil v. United States, 508 U.S. 106, 113 (1993). Statutes or 6 No. 09-2423
regulations create an obligation to assist pro se claimants in some situations when entitlement to federal benefits is at issue (e.g., Social Security disability proceedings, see Nelms v. Astrue, 553 F.3d 1093, 1098 (7th Cir. 2009)); such an obligation is less common when the agency is adjudicating a dispute between private persons (here, Fleszar versus the AMA). But this is an issue for another day. The petition for review is denied.
3-23-10 |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ___________
No. 09-1890 ___________
United States of America, * * Appellee, * * v. * * Alfonso Cisneros-Gutierrez, * * Appellant. * ___________ Appeals from the United States No. 09-2590 District Court for the ___________ Western District of Missouri.
United States of America, * * Appellee, * * v. * * Gerardo Cisneros-Gutierrez, * * Appellant. * ___________
No. 09-2728 ___________
United States of America, * * Appellee, * * v. * * Alfredo Cisneros-Gutierrez, * * Appellant. * ___________
Submitted: December 16, 2009 Filed: March 23, 2010 ___________
Before WOLLMAN, RILEY, and MELLOY, Circuit Judges. ___________
WOLLMAN, Circuit Judge.
Alfonso Cisneros-Gutierrez (Alfonso) and Gerardo Cisneros-Gutierrez (Gerardo) entered conditional pleas of guilty to charges of conspiracy to distribute methamphetamine and possession of firearms in furtherance of a drug trafficking crime. Alfredo Cisneros-Gutierrez (Alfredo) entered a conditional plea of guilty to a charge of conspiracy to distribute methamphetamine. They each reserved the right to appeal the district court’s1 denial of their motions to suppress evidence and statements obtained pursuant to the searches of multiple residences. We affirm.
I.
During a drug investigation in 2007, law enforcement officers searched three residences in Kansas City, Missouri. Based on information from a confidential informant, Special Agent Mark King of Immigration and Customs Enforcement set up surveillance of 323 South Brighton Avenue on July 12, 2007. Additional officers
The Honorable Howard F. Sachs, United States District Judge for the Western District of Missouri, adopting the report and recommendation of the Honorable John T. Maughmer, United States Magistrate Judge for the Western District of Missouri.
joined King, and they decided to conduct a “knock-and-talk.”2 The officers approached the residence and knocked on the door, which was then opened by Justino Ruiz-Ramos. After entering the common entry way to the apartments, the officers asked Ruiz-Ramos for consent to search the apartment, to which Ruiz-Ramos responded by saying that he did not live there. While police were trying to determine if Ruiz-Ramos lived at the apartment, Salvador Jesus Velasco-Saldana opened the door, identified himself as the sole resident, and consented to a search of the premises. The search revealed methamphetamine, Animed MSM (a substance commonly used to cut methamphetamine), a digital scale, a firearm, and ammunition. The officers interviewed Ruiz-Ramos the following day and were told that Gerardo had sold him three pounds of crystal methamphetamine, which Gerardo’s brother had delivered. Ruiz-Ramos did not know the brothers’ exact address, but he drew a map detailing the location of their residence.
Based on that information, King, Detective Luis Ortiz of the Kansas City, Missouri Police Department Gang Unit, and five or six other officers performed a knock-and-talk at 430 Donnelly Avenue at 6:30 a.m. on July 24, 2007. When Ortiz and King knocked on the door, Miguel Angel Garcia-Bobadilla answered the door and the officers identified themselves as law enforcement, explaining that they were conducting a narcotics investigation. In response to their request, Garcia-Bobadilla told the officers that they could enter. Once inside, the officers asked Garcia- Bobadilla if anyone else was in the residence and were told that no one else was present. The officers requested and received permission to verify that this was the case. During a protective sweep, Ortiz encountered Alfredo and Dehli Hernandez- Pena moving between rooms. Questioning ensued and Alfredo and Garcia-Bobadilla said that they lived in the apartment. They gave verbal and written consent to search
A “knock-and-talk” is an investigatory technique in which law enforcement officers approach the door of a dwelling seeking voluntary conversation and consent to search. United States v. Wise, 588 F.3d 531, 534 n.3 (8th Cir. 2009).
the residence. The written form was in English, and Ortiz explained the form in Spanish. According to the officers, they did not brandish their weapons during this encounter. A search of the premises resulted in the recovery of more than 230 grams of methamphetamine and approximately six pounds of a cutting agent.
Alfredo recounts the search differently. According to Alfredo, Ortiz had his gun drawn when Garcia-Bobadilla opened the door. Alfredo claims that Ortiz pointed the gun at Garcia-Bobadilla, forcing him to walk backwards into the living room. The officers proceeded to enter the apartment and search the premises without consent. Ortiz threatened Garcia-Bobadilla and Alfredo that the officers would search the house regardless of whether they signed the consent form. According to Alfredo, he felt that he did not have a right to leave the house. Alfredo signed the consent form. Garcia-Bobadilla also signed the consent, believing that he had no other option.
It is uncontroverted that while the search was being conducted, Hernandez-Pena told Ortiz that she wanted to cooperate. She informed Ortiz that Alfredo’s brothers lived at another house in Kansas City, that they possessed large quantities of illegal narcotics and several firearms, and that they served as enforcers for the drug trafficking organization. Hernandez-Pena stated that she had been to the residence and had seen the drugs and weapons. Ortiz and another detective drove Hernandez- Pena to the vicinity of the home to confirm its location for the officers, and she identified 3907 East 12th Terrace as the brothers’ residence.
Once the location was confirmed, the officers who had searched the Donnelly Avenue location came to East 12th Terrace. Ortiz and King approached the front door and the other officers deployed to the sides and back of the residence to intercept anyone who might flee the house. Ortiz and King knocked on the front door and Gerardo answered through a closed glass window adjacent to the front door. Ortiz, speaking in Spanish, identified himself and King as law enforcement officers and
explained that they were conducting a narcotics investigation. Gerardo acted confused and repeatedly asked the officers who they were and what they wanted.
While talking to Gerardo through the window, Ortiz saw Alfonso inside the house. Gerardo was speaking to Alfonso as well. Ortiz saw Alfonso enter the kitchen, immediately return in the direction from which he had come, re-enter the kitchen with three large plastic bags, and then begin washing an unknown substance down the kitchen sink. Ortiz told King and Sergeant Jay Pruetting that “something is getting flushed” down the sink. King then looked through the window at the top of the front door and saw Alfonso hurriedly leave the kitchen and enter the southwest bedroom. Alfonso exited the bedroom carrying an unknown object to an area on the west side of the residence, out of the officers’ field of vision. Alfonso repeated this action one more time before convening with Gerardo. Alfonso or Gerardo eventually opened the door.
The officers entered the house with their guns drawn, handcuffed Alfonso and Gerardo, and conducted a protective sweep. During the cursory sweep, the officers observed plastic bags containing numerous empty zip-lock storage bags in the kitchen sink, a plastic bag containing a crystal-like substance on the floor in a bedroom, a bundle of United States currency, an electronic money counter and assault-style rifles. The officers detained Gerardo and Alfonso and applied for and received a state search warrant for the residence. The ensuing search produced 5880 grams of methamphetamine, more than $160,000 in cash, and four firearms.
Alfredo and Alfonso were individually questioned by Ortiz and King at police headquarters after being informed of their Miranda rights and signing Miranda waiver forms. Both Alfredo and Alfonso made inculpatory statements.
Alfredo, Alfonso, and Gerardo, along with three other defendants, were indicted on a variety of charges. Each defendant filed a motion to suppress, which the
magistrate judge recommended denying. The district court adopted the report and recommendations and each brother entered a conditional guilty plea. Alfredo was sentenced to 240 months’ imprisonment; Alfonso was sentenced to 195 months’ imprisonment, 135 months for conspiracy to distribute methamphetamine and 60 months for possession of firearms in furtherance of a drug trafficking crime; Gerardo was sentenced to 180 months’ imprisonment.
Alfredo appeals, arguing that the evidence found at 430 Donnelly Avenue and the statement he made should be suppressed because: the consent to search was the product of coercion and not voluntarily given and the protective sweep was unnecessary because the police chose to enter the residence. Alfonso and Gerardo appeal the denial of their motions to suppress the evidence seized at 3907 East 12th Terrace, raising a number of issues. Additionally, Alfonso contends that the statements he made were tainted by the illegal search and that the district court erred in the imposition of the five-year consecutive sentence for possession of a firearm in furtherance of a drug crime.3
II.
We review the district court's factual determinations underlying the denial of a motion to suppress for clear error and its legal conclusions de novo. United States v. Hogan, 539 F.3d 916, 921 (8th Cir. 2008).
Alfonso argues that the magistrate judge applied an incorrect legal standard when considering his motion to suppress. The report and recommendation cited the legal standard applied in Greiner v. City of Champlin, 27 F.2d 1346 (8th Cir. 1994), a qualified immunity case. Applying the appropriate standard, however, the outcome is the same.
A. 430 Donnelly Avenue
Alfredo contends that consent to search the Donnelly Avenue residence was involuntarily given as a result of police coercion, rendering it unconstitutional. A warrantless search of a residence does not violate the Fourth Amendment if voluntary consent has been given by a resident. Schneckloth v. Bustamonte, 412 U.S. 218, 222 (1973). Consent is voluntary if it is “the product of an essentially free and unconstrained choice by its maker,” rather than the “product of duress or coercion, express or implied.” Id. at 225. Whether consent was voluntarily given “is a question of fact to be determined from the totality of the circumstances.” Id. at 227. In determining voluntariness, the personal characteristics of the individual who supposedly consented and the environment in which the consent allegedly occurred are relevant. United States v. Chaidez, 906 F.2d 377, 381 (8th Cir. 1990).
The magistrate judge and district court credited the testimony of King and Ortiz. Credibility is a determination left to the trier-of-fact, and “its assessment is virtually unassailable on appeal.” United States v. Rodriguez, 414 F.3d 837, 845 (8th Cir. 2005). Only when credibility determinations are internally inconsistent, based upon incoherent or implausible testimony, or contradicted by objective evidence is a more searching review warranted. United States v. Jones, 254 F.3d 692, 695 (8th Cir. 2001). Finding that there was no credible evidence that the officers were physically intimidating or made any promises in exchange for consent, the magistrate judge concluded that Garcia-Bobadilla voluntarily consented to a limited search of the premises to determine the presence of other individuals. The magistrate judge found that under the totality of the circumstances, Alfredo and Garcia-Bobadilla both voluntarily and knowingly consented to a full search of the residence. After reviewing the record, we find no error in the magistrate judge’s determination.
Because the searches were based on knowing and voluntary consent, we need not reach Alfredo’s additional arguments that officers are not entitled to a protective sweep during a knock-and-talk and that Alfredo’s statements were tainted by an illegal search.
B. 3907 East 12th Terrace
1. Exigent Circumstances and Probable Cause
Alfonso and Gerardo contend that the warrantless entry of 3907 East 12th Terrrace was supported by neither exigent circumstances nor probable cause. Police officers may not enter or search a residence without a warrant unless the entry is justified by exigent circumstances. Payton v. New York, 445 U.S. 573, 590 (1980). “The exception justifies immediate police action without obtaining a warrant if lives are threatened, a suspect’s escape is imminent, or evidence is about to be destroyed.” United States v. Ball, 90 F.3d 260, 263 (8th Cir. 1996). To evaluate “whether a warrantless entry was justified by exigent circumstances, we consider the circumstances that confronted police at the time of the entry.” United States v. Leveringston, 397 F.3d 1112, 1116 (8th Cir. 2005). We look objectively at whether a reasonable, experienced police officer would believe evidence was in danger of removal or destruction. See United States v. Kuenstler, 325 F.3d 1015, 1021 (8th Cir. 2003). Not only must the government establish that an exigency existed, but also that there was probable cause to search the residence. United States v. Munoz, 894 F.2d 292, 296 (8th Cir. 1990).
In Leveringston, we held that even though the suspect had been arrested outside the hotel room, the fact that the water and garbage disposal continued to run inside the room gave the police “grounds to believe there was a fair probability that evidence of drug trafficking—a serious felony offense—would be lost if they did not make immediate entry.” 397 F.3d at 1116. We have held in a number of cases that police
officers are justified in making an exigent-circumstances entry when, after going to a residence with evidence that an individual was involved in a drug transaction, they knock and identify themselves and then witness an individual retreat or conduct himself in a way that suggests the destruction of evidence. See Ball, 90 F.3d at 262- 63 (police approached home where two men were on the porch, one was holding a weapon and then fled into the residence); Munoz, 894 F.2d at 296 (individual ran upstairs after the police knocked and identified themselves); United States v. Clement, 854 F.2d 1116, 1119 (8th Cir. 1988) (officers received no response after knocking, saw someone approach the door, look through the peephole and retreat, and heard a “scrambling” noise).
In this case, we believe that an objectively reasonable police officer, knowing the information supplied by Hernandez-Pena and observing Alfonso’s and Gerardo’s conduct, would conclude that there was danger of removal or destruction of evidence of a crime. Hernandez-Pena had told officers that the brothers possessed large quantities of illegal narcotics and several firearms and that they served as enforcers for the drug trafficking organization. After arriving at the house and announcing themselves, the officers witnessed evasive behavior. Gerardo and Alfonso consulted one another, following which Gerardo’s feigned confusion appeared to be a delaying tactic during which Alfonso took several plastic bags to the kitchen sink and disposed of their contents. Taken together these circumstances justified the officers’ warrantless entry. Additionally, under the totality of the circumstances, probable cause existed: a reasonable person would believe that there was a fair probability that drugs or evidence of drug trafficking would be found in the residence. See Kleinholz v. United States, 339 F.3d 674, 676 (8th Cir. 2003).
2. Curtilage
Gerardo argues that the evidence found at 3907 East 12th Terrace should be suppressed because the officers violated his Fourth Amendment right to privacy
during the knock-and-talk when they positioned themselves near the rear and sides of the house. Although the Fourth Amendment’s protection extends to the curtilage surrounding a home, United States v. Weston, 443 F.3d 661, 666 (8th Cir. 2006), no Fourth Amendment search occurs when officers “restrict their movements to those areas generally made accessible to visitors—such as driveways, walkways, or similar passageways.” United States v. Reed, 733 F.2d 492, 501 (8th Cir. 1984).
It is unclear from the record whether the officers were actually within the house’s curtilage. Assuming, however, that Gerardo is correct that officers impermissibly entered the curtilage of his home during the knock-and-talk, suppression is not required, because the officers at the front of the house independently observed the apparent destruction of evidence and entered the home under exigent circumstances. In the majority of cases cited by Gerardo in which evidence was suppressed, the officers at the rear of a home obtained evidence while positioned there—the officers observed illicit behavior, someone threw evidence from the home or left the home.4 See, e.g., Hobson v. United States, 226 F.2d 890, 894 (8th Cir. 1955) (suppressing package thrown into backyard). In this case, suppression is inappropriate because discovery of the evidence was unrelated to any misconduct. See Wong Sun v. United States, 371 U.S. 471, 488 ( 1963) (recognizing the issue for suppression is whether “the evidence to which instant objection is made has been come at by exploitation of that illegality or instead by means sufficiently distinguishable to be purged of the primary taint”).
The one case cited in which no evidence was obtained while the officers were impermissibly positioned in the curtilage is distinguishable because it was a qualified immunity case that did not deal with suppression. See Roybal v. City of Albuquerque, No. 08-0181, 2009 WL 1329834 (D. N.M. April 28, 2009).
3. Manufacturing Exigent Circumstances
Gerardo also argues that the police impermissibly manufactured the exigent circumstances. Although it is true that “the situations of urgency protected by this exception cannot be created by police officers,” United States v. Duchi, 906 F.2d 1278, 1284 (8th Cir. 1990), Gerardo’s argument fails under our cases that address police-created exigencies. We have explained that “in some sense the police always create the exigent circumstances that justify warrantless entries and arrests.” Id. But the police do not necessarily act impermissibly any time they create an exigency in a strict causal sense. See Ball, 90 F.3d at 264 (rejecting a claim that officers manufactured an exigency when they approached a porch and an individual fled into the residence). We must determine the “reasonableness and propriety of the investigative tactics that generated the exigency.” Duchi, 906 F.2d at 1284.
In Duchi, police were alerted to an undeliverable package that contained two bricks of cocaine. Id. at 1279. The police replaced one of the bricks with a book and allowed the package to be picked up from the shipping company. Id. at 1280. After the suspect returned home with the parcel, the police entered the residence without a warrant because of a fear that the evidence would be destroyed. Id. We held that the police impermissibly manufactured the exigency, because “[t]he heightened danger of destruction upon discovery was . . . reasonably foreseeable; it was in fact, the replacement strategy’s probable result.” Id. at 1285. Similarly, in United States v. Johnson, a postal inspector intercepted a package containing drugs, altered its contents, made a controlled delivery, and then entered the residence without a warrant because of fear that the evidence would be destroyed once the recipient realized the package had been intercepted. 12 F.3d 760, 762 (8th Cir. 1993). We held that by substituting another substance for a portion of the drugs, the officials “created, or at least greatly increased, the risk that evidence would be destroyed.” Id. at 765. “Had they not altered the package’s contents, there would have been little or no danger of evidence being destroyed before they obtained the search warrant.” Id. Conversely,
in a situation in which the police used an investigative technique that did not foreseeably increase the likelihood of an exigency, we rejected the proposition that the police impermissibly manufactured the exigency. See United States v. Williams, 521 F.3d 902, 908 (8th Cir. 2008) (holding that the police did not manufacture the exigency that led to the warrantless entry of the motel room when the officer knocked on the door, and heard what he thought was the slide of a handgun and the rustling of blinds).
Police officers regularly rely on a knock-and-talk as an investigative strategy when they do not have enough evidence to obtain a search warrant. The knock-and- talk that was conducted in this case was a reasonable and proper investigative strategy that did not foreseeably increase the likelihood of the destruction of evidence. While the destruction of evidence is a possible result of a knock-and-talk, other likely results include the grant of consent to a search, the demand for a warrant for police entry, or a consensual conversation with the resident outside the home. Accordingly, we conclude that the police did not impermissibly manufacture the exigency in this case.
4. Protective Sweep
Alfonso and Gerardo contend that the protective sweep of the East 12th Terrace home constituted an illegal search because it was not made in connection with an arrest. They maintain that the officers did not have probable cause to arrest the brothers until they confirmed that Alfonso had been disposing of drugs upon the officers’ arrival.
We conclude that the protective sweep was permissible under the principles outlined in Maryland v. Buie, 494 U.S. 325 (1990). In that case, the Court held that the Fourth Amendment permits an officer to conduct a protective sweep of the premises if there are “articulable facts which, taken together with the rational
inferences from those facts, would warrant a reasonably prudent officer in believing that the area to be swept harbors an individual posing a danger to those on the arrest scene.” Id. at 334. We have declined to extend Buie to a search incident to the service of a protection order when officers had no articulable facts suggesting that another individual might be in the home, ready to launch an attack. United States v. Waldner, 425 F.3d 514, 517 (8th Cir. 2005). But see id. (Murphy, J., concurring) (explaining that this holding does not necessarily foreclose all protective sweeps when officers are serving a protection order).
Given the circumstances, we hold that a reasonable officer could conclude that it was necessary for his safety to secure the premises before obtaining a warrant. There was a reasonable possibility that other individuals were in the home, posing a danger to the officers. The officers had been told that the brothers possessed large quantities of illegal narcotics and several firearms and that they served as enforcers for the drug trafficking organization. They had observed Gerardo’s evasive behavior, and Alfonso’s actions were consistent with that of someone destroying evidence. Accordingly, the protective sweep was permissible.
5. Search Warrant and Alfonso’s Statement
We conclude that Alfonso’s and Gerardo’s remaining arguments are without merit. Having determined that the entry and protective sweep were legal, the information included in the affidavit supporting the search warrant was not illegally obtained and it provided the requisite probable cause to support the search warrant. Alfonso’s argument that his post-Miranda statements were tainted by an illegal search also fails because the search of the East 12th Terrace residence was lawful.
C. Sentencing
Alfonso contends that the district court erred in imposing a consecutive five- year sentence for possession of a firearm in furtherance of a drug crime under 18 U.S.C. § 924 (c)(1)(A) after imposing the 135 months’ sentence on the predicate drug trafficking offense. Alfonso argues that the language “[e]xcept to the extent that a greater minimum sentence is otherwise provided by this subsection or by any other provision of law” means that because he was subject to a longer mandatory minimum sentence for a drug offense, the mandatory consecutive sentence under § 924 (c)(1)(A) does not apply. This argument is contrary to our established precedent. See United States v. Alaniz, 235 F.3d 386, 386 (8th Cir. 2000) (holding that the “greater minimum sentence” refers only to sentences for various types of conduct proscribed in § 924 (c)(1), not for the underlying drug offense).5 Having disposed of this issue based on the merits, we decline to reach the government’s argument that Alfonso expressly waived his right to appeal his sentence.
III.
The judgment is affirmed. ______________________________
We note, however, that the Supreme Court has granted certiorari in United States v. Abbott, 574 F.3d 203 (3d Cir. 2009), cert. granted, 2010 WL 250514 (Jan. 25, 2010) (No. 09-479), which presents the following question: whether the term “any other provision of law” in 18 U.S.C. § 924(c)(1)(a) includes the underlying drug trafficking offense or crime of violence. |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ___________
No. 09-2312 ___________
Cord R. Christenson, * * Appellant, * Appeal from the United States * District Court for the Southern District v. * of Iowa * John R. Ault, II, * * Appellee. * _____________
Submitted: January 15, 2010 Filed: March 23, 2010 _____________
Before GRUENDER and SHEPHERD, Circuit Judges, and LANGE1, District Judge. _____________
LANGE, District Judge.
The Honorable Roberto A. Lange, United States District Court for the District of South Dakota, sitting by designation. Cord R. Christenson (“Christenson”) appeals the holding of the United States District Court for the Southern District of Iowa,2 which denied his application for a writ of habeas corpus under 28 U.S.C. § 2254 on the grounds that (1) he did not receive ineffective assistance of counsel when trial counsel declined to present evidence based on certain crime scene photographs, and (2) his claims under Brady v. Maryland, 373 U.S. 873 (1963), were procedurally barred. For the reasons set forth below, we affirm the judgment of the district court.
I. Factual Background
On August 28, 1998, a jury found Christenson guilty of first-degree kidnapping, first-degree burglary, and second-degree sexual abuse, in violation of Iowa Code §§ 710.1, 710.2, 713.1, 709.1, and 709.3, in connection with the rape and abduction of Rebecca Lyons on February 4, 1998, in Des Moines, Iowa. The Iowa district court sentenced Christenson to life in prison on the kidnapping charge and to a period not to exceed 25 years on the burglary and sexual abuse charges, with the sentences running concurrently.
During the trial, the State of Iowa presented overwhelming evidence of guilt. Christenson and Lyons had a short-term relationship beginning in the summer of 1995, which Lyons chose not to continue. In mid-September 1996, Christenson broke into Lyons’ home in Des Moines, Iowa and Lyons awoke to find Christenson’s arm around her neck in a choke hold. Lyons eventually defused that episode by calming Christenson down and calling police. Following the incident, Christenson pled guilty
The Honorable Harold D. Vietor, United States District Judge for the Southern District of Iowa, adopting the report and recommendation of the Honorable Ross A. Walters, United States Magistrate Judge for the Southern District of Iowa.
to a reduced charge of second-degree burglary. The court entered an order against Christenson barring him from further contact with Lyons.
On February 4, 1998, Christenson violated the protective order by again breaking into Lyons’ home while she was away. When Lyons returned, Christenson put her in a headlock and zapped her multiple times with a stun gun around her neck and left hip. He later brandished a knife, bound her left wrist to his right wrist with plastic zip-ties, and raped her. Lyons testified that after Christenson removed the zip- ties, Lyons attempted to subdue him with pepper spray and mace, which led to an altercation in which a chair was broken. Christenson then commanded Lyons to drive him to Mexico so that he could evade outstanding warrants in the United States. He instructed Lyons to remove her child from school and to bring the child along for the ride. Christenson had Lyons drive him to Kansas City, Missouri, to board a Greyhound bus. Once free of Christenson, Lyons drove back to Des Moines with her child and reported the incident to police.
The State also introduced evidence of the injuries Lyons sustained during Christenson’s attack. Injuries included a bruise on her wrist from the zip-tie, bruises on her left buttock and right hip and a scratch on her forearm from the altercation after she had sprayed Christenson with mace, and marks on her neck and left hip from the stun gun.
On direct appeal, the convictions for first-degree kidnapping and first-degree burglary were affirmed, while the conviction for second-degree sexual abuse was vacated because it should have been merged with the kidnapping conviction. The Iowa Supreme Court denied Christenson’s application for further review on August 3, 2000.
On August 1, 2001, Christenson filed a pro se application for post-conviction relief (“PCR”) in state court. Counsel was appointed, an evidentiary hearing was held, and on June 14, 2004 the PCR court denied his application. The Iowa Court of Appeals affirmed the PCR ruling on July 13, 2005. Christenson sought review before the Iowa Supreme Court, which was denied.
Christenson then filed a timely Petition for Writ of Habeas Corpus on October 19, 2005. In the habeas action, Christenson for the first time claimed under Brady v. Maryland, 373 U.S. 873 (1963), that the State violated his due process rights by failing to timely disclose exculpatory evidence relating to the victim’s telephone lines. At trial, the State presented evidence suggesting that Christenson cut or disconnected the victim’s phone lines prior to kidnapping her. The victim testified that before she was attacked by Christenson, she attempted to place a phone call to her sister, but she could not receive a dial tone on her home telephones. In his testimony, Christenson denied cutting the victim’s phone lines.
Several months after trial, Christenson’s sister purchased a complete set of photographs pertaining to the prosecution, including photographs taken by Des Moines police technician Lynn Sprafka of the victim’s basement telephone line. Christenson contends that the photographs show the telephone line to be disconnected at the time Sprafka was in the basement, suggesting they had been tampered with by the victim prior to another photographing officer’s arrival.
The district court, adopting the Report and Recommendation of the Magistrate Judge, denied and dismissed Christenson’s petition. Christenson appealed to this court.
II. Standard of Review
We review a federal district court’s conclusions of law de novo and its findings of fact for clear error. Forsyth v. Ault, 537 F.3d 887, 890 (8th Cir. 2008). No findings of fact have been preserved for challenge.
Under 28 U.S.C. § 2254(d), when a state court has adjudicated a claim on the merits, habeas corpus will not be granted unless the state court adjudication: (1) resulted in a decision that was contrary to, or involved an unreasonable application of, clearly established federal law, as determined by the United States Supreme Court; or (2) resulted in a decision that was based on an unreasonable determination of the facts in light of the evidence presented in the state court proceeding.
If the state court decision fits within the first ground, the federal court then “must apply Brecht’s harmless-error analysis, unless the error was a structural defect in the trial that defies harmless-error analysis.” Chang v. Minnesota, 521 F.3d 828, 832 (8th Cir. 2008) (citing Brecht v. Abrahamson, 507 U.S. 619, 629 (1993), cert denied 129 S. Ct. 314 (2008)). Under Brecht, habeas relief is proper only if the claimed error had a substantial and injurious effect or influence in determining the jury’s verdict. Id. A “substantial and injurious effect” occurs when a court finds itself in “grave doubt” about the effect of the error on the jury’s verdict. Id. “[G]rave doubt” exists when the issue of harmlessness is “so evenly balanced that [the court] feels [itself] in virtual equipoise as to the harmlessness of the error.” Id.
We presume factual determinations by state courts - trial and appellate - to be correct and binding in a section 2254 action if fairly supported by the record, unless rebutted by clear and convincing evidence of error. 28 U.S.C. § 2254(e)(1).
III. Discussion
A. The Brady Challenge Christenson contends that the failure of the police and prosecutor to disclose the telephone line photographs violated his rights under the rule in Brady that “due process is violated where the state suppresses evidence that is favorable to the accused and is material to the issue of guilt or punishment.” Mark v. Ault, 498 F.3d 775, 783 (8th Cir. 2007) (citing Brady, 373 U.S. at 87). On the other hand, Christenson concedes that the alleged exculpatory photographs have never been presented to any Iowa court as a Brady issue, despite the availability of an Iowa state procedure to do so. Iowa provides the following procedure:
“The court may grant a new trial . . . [w]hen the defendant has discovered important and material evidence in his or her favor since the verdict, which the defendant could not with reasonable diligence have discovered and produced at the trial. A motion based upon this ground shall be made without unreasonable delay and, in any event, within two years after final judgment, but such motion may be considered thereafter upon a showing of good cause.”
Iowa R. Crim. P. 23(2)(b)(8)(1996) (now found at Iowa R. Crim. P. 2.24(2)(b)(8)); see State v. Romeo, 542 N.W.2d 543, 550-51 (Iowa 1996) (quoting rule and addressing a Brady issue on a new trial motion).
PCR counsel never brought a Brady claim during the PCR proceedings based on the non-disclosure of the photographs. Rather, PCR counsel only raised the non- disclosure in the context of a claim that trial counsel was ineffective for failing to investigate and discover the photographs. In his pro se PCR application, Christenson did bring a claim of prosecutorial misconduct based on the prosecutor allegedly
withholding exculpatory evidence concerning the telephone lines. However, Christenson did not appeal the denial of that claim to the Court of Appeals of Iowa.
A Brady claim will not result in habeas relief unless “applicant has exhausted the remedies available in the courts of the State.” 28 U.S.C. § 2254(b)(1)(A). Christenson concedes that he never presented his Brady claim to any Iowa court. Consequently, his Brady claim is procedurally defaulted. See Duncan v. Henry, 513 U.S. 364, 366 (1995) (If a habeas petitioner wishes to challenge an evidentiary ruling, “he must say so, not only in federal court, but in state court.”); McCall v. Benson, 114 F.3d 754, 757 (8th Cir. 1997) (“a federal court may usually only consider those claims which the petitioner has presented to the state court”) (internal citations omitted). Christenson’s default may not be overcome by an ineffective assistance of his PCR counsel, because “there is no federal constitutional right to the effective assistance of post-conviction counsel.” Clay v. Bowersox, 367 F.3d 993, 1005 (8th Cir. 2004) (citing Coleman v. Thompson, 501 U.S. 722, 752 (1991); § 2254 (I) (“The ineffectiveness or incompetence of counsel during Federal or State collateral post- conviction proceedings shall not be a ground for relief in a proceeding arising under section 2254.”).
Because Christenson’s Brady claim is procedurally defaulted, the Court need not reach the merits of the claim. Nevertheless, Christenson could not establish a violation of Brady, which requires defendants to demonstrate that the evidence was: (1) suppressed; (2) exculpatory; and (3) material to guilt. Brady, 373 U.S. at 87-88. The Magistrate Judge noted that the photographs at issue were taken “at different angles and at different distances from the lines making it difficult to make any definitive conclusions about differences between the two sets as they relate to the condition of the telephone and the water utility lines.” Christenson v. Burt, No. 4:05- cv-571-HDV-RAW, at 17 n.5 (S.D. Iowa 24 Dec. 2008). The photographs, which depict the telephone lines from a considerable distance, at most raise a question about
whether the lines were disconnected at the time of the taking of the Sprafka photographs. The overwhelming evidence of Christenson’s guilt renders the photographs at issue immaterial in the constitutional sense. Kyles v. Whitley, 514 U.S. 419, 434-45 (1995) (explaining that “materiality” means that the suppressed evidence “could reasonably be taken to put the whole case in a different light as to undermine confidence in the verdict”).
B. Ineffective Assistance The photographs discussed above also form the underlying basis of Christenson’s ineffective assistance claim. Christenson alleged his trial counsel, Mr. McCarthy, was ineffective because he failed to independently investigate and discover the existence of the allegedly exculpatory Sprafka photographs. McCarthy said that he received a copy of all of the photographs from the County Attorney’s office and showed them to Christenson In the habeas proceeding, the district court, adopting the Report and Recommendation of the Magistrate Judge, denied the ineffective assistance claim, concluding that Christenson could not show a breach of duty or prejudice as to the claim.
Proving ineffective assistance of counsel requires a showing that: (1) trial counsel breached a professional duty, and (2) prejudice resulted. Strickland v. Washington, 466 U.S. 668, 696 (1984). Establishing prejudice requires Christenson to demonstrate that there is a reasonable probability that, but for counsel’s claimed unprofessional errors, the result of the proceeding would have been different. Id. at 694. Examination of the record reveals that trial counsel did not breach any professional duty in declining to independently investigate whether he received all photographs from the government. Additionally, no prejudice resulted from Christenson not introducing at trial the photographs at issue.
In this case, trial counsel had a professional duty to make a reasonable investigation or a reasonable decision regarding the unnecessariness of a particular investigation. Id. at 691 (“. . .counsel has a duty to make reasonable investigations or to make a reasonable decision that makes particular investigations unnecessary. In any ineffectiveness case, a particular decision not to investigate must be directly assessed for reasonableness in all the circumstances, applying a heavy measure of deference to counsel’s judgments.”).
The Magistrate Judge’s Report and Recommendation addressed trial counsel’s investigation of the allegedly exculpatory photographs. The record before the PCR court demonstrated that trial counsel received a copy of all available photographs from the County Attorney’s office and showed them to Christenson, and the PCR court and Iowa Court of Appeals held trial counsel was not ineffective in relying on the prosecutor to turn over the photographs as part of the prosecutor’s ongoing duty under Brady to disclose exculpatory photographs. (PCR Tr. at 87).
The Iowa Court of Appeals reasonably applied Strickland to this issue. Professional norms of client representation did not require trial counsel to independently verify that he had been provided with all of the photographs taken at the victim’s residence. Absent any reason to believe that the prosecutor - who was under an obligation to turn over exculpatory evidence in his possession - had not been forthcoming, it was reasonable for the criminal defense attorney to rely on the completeness of the discovery materials produced by the prosecutor. Trial counsel was not incompetent for deciding that the photographs provided by the prosecutor comprised a full and fair evidentiary picture of the basement and telephone lines.
When there is overwhelming evidence of guilt presented, it may be impossible to demonstrate prejudice. Strickland, 466 U.S. at 700 (“Given the overwhelming aggravating factors, there is no reasonable probability that the omitted evidence would
have changed the conclusion.”); see also Reed v. Norris, 195 F.3d 1004, 1006 (8th Cir. 1999) (“We find it unnecessary to discuss the reasonableness of counsel’s conduct because, given the overwhelming evidence of [petitioner’s] guilt presented at trial, we find that it would be impossible for him to demonstrate prejudice under Strickland.”). Based on the trial record, demonstrating prejudice resulting from the alleged ineffective assistance would be impossible in this case.
Examination of the facts recounted by the Magistrate Judge reveals that the evidence of Christenson attacking, raping, and kidnapping the victim was overwhelming. The evidence demonstrated that Christenson had a long history of obsessive and assaultive behavior toward the victim, the victim had marks on her neck and hip from multiple stun gun attacks, the victim’s home was in disarray following the incident, a chair near the victim’s bed was broken during her struggle while being attacked and raped, the victim scrawled “Mexico” on her bathroom cabinet door in a desperate effort to try to alert someone to where Christenson said he was taking her, and the victim’s child was forced along with her by Christenson. Given the nature and extent of incriminating evidence presented at trial, there is no reasonable probability that the result of the proceeding would have been different had trial counsel presented additional photographs arguably showing that the telephone lines may not have been disconnected.
For the foregoing reasons, we affirm the judgment of the district court. ______________________________ |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
PARIS HILTON, No. 08-55443 Plaintiff-Appellee, D.C. No. v. 2:07-cv-05818-PA- HALLMARK CARDS, a Missouri AJW corporation, ORDER AND Defendant-Appellant. AMENDED OPINION
Appeal from the United States District Court for the Central District of California Percy Anderson, District Judge, Presiding
Argued and Submitted May 6, 2009—Pasadena, California
Opinion Filed August 31, 2009 Amended Opinion Filed March 23, 2010
Before: John T. Noonan, Diarmuid F. O’Scannlain, and Susan P. Graber, Circuit Judges.
Opinion by Judge O’Scannlain
HILTON v. HALLMARK CARDS 4689 COUNSEL
Lincoln D. Bandlow, Spillane Shaeffer Aronoff Bandlow LLP, Los Angeles, California, argued the cause for the appel- lant and filed briefs.
Brent H. Blakely, Blakely Law Group, Hollywood, Califor- nia, argued the cause for the appellee and filed the brief.
Lynn Rowe Larsen and Timothy F. Sweeney, Law Office of Timothy Farrell Sweeney, Cleveland, Ohio, filed the brief for amicus curiae IMG Worldwide, Inc.
ORDER
The opinion filed in this case on August 31, 2009, and reported at 580 F.3d 874, is hereby amended. An amended opinion is filed concurrently with this order. With this amend- ment, the panel has unanimously voted to deny the petition for rehearing. Judges O’Scannlain and Graber have voted to deny the petition for rehearing en banc, and Judge Noonan so recommends. The full court has been advised of the petition for rehearing en banc and no active judge has requested a vote on whether to rehear the matter en banc. Fed. R. App. P. 35.
The petition for rehearing and the petition for rehearing en banc are DENIED. No subsequent petitions for rehearing and rehearing en banc may be filed.
OPINION
O’SCANNLAIN, Circuit Judge:
We must decide whether California law allows a celebrity to sue a greeting card company for using her image and catch- phrase in a birthday card without her permission. 4690 HILTON v. HALLMARK CARDS I
Paris Hilton is a controversial celebrity known for her life- style as a flamboyant heiress. As the saying goes, she is “fa- mous for being famous.”
She is also famous for starring in “The Simple Life,” a so- called reality television program. The show places her and fel- low heiress Nicole Ritchie in situations for which, the audi- ence is to assume, their privileged upbringings have not prepared them. For example, work. In an episode called “Sonic Burger Shenanigans,” Hilton is employed as a waitress in a “fast food joint.” As in most episodes, Hilton says, “that’s hot,” whenever she finds something interesting or amusing. She has registered the phrase as a trademark with the United States Patent & Trademark Office.
Hallmark Cards is a major national purveyor of greeting cards for various occasions. This case is about one of its birth- day cards. The front cover of the card contains a picture above a caption that reads, “Paris’s First Day as a Waitress.” The picture depicts a cartoon waitress, complete with apron, serv- ing a plate of food to a restaurant patron. An oversized photo- graph of Hilton’s head is super-imposed on the cartoon waitress’s body. Hilton says to the customer, “Don’t touch that, it’s hot.” The customer asks, “what’s hot?” Hilton replies, “That’s hot.” The inside of the card reads, “Have a smokin’ hot birthday.”
Hilton sued Hallmark, asserting three causes of action. The First Amended Complaint alleges misappropriation of public- ity under California common law; false designation under the Lanham Act, 15 U.S.C. § 1125(a); and infringement of a fed- erally registered trademark. Hallmark filed a motion to dis- miss each claim under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim on which relief could be granted. The district court granted one portion of the motion to dismiss: the trademark infringement claim, a judgment HILTON v. HALLMARK CARDS 4691 from which Hilton does not appeal. By separate motion, Hall- mark moved specially to strike Hilton’s right of publicity claim under California’s anti-SLAPP statute.1 In both motions, Hallmark raised defenses peculiar to each cause of action, some based on the First Amendment to the United States Constitution and some not.
The district court denied the remaining portions of the motions to dismiss and denied the special motion to strike the anti-SLAPP claim. It concluded that the defenses required a more fact-intensive inquiry than is permissible at such stage of the case. Hallmark timely appeals.
II
Before discussing the merits of this appeal, we must assure ourselves that we have jurisdiction over the appeal of denials of both motions.
A
[1] As to the special motion to strike, appellate courts gen- erally have jurisdiction only over final judgments and orders. 28 U.S.C. § 1291; Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863, 867-68 (1994). The collateral order doc- trine, however, “entitles a party to appeal not only from [ordi- nary final judgments] . . . but also from a narrow class of decisions that do not terminate the litigation, but must, in the interest of achieving a healthy legal system, . . . nonetheless be treated as final.” Digital Equip. Corp., 511 U.S. at 867 (internal citations and quotation marks omitted). We have “SLAPP” stands for “strategic lawsuit against public participation.” As we discuss further infra, so-called “anti-SLAPP” laws are designed to bar meritless lawsuits filed merely to chill someone from exercising his First Amendment rights on a matter of public interest. California’s version is codified at California Civil Procedure Code § 425.16. The relevant text is set out on p. 4696 infra. 4692 HILTON v. HALLMARK CARDS held that denials of special motions to strike under Califor- nia’s anti-SLAPP statute fall into this narrow class. Batzel v. Smith, 333 F.3d 1018, 1024-26 (9th Cir. 2003) (noting that anti-SLAPP motions to strike assert a form of immunity from suit); but cf. Englert v. MacDonell, 551 F.3d 1099, 1106-07 (9th Cir. 2009) (holding that the denial of an anti-SLAPP motion under then-current Oregon law is not an appealable collateral order, while recognizing that the denial of a Califor- nia anti-SLAPP motion is). Thus, we are satisfied that we have jurisdiction to review the denial of Hallmark’s anti- SLAPP motion under the collateral order doctrine.2
B
Denials of motions to dismiss under Rule 12(b)(6) are ordi- narily not appealable, even as collateral orders. See Catlin v. United States, 324 U.S. 229, 236 (1945). However, we “per- mit[ ] the exercise of appellate jurisdiction over otherwise non-appealable orders that are ‘inextricably intertwined’ with another order that is properly appealable.” Batzel, 333 F.3d at 1023. This doctrine requires either that “we must decide the pendent issue in order to review the claims properly raised on interlocutory appeal . . . or [that] resolution of the issue prop- erly raised on interlocutory appeal necessarily resolves the pendent issue.” Id. (internal quotation marks omitted).
We first address whether we have jurisdiction over the denial of the motion to dismiss the Lanham Act claim as an order inextricably intertwined with the anti-SLAPP motion. Applying the familiar framework of Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), and its progeny, we have long held that the anti-SLAPP statute applies to state law claims that federal courts hear pursuant to their diversity jurisdiction. See United States ex rel. Newsham v. Lockheed Mis- siles & Space Co., 190 F.3d 963, 970-73 (9th Cir. 1999). HILTON v. HALLMARK CARDS 4693 Hallmark argues that the defenses it raises to Hilton’s Lan- ham Act claim are based on some of the same First Amend- ment concerns that animate its potential defenses to the misappropriation of publicity claim. That may be, but Hall- mark only moved to strike the misappropriation of publicity claim. Indeed, it could not have moved to strike the Lanham Act claim because, as the parties agree, the anti-SLAPP stat- ute does not apply to federal law causes of action. See Bulletin Displays, LLC v. Regency Outdoor Adver., Inc., 448 F. Supp. 2d 1172, 1180-82 (C.D. Cal. 2006). A motion to dismiss one cause of action is not, ordinarily, inextricably intertwined with a motion to strike a different cause of action under Califor- nia’s anti-SLAPP law, even if the two claims are doctrinally similar.
[2] Because a federal court can only entertain anti-SLAPP special motions to strike in connection with state law claims, there is no properly appealable order with which the Lanham Act claim could be inextricably intertwined. We therefore lack jurisdiction to review it.
What about the denial of the portions of Hallmark’s motion to dismiss pertaining to the misappropriation of publicity claim, the same claim that was the target of the anti-SLAPP motion?
It is clear that not every motion to dismiss the same claim that underlies an anti-SLAPP motion is “inextricably inter- twined” with such motion. We have held, for example, that a motion to dismiss for lack of personal jurisdiction3 is not inex- tricably intertwined with an anti-SLAPP motion. Batzel, 333 F.3d at 1023. In Zamani v. Carnes, however, we did review a motion to dismiss for failure to state a claim under Federal Such motions are typically made pursuant to Federal Rule of Civil Pro- cedure 12(b)(2). 4694 HILTON v. HALLMARK CARDS Rule of Civil Procedure 12(b)(6), which was made as an alter- native to an anti-SLAPP special motion to strike the same claim. 491 F.3d 990, 994 (9th Cir. 2007). We did it, however, without considering whether we had jurisdiction to do it.4 Zamani does not, therefore, compel us to conclude that a motion to dismiss a substantive claim under Rule 12(b)(6) is inextricably intertwined with a special motion to strike. See, e.g., United States v. Booker, 375 F.3d 508, 514 (7th Cir. 2004) (“An assumption is not a holding.”). We must consider the question for ourselves.
The first type of inextricably intertwined order is one that “we must [review] . . . in order to review the claims properly raised on interlocutory appeal.” Batzel, 333 F.3d at 1023 (internal quotation marks omitted). Resolution of a motion to dismiss for failure to state a claim is not a predicate to resolv- ing an anti-SLAPP motion. As we illustrate in this very opin- ion, we can proceed directly to the anti-SLAPP motion without any interference from a motion to dismiss.
An order may also be inextricably intertwined with an immediately appealable one if “resolution of the issue prop- erly raised on interlocutory appeal necessarily resolves the pendent issue.” Id. (internal quotation marks omitted). To determine whether a motion to dismiss (the pendent issue) is inextricably intertwined with an anti-SLAPP motion to strike (the issue properly raised) in this sense, we must briefly con- sider the inquiry associated with an anti-SLAPP motion.
As we discuss infra, an anti-SLAPP motion requires the court to ask, first, whether the suit arises from the defendant’s protected conduct and, second, whether the plaintiff has shown a probability of success on the merits. If the first ques- tion is answered in the negative, then the motion must fail, The closest thing to an application of the “inextricably intertwined” doctrine we decided involved a motion for reconsideration of the denial of the motion to strike or to dismiss. Zamani, 491 F.3d at 994. HILTON v. HALLMARK CARDS 4695 even if the plaintiff stated no cognizable claim. Of course, if a plaintiff stated no cognizable claim, then the defendant would be entitled to dismissal under Rule 12(b)(6). Thus, a Rule 12(b)(6) motion to dismiss may succeed where an anti- SLAPP motion to strike would not.
The converse is also true. The second stage of the anti- SLAPP inquiry determines whether “the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evi- dence submitted by the plaintiff is credited.” Integrated Healthcare Holdings, Inc. v. Fitzgibbons, 44 Cal. Rptr. 3d 517, 527 (Ct. App. 2006) (internal quotation marks omitted). Such test is similar to the one courts make on summary judg- ment, though not identical. Thus, if a plaintiff has stated a legal claim but has no facts to support it, a defendant could prevail on an anti-SLAPP motion, though he would not have been able to win a motion to dismiss.
[3] The foregoing illustrates that neither the denial nor the grant of an anti-SLAPP motion “necessarily resolves,” Batzel, 333 F.3d at 1023, a motion to dismiss regarding the same claim. That is, it is possible for an appellate court to hold that an anti-SLAPP special motion to strike should be granted or denied without thereby dictating the result of a motion to dis- miss the same claim under Rule 12(b)(6). Our cases make clear that if the properly appealable order can be resolved without necessarily resolving the pendent order, then the latter is not “inextricably intertwined” with the former. See id. We therefore must conclude that we lack jurisdiction to review that portion of Hallmark’s Rule 12(b)(6) motion to dismiss the right of publicity claim because it is not inextricably inter- twined with any properly appealable order.
III
Having weeded out of this appeal matters over which we lack jurisdiction, we now address the merits of denial of Hall- mark’s special motion to strike the anti-SLAPP claim. 4696 HILTON v. HALLMARK CARDS A
California, like some other states, has a statute designed to discourage “strategic lawsuits against public participation.” SLAPPs “masquerade as ordinary lawsuits but are brought to deter common citizens from exercising their political or legal rights or to punish them for doing so.” Batzel, 333 F.3d at 1024 (internal quotation marks omitted). As California’s anti- SLAPP statute explains, the state legislature has found there to be “a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for redress of grievances.” Cal. Civ. Proc. Code § 425.16(a). Because “it is in the public interest to encourage continued participation in matters of public signifi- cance, and [because] this participation should not be chilled through abuse of the judicial process,” the anti-SLAPP statute is to be construed broadly. Id.
Under the statute,
[a] cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plain- tiff will prevail on the claim.
Id. § 425.16(b)(1). The phrase “act . . . in furtherance of the person’s right of petition or free speech under the United States or California Constitution in connection with a public issue” is defined by four specific categories of communica- tions. Id. § 425.16(e)(1)-(4).5 The relevant one here is the Although subsection (e) uses the word “includes,” its four categories exhaust the meaning of an act in furtherance of free speech or petitioning rights. Navellier v. Sletten, 52 P.3d 703, 708 (Cal. 2002). HILTON v. HALLMARK CARDS 4697 fourth, catch-all category: “any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.” Id. § 425.16(e)(4).
California courts evaluate a defendant’s anti-SLAPP motion in two steps. First, the defendant moving to strike must make “a threshold showing . . . that the act or acts of which the plaintiff complains were taken ‘in furtherance of the [defendant’s] right of petition or free speech under the United States or California Constitution in connection with a public issue,’ as defined in [subsection (e) of] the statute.” Equilon Enters., LLC v. Consumer Cause, Inc., 52 P.3d 685, 694 (Cal. 2002) (quoting Cal. Civ. Proc. Code § 425.16(b)(1)). Second, “[i]f the court finds that such a showing has been made, it must then determine whether the plaintiff has demonstrated a probability of prevailing on the claim.” Navellier v. Sletten, 52 P.3d 703, 708 (Cal. 2002). “Put another way, the plaintiff must demonstrate that the com- plaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited.” Wilson v. Parker, Covert & Chidester, 50 P.3d 733, 739 (Cal. 2002) (internal quotation marks omitted). “[T]hough the court does not weigh the credibility or comparative probative strength of competing evidence, it should grant the motion if, as a matter of law, the defendant’s evidence supporting the motion defeats the plaintiff’s attempt to establish evidentiary support for the claim.” Id.; Cal. Civ. Proc. Code § 425.16(b)(2).
For Hallmark’s anti-SLAPP motion to succeed, it must make its “threshold showing” at step one: “that the act or acts of which the plaintiff complains were taken in furtherance of the [defendant’s] right of petition or free speech under the United States or California Constitution in connection with a public issue [or an issue of public interest].” Equilon Enters., 4698 HILTON v. HALLMARK CARDS LLC, 52 P.3d at 694 (internal quotation marks omitted); Cal. Civ. Proc. Code § 425.16(e)(4). The exact inquiry at the first step is somewhat amorphous, but it seems to contain two dis- tinct components.
a
[4] First, the activity the plaintiff is challenging must have been conducted “in furtherance” of the exercise of free speech rights. By its terms, this language includes not merely actual exercises of free speech rights but also conduct that furthers such rights. Cal. Civ. Proc. Code § 425.16(e)(4); see also Navellier, 52 P.3d at 713 (“The [California] [l]egislature did not intend that in order to invoke the special motion to strike the defendant must first establish her actions are constitution- ally protected under the First Amendment as a matter of law.”).
The California Supreme Court has not drawn the outer lim- its of activity that furthers the exercise of free speech rights. It seems to suffice, however, that the defendant’s activity is communicative, cf. Commonwealth Energy Corp. v. Investor Data Exch., Inc., 1 Cal. Rptr. 3d 390, 393 n.5 (Ct. App. 2003), and some courts do not discuss this part of the inquiry at all, see, e.g., Integrated Healthcare Holdings, Inc., 44 Cal. Rptr. 3d at 522-26 (not discussing whether an email message was “in furtherance” of free speech rights). Thus, the courts of California have interpreted this piece of the defendant’s threshold showing rather loosely. See also Paul for Council v. Hanyecz, 102 Cal. Rptr. 2d 864, 870-71 (Ct. App. 2001) (holding that campaign money laundering was in furtherance of political speech but an invalid exercise of free speech rights because it was illegal), overruled on other grounds by Equilon Enters. LLC, 52 P.3d at 694 n.5.
[5] One sensible place to start is to determine whether the activity in question is “speech” under First Amendment law. Here, Hallmark’s card certainly evinces “[a]n intent to convey HILTON v. HALLMARK CARDS 4699 a particularized message . . . , and in the surrounding circum- stances the likelihood was great that the message would be understood by those who viewed it.”6 Spence v. Washington, 418 U.S. 405, 410-11 (1974) (per curiam) (stating require- ment for conduct to qualify as “speech” for purposes of the First Amendment). But compare Tenafly Eruv Ass’n, Inc. v. Borough of Tenafly, 309 F.3d 144, 158-61 (3d Cir. 2002) (concluding that Hurley v. Irish-Am. Gay, Lesbian & Bisexual Group of Boston, 515 U.S. 557 (1995) modified the Spence standard), with Colacurcio v. City of Kent, 163 F.3d 545, 549 n.1 (9th Cir. 1998) (reiterating the Spence standard without any gloss from Hurley). Whether or not Hallmark must show that its card is speech under the Spence test or a modification thereof, it certainly suffices that Hallmark can make such a showing.
[6] Thus, Hallmark’s card qualifies as speech and falls We do recognize a wrinkle in this situation. Namely, Hallmark itself does not intend to convey a message; rather, it sells a stylized, ready-made message to someone else, who conveys it to the recipient of the card. In other words, when you open a birthday card, Hallmark has not wished you a happy birthday. It has simply provided the medium for its customer to do so. Hilton might have argued that this means Hallmark cannot assert a statutory defense derived from the First Amendment because its First Amendment rights are not at issue. But she did not make any such argu- ment. The closest she came was her contention that the speech at issue is commercial speech. We reject such contention infra, at 4700 n.7. We do not, therefore, reach this issue. Although it sounds like a ques- tion of standing, which is often jurisdictional, it bears closest resemblance to the rule against third party standing: a party normally cannot raise claims that belong to a third party. See Massey v. Helman, 196 F.3d 727, 739 (7th Cir. 1999) (listing among the “prudential restrictions” of standing “the general rule that a litigant must assert his own legal rights and cannot assert the legal rights of a third party”). But that rule involves prudential standing, which is not a requirement of jurisdiction. See Allen v. Wright, 468 U.S. 737, 751 (1984) (describing prudential standing as consisting of “several judicially self-imposed limits on the exercise of federal jurisdic- tion”). The jurisdictional elements of standing (an injury-in-fact, causa- tion, and redressability) are unarguably present here. 4700 HILTON v. HALLMARK CARDS comfortably within the universe of types of communication that California courts have considered “conduct in furtherance of” the exercise of free speech rights upon which to base anti- SLAPP motions to strike.
b
Next, Hallmark must show that the sale of its card was “in connection with a public issue or an issue of public interest.” Cal. Civ. Proc. Code § 425.16(e)(4). Hilton contends that the card merely appropriates the waitress role she played on “The Simple Life.” She therefore views this lawsuit as a garden variety private dispute over who profits from her image. According to Hilton, the card implicates no issue of public interest because it involves no issue at all, only a celebrity who interests many people.7 Hilton also argues that the birthday card is commercial speech and that such speech cannot, as a matter of law, raise a public issue under the anti- SLAPP statute. See Scott v. Metabolife Int’l, Inc., 9 Cal. Rptr. 3d 242, 253-54 (Ct. App. 2004) (“[A] manufacturer’s advertising of a specific con- sumer product, on its labels, and to the public, for the purpose of selling that product [ ] is not an issue of public interest (or a public issue) . . . .”); Cal. Civ. Proc. Code § 425.17(c). Regardless of whether the major premise is true, the minor one is false: Hallmark’s card is not commercial speech. “[T]he ‘core notion of com- mercial speech’ is that it ‘does no more than propose a commercial trans- action.’ ” Hoffman v. Capital Cities/ABC, Inc., 255 F.3d 1180, 1184 (9th Cir. 2001) (quoting Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66 (1983)). As one of our sister circuits has recognized, under this definition, “commercial speech is best understood as speech that merely advertises a product or service for business purposes.” Cardtoons, L.C. v. Major League Baseball Players Ass’n, 95 F.3d 959, 970 (10th Cir. 1996); see also Hoffman, 255 F.3d at 1185 (citing commercial speech cases, all of which involved advertising); Rezec v. Sony Pictures Entm’t, Inc., 10 Cal. Rptr. 3d 333, 337-38 (Ct. App. 2004). Hallmark’s card is not advertising the product; it is the product. It is sold for a profit, but that does not make it commercial speech for First Amendment purposes. See Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 761 (1976). HILTON v. HALLMARK CARDS 4701 i
Sitting in diversity, we must begin with the pronounce- ments of the state’s highest court, which bind us. See Ariz. Elec. Power Coop., Inc v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995). The California Supreme Court has not clearly estab- lished what constitutes an issue of public interest, but it has provided some guidance. First, “[n]othing in the statute itself categorically excludes any particular type of action from its operation.” Navellier, 52 P.3d at 711. Indeed, “[t]he anti- SLAPP statute’s definitional focus is not the form of the plaintiff’s cause of action but, rather, the defendant’s activity that gives rise to his or her asserted liability.” Id. (emphasis omitted). Thus, the particular cause of action Hilton has brought is irrelevant to our decision. Ordinary commercial causes of action like breaches of contract, see generally Navellier, 52 P.3d 703, or indeed misappropriation of public- ity, can be “strategic lawsuit[s] against public participation” as much as defamation can be, id. at 706.
Second, the California Supreme Court has “declined to hold that [the anti-SLAPP statute] does not apply to events that transpire between private individuals.” Id. at 710 (internal quotation marks omitted). That neither Hilton nor Hallmark are public officials, therefore, cannot be dispositive. Further- more, the court has “explicitly rejected the assertion that the only activities qualifying for statutory protection are those which meet the lofty standard of pertaining to the heart of self-government.” Id. (internal quotation marks omitted). Thus, the activity of the defendant need not involve questions of civic concern; social or even low-brow topics may suffice.
The question before us is whether the topic, the issue, can be a celebrity like Paris Hilton, or whether, as Hilton agues, it must be the subject of some defined debate.
In interpreting the anti-SLAPP statute, the California Supreme Court has insisted on its language, including its pre- 4702 HILTON v. HALLMARK CARDS amble. See Equilon Enters., 52 P.3d at 688 (“When on previ- ous occasions we have construed the anti-SLAPP statute, we have done so strictly by its terms . . . .”); id. at 689 n.3 (dis- cussing the addition of the “broadly construed” language to the statutory preamble as a correction of prior judicial deci- sions adopting narrowing constructions); Navellier, 52 P.3d at 711 (rejecting a narrowing construction of the statute because it “would contravene the Legislature’s express command that section 425.16 ‘shall be construed broadly’ ” (quoting Cal. Civ. Proc. Code § 425.16(a))); see also Briggs v. Eden Coun- cil for Hope & Opportunity, 969 P.2d 564, 568-73 (Cal. 1999) (construing plain language of the statute in light of the pream- ble).
[7] That preamble declares it to be “in the public interest” of the state of California “to encourage continued participa- tion in matters of public significance . . . . To this end, this section shall be construed broadly.” Cal. Civ. Proc. Code § 425.16(a). The California Supreme Court has defined “sig- nificance” to mean “importance” or “consequence.” Briggs, 969 P.2d at 571-72. Thus, we must construe “public issue or issue of public interest” in section 425.16(e)(4) broadly in light of the statute’s stated purpose to encourage participation in matters of public importance or consequence.
[8] Understood this way, the statute does not appear to favor a construction limiting the meaning of “issue” to a sub- ject of a specific debate. However, we need not rest on the implications of the California Supreme Court and the statute, which do not definitively answer the question, “because we have guidance from the [California] Court of Appeals.” Batlan v. Bledsoe (In re Bledsoe), 569 F.3d 1106, 1110 (9th Cir. 2009).
ii
[9] The California intermediate appellate courts have developed multiple tests to determine whether a defendant’s HILTON v. HALLMARK CARDS 4703 activity is in connection with a public issue. One commonly cited test comes from Rivero v. American Federation of State, County, & Municipal Employees, 130 Cal. Rptr. 2d 81, 89-90 (Ct. App. 2003) (concluding that the plaintiff’s supervision of eight individuals was not a matter of public interest, where people involved had “received no public attention or media coverage”). There, the Court of Appeal for the First District surveyed the appellate cases and divined from them three cat- egories of public issues: (1) statements “concern[ing] a person or entity in the public eye”; (2) “conduct that could directly affect a large number of people beyond the direct partici- pants”; (3) “or a topic of widespread, public interest.” Id. at 89. The Fourth District has followed this approach. See, e.g., Commonwealth Energy Corp., 1 Cal. Rptr. 3d at 394-95 (describing Rivero as the first systematic treatment of the “public issue—public interest aspect of the anti-SLAPP stat- ute”).
[10] By contrast, Weinberg v. Feisel, a case from the Third District, articulated a somewhat more restrictive test, designed to distinguish between issues of “public, rather than merely private, interest.” 2 Cal. Rptr. 3d 385, 392 (Ct. App. 2003).
First, “public interest” does not equate with mere curiosity. Second, a matter of public interest should be something of concern to a substantial number of people. Thus, a matter of concern to the speaker and a relatively small, specific audience is not a matter of public interest. Third, there should be some degree of closeness between the challenged state- ments and the asserted public interest; the assertion of a broad and amorphous public interest is not suffi- cient. Fourth, the focus of the speaker’s conduct should be the public interest rather than a mere effort to gather ammunition for another round of private controversy. Finally, . . . [a] person cannot turn oth- erwise private information into a matter of public 4704 HILTON v. HALLMARK CARDS interest simply by communicating it to a large num- ber of people.
Id. at 392-93 (internal quotation marks, citations, and alter- ation omitted).
iii
Although these approaches do not precisely overlap, we need not decide between them, because Hallmark’s birthday card satisfies both tests.
Hallmark’s card falls into either the first or third categories that Rivero outlined: statements “concern[ing] a person or entity in the public eye”; “or a topic of widespread, public interest,” 130 Cal. Rptr. 2d at 89, respectively. There is no dispute that Hilton is a person “in the public eye” and “a topic of widespread, public interest,” and that she was such well before this controversy.8 Thus, Hallmark’s card is “in connec- tion with a public issue or an issue of public interest,” Cal. Civ. Proc. Code § 425.16(e)(4), under Rivero.
Although the application of the Weinberg test presents a closer call, we conclude it comes to the same result.9 Again, there is no dispute that Paris Hilton’s career is “something of concern to a substantial number of people,” Weinberg, 2 Cal. Rptr. 2d at 392. The connection “between the challenged statements”—the birthday card—“and the asserted public interest”—Hilton’s life, image, and catchphrase—is direct. Id. After all, the card concerns Hilton’s persona. There was no In her papers before the district court, Hilton recognized that she is a “public figure and a subject of public interest,” with “widespread public recognition.” One might read Weinberg, a defamation case, as having articulated a test particular to the defamation cause of action. Because our application of Weinberg is not decisive here, we do not reach this question, which nei- ther of the parties raised. HILTON v. HALLMARK CARDS 4705 pre-existing controversy between Hallmark and Hilton, so the fourth and fifth considerations that the Weinberg court consid- ered are inapposite. See id. at 392-93.
Weinberg does caution, however, that “ ‘public interest’ does not equate with mere curiosity.” Id. at 392 (citing Time, Inc. v. Firestone, 424 U.S. 448, 454-55 (1976)). However, this warning comes in the context of Weinberg’s insistence that courts apply the anti-SLAPP statute only to public, not to private matters. Thus, Weinberg elaborated that “a ‘public controversy’ does not equate with any controversy of interest to the public.10 For example, a divorce action between the scion of one of America’s wealthier industrial families and his Palm Beach society wife may have piqued the public’s inter- est but was not a public controversy.” Id. at 392 (internal cita- tions omitted). We read this to mean that a private controversy, even between famous people, that interests the public is not enough. Under Weinberg, for the activities of celebrities to be a public issue, the activities, as well as the personages involved must be public.
This limitation does not apply here, however. Hallmark’s card does not concern some personal detail of Hilton’s life (such as a divorce), it concerns her trademark phrase and her public persona—the very things that interest people about her. Thus, Weinberg, too, supports Hallmark’s position that its card deals with a public issue.
Du Charme v. International Brotherhood of Electrical Workers, 1 Cal. Rptr. 3d 501 (Ct. App. 2003), is not to the contrary. Hilton contends that Du Charme requires “some sort On this point Weinberg appears to conflict with Nygård, Inc. v. Uusi- Kerttula, which concluded that “ ‘an issue of public interest’ . . . is any issue in which the public is interested.” 72 Cal. Rptr. 3d 210, 220 (Ct. App. 2008). We need not resolve this conflict, because we conclude that Hallmark’s card involves a public issue under the more restrictive Wein- berg test. 4706 HILTON v. HALLMARK CARDS of ongoing controversy, dispute or discussion which effects [sic] the public.” This overstates the rule of Du Charme. Such case held that
in order to satisfy the public issue/issue of public interest requirement of . . . subdivision (e)(3) and (4) of the anti-SLAPP statute, in cases where the issue is not of interest to the public at large, but rather to a limited, but definable portion of the public (a pri- vate group, organization, or community), the consti- tutionally protected activity must, at a minimum, occur in the context of an ongoing controversy, dis- pute or discussion . . . .
Id. at 510 (emphasis added).
Subsequent California appellate courts have honored this clear limitation of Du Charme. See, e.g., Fitzgibbons, 44 Cal. Rptr. 3d at 524 (“Du Charme contrasted its situation . . . with matters of widespread public interest . . . .” (internal quotation marks omitted)). Therefore, Hallmark need not show that its card commented on any ongoing public controversy to make the threshold showing under Du Charme because, as she has acknowledged, Hilton’s privileged lifestyle and her catch- phrase (“that’s hot”) are matters of widespread public interest.
[11] In short, all of the various approaches that Califor- nia’s appellate courts have used to define “public issue or an issue of interest to the public” appear to support the conclu- sion that Hallmark’s birthday card is indeed in connection with such an issue. That the card is a commercial product and Hilton’s lawsuit a dispute over who can profit from her image does not defeat Hallmark’s ability to make its threshold show- ing. We therefore conclude that Hallmark has shown that Hil- ton’s suit for misappropriation of publicity arises from “conduct in furtherance of the exercise of the constitutional right of . . . free speech in connection with a public issue or HILTON v. HALLMARK CARDS 4707 an issue of public interest.” Cal. Civ. Proc. Code § 425.16(a), (e)(4). B
Hallmark, however, has only passed the threshold. “[T]he statute does not bar a plaintiff from litigating an action that arises out of the defendant’s free speech or petitioning; it sub- jects to potential dismissal only those actions in which the plaintiff cannot state and substantiate a legally sufficient claim.” Navellier, 52 P.3d at 711 (internal citations, quotation marks, and alternations omitted). At this second step of the anti-SLAPP inquiry, the required probability that Hilton will prevail need not be high. The California Supreme Court has sometimes suggested that suits subject to being stricken at step two are those that “lack[ ] even minimal merit.” Id. at 708.
Hilton’s claim is for misappropriation of the common law right of publicity. See generally Eastwood v. Superior Court, 198 Cal. Rptr. 342 (Ct. App. 1983), superseded by statute, Cal. Civ. Code § 3344, as recognized in KNB Enters. v. Mat- thews, 92 Cal. Rptr. 2d 713, 717 n.5 (Ct. App. 2000). The ele- ments of the claim under California law are “(1) the defendant’s use of the plaintiff’s identity; (2) the appropria- tion of plaintiff’s name or likeness to defendant’s advantage, commercially or otherwise; (3) lack of consent; and (4) result- ing injury.” Downing v. Abercrombie & Fitch, 265 F.3d 994, 1001 (9th Cir. 2001) (internal quotation marks omitted). Hall- mark has not disputed that Hilton can meet these elements. Instead, Hallmark claims two affirmative defenses under Cali- fornia law, both based on the First Amendment: the “transfor- mative use” defense and the “public interest” defense.11 We discuss each in turn. We take no position on whether there is a First Amendment defense to misappropriation of the right of publicity that is distinct from the defense the California Supreme Court has articulated. We address only defenses that Hallmark raised, and leave for another day the question of whether the First Amendment furnishes a defense to misappropriation of publicity that is broader than the transformative use or public interest defenses. 4708 HILTON v. HALLMARK CARDS
[12] Under California law, “when an artist is faced with a right of publicity challenge to his or her work, he or she may raise as [an] affirmative defense that the work is protected by the First Amendment inasmuch as it contains significant transformative elements or that the value of the work does not derive primarily from the celebrity’s fame.” Comedy III Prods., Inc. v. Gary Saderup, Inc., 21 P.3d 797, 810 (Cal. 2001). This “transformative use” defense poses “what is essentially a balancing test between the First Amendment and the right of publicity.” Winter v. DC Comics, 69 P.3d 473, 475 (Cal. 2003) (internal quotation marks omitted). “It contin- ues to shield celebrities from literal depictions or imitations for commercial gain by works which do not add significant new expression.” Kirby v. Sega of Am., Inc., 50 Cal. Rptr. 3d 607, 615 (Ct. App. 2006).
The application of the defense, which the California Supreme Court based loosely on the intersection of the First Amendment and copyright liability,12 depends upon “whether the celebrity likeness is one of the ‘raw materials’ from which an original work is synthesized, or whether the depiction or imitation of the celebrity is the very sum and substance of the work in question.” Comedy III, 21 P.3d at 809. In other words, “[w]e ask . . . whether a product containing a celebri- ty’s likeness is so transformed that it has become primarily the defendant’s own expression rather than the celebrity’s likeness. And when we use the word ‘expression,’ we mean expression of something other than the likeness of the celebri- ty.” Id. “[U]nder [this] test,” yet another formulation cautions, “when an artist’s skill and talent is manifestly subordinated to the overall goal of creating a conventional portrait of a celeb- rity so as to commercially exploit his or her fame, then the The cousinage between copyright liability and the right to publicity has long been recognized. See, e.g., Zacchini v. Scripps-Howard Broad. Co., 433 U.S. 562, 573 (1977). HILTON v. HALLMARK CARDS 4709 artist’s right of free expression is outweighed by the right of publicity.” Id. at 810.
a
The potential reach of the transformative use defense is broad. The form of the expression to which it applies “[is] not confined to parody and can take many forms,” including “fic- tionalized portrayal . . . heavy-handed lampooning . . . [and] subtle social criticism.” Id. at 809 (citations omitted). Nor should courts “be concerned with the quality of the artistic contribution—vulgar forms of expression fully qualify for First Amendment protection.” Id. It is thus irrelevant whether Hallmark’s card qualifies as parody13 or high-brow art. Nor does it matter that Hallmark sought to profit from the card; the only question is whether the card is transformative. Cf. Winter, 69 P.3d at 479 (“The question is whether the work is transformative, not how it is marketed.”).
[13] We think it clear that Hallmark may raise the transfor- mative use defense. The applicability of the defense, however, does not preclude Hilton from showing the “minimal merit” needed to defeat Hallmark’s motion to strike.14 Only if Hall- To be sure, the transformative use defense has its origins in copyright law, which recognizes that “parody has an obvious claim to transformative value” and can therefore constitute fair use. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994). However, parody is not “presump- tively fair” and must be judged on a “case by case” basis. Id. at 581. For example, if the “alleged infringer merely uses [the copied work] to get attention or to avoid the drudgery in working up something fresh, the claim to fairness in borrowing from another’s work diminishes accord- ingly (if it does not vanish).” Id. For our purposes, however, “[w]hat mat- ters is whether the work is transformative, not whether it is parody or satire or caricature or serious social commentary or any other specific form of expression.” Winter, 69 P.3d at 472. We thus decline Hallmark’s invitation to label its card a parody and to deem it transformative on that basis alone. Thus, we conceptualize the inquiry into two parts: whether the trans- formative use defense is available at all and whether, if it is, no trier of fact could reasonably conclude that the card was not transformative. 4710 HILTON v. HALLMARK CARDS mark is entitled to the defense as a matter of law can it prevail on its motion to strike. In this context, we note that Comedy III envisioned the application of the defense as a question of fact. See 21 P.3d at 811 (“Although the distinction between protected and unprotected expression will sometimes be sub- tle, it is no more so than other distinctions triers of fact are called on to make in First Amendment jurisprudence.” (emphasis added)). Thus, Hallmark is only entitled to the defense as a matter of law if no trier of fact could reasonably conclude that the card was not transformative.
b
[14] Case law provides several useful data points for such inquiry. In Comedy III, the California Supreme Court held that “literal, conventional depictions of the Three Stooges,” drawn in charcoal and sold on t-shirts, make “no significant transformative or creative contribution.” 21 P.3d at 811. Thus it is clear that merely merchandising a celebrity’s image with- out that person’s consent, the prevention of which is the core of the right of publicity, does not amount to a transformative use.
Winter furnishes a counter example. There, the California Supreme Court held that the publisher of a comic book was entitled to summary judgment on the grounds of the transfor- mative use defense. The cover of the comic book showed car- toon figures based on two musicians (Johnny and Edgar Winter) that were “distorted for purposes of lampoon, parody, or caricature” and drawn as “half-human and half worm [characters] in a larger story.” 69 F.3d at 479. The court held the cartoon characters were sufficiently transformative to defeat a right of publicity action brought by the entirely human persons on which they were based. Id.
Falling somewhere in between these two ends of the spec- trum is Kirby, in which the California Court of Appeal granted summary judgment to a video-game distributor on the HILTON v. HALLMARK CARDS 4711 transformative use defense. Although the video-game charac- ter in question, “Ulala,” was certainly “reminiscent” of the singer Kirby (aka “Lady Miss Kier”) in terms of facial fea- tures, personal style, and catchphrases, the court noted that there were significant differences in their physiques, typical hairstyles and costumes, and dance moves. 50 Cal. Rptr. at 613, 616. Moreover, the fact that “the setting for the game that features Ulala—a space-age reporter in the 25th centu- ry—unlike any public depiction of Kirby” led the court to conclude that Ulala was more of a “fanciful, creative charac- ter” than an “imitative character” Id. at 616, 618 (internal quotation marks omitted).
c
Hilton’s basic contention is that Hallmark lifted the entire scene on the card from the “Simple Life” episode, “Sonic Burger Shenanigans.” The conceit behind the program was to place Hilton and her friend Nicole Ritchie into the life of an average person, including working for a living. In the episode, the women work at a drive-through fast-food restaurant. They cruise up to customers’ cars on roller skates and serve them their orders. True to form, Hilton occasionally remarks that a person, thing, or event is “hot.”
Hallmark’s card, Hilton claims, is a rip-off of this episode. Hallmark maintains that its card is transformative because the setting is different and the phrase, “that’s hot,” has become a literal warning about the temperature of a plate food.
To be sure, there are some differences between the wait- ressing Hilton does in the “Simple Life” episode and the por- trayal in Hallmark’s card. Hilton’s uniform is different, the style of the restaurant is different (drive-through service rather than sit-down service), and the food is different (burgers-and- fries rather than diner-style bacon and eggs). In the card, the body underneath Hilton’s over-sized head is a cartoon draw- ing of a generic female body rather than a picture of Hilton’s 4712 HILTON v. HALLMARK CARDS real body. Finally, Hilton’s catchphrase appears consistently in its familiar, idiomatic meaning. Despite these differences, however, the basic setting is the same: we see Paris Hilton, born to privilege, working as a waitress.
[15] When we compare Hallmark’s card to the video game in Kirby, which transported a 1990s singer (catchphrases and all) into the 25th century and transmogrified her into a space- age reporter, we conclude that the card falls far short of the level of new expression added in the video game. While a work need not be phantasmagoric as in Winter or fanciful as in Kirby in order to be transformative, there is enough doubt as to whether Hallmark’s card is transformative under our case law that we cannot say Hallmark is entitled to the defense as a matter of law.
d
Hoffman v. Capital Cities/ABC, Inc., 255 F.3d 1180 (9th Cir. 2001), does not compel a contrary conclusion. Such case involved a magazine feature containing a digitally altered ver- sion of the famous image of Dustin Hoffman, dressed in drag, from the movie “Tootsie,” with Hoffman’s body substituted for that of a male model and the original dress substituted for a dress in fashion at the time. Id. at 1183. Hoffman sued the publisher for, among other things, misappropriation of his right of publicity. Id. The district court ruled in his favor after a bench trial. Id. We reversed on grounds having nothing to do with the transformative use defense, though we discussed the defense in a footnote. Id. at 1184 n.2.
Our case is distinguishable from Hoffman. Although both Hoffman and Hilton pursued misappropriation of publicity claims against their respective defendants for placing a photo- graph of their heads on a different body, the defendants in each case asserted different defenses and, therefore, attempted to establish different facts. The defendant in Hoffman did not assert an affirmative defense of transformative use, but simply HILTON v. HALLMARK CARDS 4713 a more general First Amendment defense. To defeat that defense, Hoffman attempted to establish that the defendant acted with “actual malice” and therefore was not entitled to First Amendment protections. Here, however, Hallmark asserts an affirmative defense of transformative use against Hilton’s right of publicity claim, thus bringing the work under First Amendment protections. Furthermore, to the extent that Hoffman discussed the transformative use defense, the passing footnote was dictum and not central to the ultimate holding in the case.15 We therefore reject Hallmark’s argument that it is entitled to the transformative use defense as a matter of law.
We turn to Hallmark’s last redoubt: the “public interest” defense.
Under California law, “no cause of action will lie for the publication of matters in the public interest, which rests on the right of the public to know and the freedom of the press to tell it.” Montana v. San Jose Mercury News, Inc., 40 Cal. Rptr. 2d 639, 640 (Ct. App. 1995) (internal quotation marks and alter- ations omitted). “Public interest attaches to people who by their accomplishments or mode of living create a bona fide attention to their activities.” Dora v. Frontline Video, Inc., 18 Cal. Rptr. 2d 790, 792 (Ct. App. 1993). It appears that we did not consider the application of the transforma- tive use defense in Hoffman in any depth because the parties had not raised it before the trial court, and the defense was little more than a last- minute, minor part of their litigating positions on appeal. The California Supreme Court had handed down Comedy III, which first established the defense, between oral argument and our decision. It came to our attention only by means of post-argument letters that the parties submitted pursuant to Federal Rule of Appellate Procedure 28(j). We are therefore convinced that our “earlier panel did not make a deliberate decision to adopt the rule of law it announced,” and that Hoffman does not control. See United States v. Johnson, 256 F.3d 895, 915 (9th Cir. 2001) (en banc) (Kozinski, J., con- curring). 4714 HILTON v. HALLMARK CARDS This defense does not help Hallmark, however, because, by its terms, it only precludes liability for “the publication of matters in the public interest.” Montana, 40 Cal. Rptr. 2d at 640 (internal quotation marks omitted). The case that estab- lished the defense explicitly linked it to the publication of newsworthy items. See Eastwood, 198 Cal. Rptr. at 349-50 (“The scope of the privilege extends to almost all reporting of recent events even though it involves the publication of a purely private person’s name or likeness.” (emphasis added)). Later opinions confirm the impression that it is about such publication or reporting. See Montana, 40 Cal. Rptr. 2d at 640-42 (allowing the defense for a newspaper’s commemora- tive posters of the Super Bowl victories of the San Francisco 49’ers); Dora, 18 Cal. Rptr. 2d at 792-94 (allowing the defense for a documentary about surf culture).
[16] We must conclude that Hallmark cannot employ the “public interest” defense because its birthday card does not publish or report information.
IV
For the foregoing reasons, we AFFIRM the denial of Hall- mark’s motion to strike pursuant to California’s anti-SLAPP statute, but DISMISS the appeal of the denial of Hallmark’s motion to dismiss the misappropriation of publicity claim and the Lanham Act claim for lack of appellate jurisdiction. We REMAND for further proceedings consistent with this opin- ion. The parties shall bear their own costs on appeal. |
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 16, 2009 Decided March 23, 2010
No. 08-5435
UNITED TECHNOLOGIES CORPORATION, PRATT & WHITNEY DIVISION, APPELLANT
v.
UNITED STATES DEPARTMENT OF DEFENSE AND DEFENSE CONTRACT MANAGEMENT AGENCY, APPELLEES
Consolidated with 08-5436
Appeals from the United States District Court for the District of Columbia (No. 1:05-cv-02271)
Patricia A. Millett argued the cause for the appellant. Robert K. Huffman and Duncan N. Stevens were on brief. Emmett B. Lewis III entered an appearance. Kathryn A. Donnelly, Special Assistant United States Attorney, argued the cause for the appellees. R. Craig Lawrence, Assistant United States Attorney, was on brief. Lanny J. Acosta Jr., Special Assistant United States Attorney, entered an appearance.
Before: HENDERSON, ROGERS and BROWN, Circuit Judges. Opinion for the Court filed by Circuit Judge HENDERSON. KAREN LECRAFT HENDERSON, Circuit Judge: Sikorsky Aircraft Corporation (Sikorsky) and the Pratt and Whitney Division (Pratt) of United Technologies Corporation appeal the district court’s grant of summary judgment to the Department of Defense (Defense or DoD) and the Defense Contract Management Agency (DCMA)1 in Sikorsky’s and Pratt’s separate lawsuits to prevent the release of certain DCMA documents evaluating their respective quality control processes. Sikorsky and Pratt contend that DCMA’s decision to release the documents was arbitrary and capricious in that it failed to properly apply Exemption 4 of the Freedom of Information Act (FOIA), 5 U.S.C. § 552(b)(4). We agree and remand. I. This is a “reverse-FOIA” case. See, e.g., Canadian Commercial Corp. v. Dep’t of Air Force, 514 F.3d 37, 39 (D.C. Cir. 2008). In enacting FOIA, the Congress sought to balance the public’s interest in governmental transparency against “‘legitimate governmental and private interests [that] could be harmed by release of certain types of information.’” Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871, 872 (D.C. Cir. 1992) (en banc) (quoting FBI v. Abramson, 456 U.S. 615, 621 (1982)). When an agency determines, pursuant to a FOIA request, to disclose information gathered from a non-governmental source, the source may contest the disclosure as arbitrary and capricious or not in accordance with law under the Administrative Procedure Act, 5 U.S.C. §§ 702,
DCMA is “an agency of the Department of Defense.” Dep’t of Defense Directive No. 5105.64 (Sept. 27, 2000) (establishing DCMA). All references to DoD herein refer to DCMA as well.
706(2). See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1133 n.1 (D.C. Cir. 1987). As relevant here, Exemption 4 excepts confidential information from FOIA’s scope. See infra Part II. According to the test we articulated in National Parks & Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974), and reaffirmed en banc in Critical Mass, if a “person”2 is required to provide information to the United States, the information is confidential under Exemption 4 only if its “disclosure would be likely either ‘(1) to impair the Government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.’” Critical Mass, 975 F.2d at 878 (quoting Nat’l Parks, 498 F.2d at 770).3 A. Sikorsky, Pratt & DCMA Sikorsky makes helicopters and Pratt makes aircraft engines. Both companies are wholly owned by United Technologies Corporation. Both have various foreign and domestic military and civilian customers and both sell their products to the United States. DCMA monitors defense contractors, including Sikorsky and Pratt, to ensure they satisfy their contractual obligations when providing services and supplies to the United States. It keeps a regular presence at Sikorsky’s and Pratt’s facilities. If it
“‘[P]erson’ includes an individual, partnership, corporation, association, or public or private organization other than an agency . . . .” 5 U.S.C. § 551(2). Alternatively, if a “person” provides information to the United States voluntarily, the information is confidential if “it is of a kind that the provider would not customarily release to the public.” Critical Mass, 975 F.2d at 880.
discovers a problem, it notifies the contractor and may issue a “Corrective Action Request” (CAR) or an audit report to the contractor to remedy the problem. 1. Sikorsky FOIA Request In March 2004 a New Haven, Connecticut television reporter submitted a FOIA request to the regional DCMA office (DCMA East) for, in pertinent part, all CARs DCMA had issued to Sikorsky over the past year regarding the Black Hawk helicopter.4 The Director of DCMA East initially denied the request, concluding under Exemption 4 their release “will significantly impair DCMA’s ability to obtain the same quality of information from Sikorsky and from other Defense contractors in the future.” Letter from Keith D. Ernst, Director, DCMA East, to Alan M. Cohn, WTNH-TV (May 7, 2004). The reporter then appealed the denial within DCMA.5 In response, the DCMA FOIA Appeal Authority reviewed the documents and reversed DCMA East’s decision. DCMA’s Office of General Counsel then notified Sikorsky by letter that it planned to release the CARs, stating DCMA’s new position that none of them fell under Exemption 4. Sikorsky disagreed. Citing National Parks, Sikorsky argued that
The reporter also requested Sikorsky’s responses to the CARs but DCMA ultimately decided not to release them. Those documents are not part of this appeal. DoD regulations provide, in relevant part, “If the official designated by the DoD Component to make initial determinations on requests for records declines to provide a record because the official considers it exempt under one or more of the exemptions of the FOIA, that decision may be appealed by the requester, in writing, to a designated appellate authority.” DoD Regulation 5400.7-R, C5.3.1 (Sept. 1998), available at http://www.dtic.mil/whs/directives/corres/ pdf/540007r.pdf.
Exemption 4 applied because the documents’ “release would likely cause Sikorsky substantial competitive harm” and would “significantly impair DCMA’s future ability to obtain the same detail and quality of information from Sikorsky and other DoD contractors.” Letter from Robert K. Huffman, Miller & Chevalier, to Richard N. Finnegan, Associate General Counsel, DCMA, at 3 (Feb. 11, 2005). Specifically, it asserted that the CARs included “proprietary information regarding Sikorsky’s manufacturing process and procedures” and that “[r]elease of this proprietary information would substantially harm Sikorsky’s competitive position because its competitors would use this information to their advantage in . . . adjusting their manufacturing techniques.” Id. at 11 n.4. Nevertheless, in a letter dated December 1, 2005, the DCMA FOIA Appeal Authority informed Sikorsky that DCMA had made a “final agency decision” to release the CARs to the reporter. Letter from Colonel Jamie L. Adams, DCMA Appeal Authority, to Robert K. Huffman, Miller & Chevalier, at 5-6 (Dec. 1, 2005). In so doing, it rejected Sikorsky’s “substantial competitive harm argument,” stating that the asserted harm “appears to be one of suffering embarrassment in the market place,” which is an “insufficient” basis on which to prevent disclosure. Id. at 5. It also rejected Sikorsky’s “impairment” argument, stating that “the question of impairment is a question for the agency and not for Sikorsky” and concluding that “release of the CARs would not impair the Government’s ability to obtain the same kind of information in the future.” Id. at 3. 2. Pratt FOIA Request In December 2004 a Hartford, Connecticut newspaper reporter submitted a FOIA request to DCMA East for (1) a report of a November 2004 DCMA audit of Pratt’s Middletown, Connecticut Engine Center; (2) a CAR that resulted from the audit and (3) any and all other documents regarding the audit. DCMA East identified documents responsive to the request,
including (1) the November 2004 audit report; (2) November 2004 DCMA post-audit briefing of Pratt; (3) a resulting “Level III” CAR6 issued to Pratt in December 2004; (4) internal DCMA correspondence about the audit and the Level III CAR and (5) reports of audits of Pratt that DCMA conducted in July and September 2004.7 DCMA East notified Pratt of the request and asked Pratt to flag any documents it believed were exempt from disclosure. Pratt responded that “most of the information contained in these documents is exempt from disclosure under Exemption 4.” Letter from Lester K. Katahara, Associate Counsel, Pratt & Whitney, to JeanMarie C. Faris, Counsel, DCMA-Hartford, at 1 (Mar. 24, 2005). Citing National Parks, it argued that the exemption applied because disclosure would “likely cause substantial harm to [its] competitive position” and “would likely impair the ability of DCMA to obtain information of the same quality, reliability, and detail in the future.” Id. at 3. It submitted several affidavits supporting its claim to the Exemption. For example, its Director of Quality Military Engines attested that “a competitor with similar expertise could and would use th[e] information to gain insights into the
There are four levels of CARs, increasing in seriousness from Level I to Level IV. DCMA issues a Level III CAR to a contractor’s “top management to call attention to serious contractual nonconformity.” DCMA Guidebook, Corrective Action Process 2.1, available at http://guidebook.dcma.mil/226/226-1/index.cfm. DCMA East determined not to release photographs it took during the November 2004 audit or Pratt’s documentary responses to that audit and to the CAR. It decided that Exemption 4 covered the latter material because Pratt voluntarily made available the information contained therein and that information was the kind Pratt would not normally release to the public. See Critical Mass, 975 F.2d at 880. Similarly, it decided that Pratt was not required to permit DCMA to take photographs during the audit. See id. The photographs and Pratt’s responses are not part of this appeal.
strengths and weaknesses of P&W’s quality control system as well as manufacturing techniques and use those insights to revise and improve its own quality control and manufacturing systems.” Affidavit of William H. Forthofer ¶ 18 (Mar. 18, 2005) (Forthofer Aff.). It also offered a set of the documents from which it had redacted the purportedly exempt information. DCMA East replied to Pratt in October 2005, concluding that Exemption 4 did not cover the documents except for the portions DCMA had itself redacted. It stated: Applying the criteria established in National Parks to the documents at issue here, we conclude that release of the documents will not impair the Government’s ability to obtain from Pratt & Whitney (or any other contractors) essential information about their quality systems. With respect to the competitive harm prong of National Parks, we concluded that, with the exception of the actual quality system provisions themselves, [which were redacted,] the release of the documents would not likely result in substantial competitive harm to Pratt & Whitney. Letter from Steven T. Bogusz, Deputy Director, DCMA East, to Lester K. Katahara, Pratt & Whitney, at 1 (Oct. 12, 2005). Pratt sought reconsideration, elaborating on the same arguments it had originally made. But DCMA East did not budge; it said, “While we agree that National Parks is the appropriate legal standard of review, we disagree that release of the documents (as redacted) would significantly impair DCMA’s ability to obtain necessary quality assurance system information from P&W and other contractors in the future, a decision solely within DCMA’s purview.” Letter from Steven T. Bogusz, Deputy Director, DCMA East, to Robert K. Huffman, Miller & Chevalier, at 2 (Nov. 21, 2005). In addition, it said:
We acknowledge that competition in the propulsion industry is fierce. However, with the exception of the information that we have already redacted, we do not believe that P&W has established the likelihood of substantial competitive harm flowing from P&W’s competitor’s [sic] affirmative use of the information contained in the DCMA documents. At most, we believe that release of the information could be embarrassing to P&W. But, embarrassment does not rise to the level of substantial competitive harm of the type recognized by the courts. Id. at 3. B. District Court Proceedings In late 2005 Sikorsky and Pratt filed separate suits in the district court against DoD, each alleging that DCMA’s decision to release the documents was arbitrary, capricious, and contrary to law under the APA, 5 U.S.C. § 706(2)(A). They sought declaratory and injunctive relief preventing the documents’ disclosure. The district court granted summary judgment to DoD in both cases in September 2008. Although the court found that the documents’ release would “reveal[] the safety measures and quality control procedures in Plaintiff’s manufacturing,” it determined that the documents did not fall under Exemption 4. Sikorsky Aircraft v. Dep’t of Def., C.A. No. 05-02373, at 12-13 (D.D.C. Sept. 22, 2008) (Sikorsky Order); United Techs. Corp., Pratt & Whitney Div. v. Dep’t of Def., C.A. No. 05-02271, at 12- 14 (D.D.C. Sept. 22, 2008) (Pratt Order). According to the court, the gravamen of both complaints was that disclosure would cause “embarrassment or negative publicity,” a type of harm not recognized under Exemption 4. Sikorsky Order at 13; Pratt Order at 13. The court also held that DCMA’s ability to obtain
similar information in the future would not be so impaired as to render the documents exempt from disclosure. Sikorsky and Pratt timely appealed.8 II. “We review the district court’s grant of summary judgment de novo.” Canadian Commercial, 514 F.3d at 39. When the district court decision under review itself reviews agency action under the APA, we, like the district court, will reverse the agency action only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” See 5 U.S.C. § 706(2)(A); Canadian Commercial, 514 F.3d at 39. This “standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). “[W]e do not defer to the agency’s conclusory or unsupported suppositions.” McDonnell Douglas Corp. v. U.S. Dep’t of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004). Exemption 4 covers “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” 5 U.S.C. § 552(b)(4). DoD concedes that the information contained in the documents either is or addresses “commercial . . . information obtained from a person”; for their part, Sikorsky and Pratt contend that the information is “confidential.”9 They “do not contend . . . that the particular
We consolidated the appeals sua sponte. Order, United Techs. Corp. v. Dep’t of Def., No. 08-5435 (D.C. Cir. Mar. 5, 2009). Sikorsky and Pratt also suggest in passing that the documents contain “trade secrets” under Exemption 4. A trade secret is “a secret,
information at issue here was voluntarily provided,” Appellants’ Br. 33 n.10, and thus do not “seek review of th[e] aspect of the district court’s decision” that “held that disclosure of the information was mandatory, not voluntary.” Id. at 13 & n.3. Accordingly, for the documents to be exempt from disclosure, their release must be likely to cause the contractors “substantial competitive harm” or “impair the Government’s ability to obtain necessary information in the future.” Canadian Commercial, 514 F.3d at 39-40 (internal quotations omitted); see Critical Mass, 975 F.2d at 878; Nat’l Parks, 498 F.2d at 770. A. Substantial Competitive Harm To qualify under this prong, an identified harm must “‘flow[] from the affirmative use of proprietary information by competitors.’” CNA, 830 F.2d at 1154 (quoting Pub. Citizen Health Research Group v. FDA, 704 F.2d 1290, 1291 n.30 (D.C. Cir. 1983)). In reviewing an agency’s determination as to substantial competitive harm, we recognize that “predictive judgments are not capable of exact proof,” id. at 1155, and we generally defer to the agency’s predictive judgments as to “‘the repercussions of disclosure,’” McDonnell Douglas v. U.S. Dep’t of the Air Force, 375 F.3d at 1191 n.4 (quoting CNA, 830 F.2d at 1155). If “a reverse-FOIA movant has made a positive showing of competitive harm from disclosure,” however, an agency’s unelaborated contrary conclusion does not suffice. See Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 341-42 (D.C.
commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities . . . that can be said to be the end product of either innovation or substantial effort.” Pub. Citizen Health Research Group v. FDA, 704 F.2d 1280, 1288 (D.C. Cir. 1983). Ultimately Sikorsky and Pratt label this issue “irrelevant,” Reply Br. 6, because, to prevent release, they need only establish that the documents contain “confidential” information.
Cir. 1989) (internal quotation omitted) (agency’s conclusory decision rejecting substantial competitive harm required remand). Sikorsky and Pratt maintain that disclosure of the documents will cause two types of substantial competitive harm. First, they say that their competitors will use the documents to discredit them in the eyes of current and potential customers. They worry especially that their competitors will use the information and the accompanying negative publicity to persuade foreign costumers that DoD has found Sikorsky’s and Pratt’s quality control systems unreliable and, accordingly, their products’ quality suspect. Because foreign customers are unfamiliar with DoD’s exacting oversight, they reason, those customers will overreact to the disclosed information and Sikorsky’s and Pratt’s reputation will suffer as a result. Contrary to Sikorsky and Pratt’s contentions, however, Exemption 4 does not protect against this species of harm. Calling customers’ attention to unfavorable agency evaluations or unfavorable press does not amount to an “affirmative use of proprietary information by competitors.” See CNA, 830 F.2d at 1154 & n.158; Occidental, 873 F.2d at 341 (desire to avoid embarrassment and reputational damage is irrelevant to substantial competitive harm determination); Pub. Citizen, 704 F.2d at 1291 n.30 (“injury to competitive position, as might flow . . . from the embarrassing publicity attendant upon public revelations” is not substantial competitive harm) (internal quotation omitted). In other words, Exemption 4 does not guard against mere embarrassment in the marketplace or reputational injury and DCMA correctly rejected the contractors’ reliance thereon. Second, Sikorsky and Pratt maintain that the documents contain sensitive proprietary information about their quality control processes. Pratt’s Director of Quality Military Engines attested that “a competitor with similar expertise could and
would use th[e] information to gain insights into the strengths and weaknesses of P&W’s quality control system as well as manufacturing techniques and use those insights to revise and improve its own quality control and manufacturing systems.” Forthofer Aff. ¶ 18. Similarly, Sikorsky asserted that “proprietary information regarding Sikorsky’s manufacturing process and procedures” is “inextricably intertwined with the quality control information” included in the CARs and it asserted that “[r]elease of this proprietary information would substantially harm Sikorsky’s competitive position because its competitors would use this information to their advantage in . . . adjusting their manufacturing techniques.” Letter from Robert K. Huffman, Miller & Chevalier, to Richard N. Finnegan, Associate General Counsel, DCMA, at 11 n.4 (Feb. 11, 2005).10 In response, DCMA simply stated that it had redacted all of the sensitive proprietary information and concluded that disclosure of the remaining information was not likely to cause the contractors substantial competitive harm. We find DCMA’s response insufficient. The documents, even as redacted by DCMA, appear to reveal details about Sikorsky’s and Pratt’s proprietary manufacturing and quality control processes. At the least, they identify and locate particular parts and equipment and describe the timing and criteria of internal inspections.11 In other words, the documents describe,
Sikorsky and Pratt maintain that, while “the sensitivity of the information may not be obvious to laypersons,” the information “from the vantage point of experienced competitors in the business . . . provide[s] invaluable insights.” Appellants’ Br. 22. During oral argument the Court inquired about portions of the CARs and November 2004 audit report included in the Sealed Appendix (SA). [Sealed material redacted.] Both Sikorsky and Pratt argue that competitors, with their expertise and understanding of esoteric manufacturing processes, will be able to put together this
in part, how the contractors build and inspect helicopters and/or engines. Once disclosed, competitors could, it appears, use the information to improve their own manufacturing and quality control systems, thus making “affirmative use of proprietary information” against which Exemption 4 is meant to guard. We believe that DCMA failed to provide a reasoned basis for its conclusion to the contrary. To be sure, as it repeatedly stated, mere embarrassment or reputational harm is not sufficient to trigger Exemption 4. But where, as here, a contractor pinpoints by letter and affidavit technical information it believes that its competitors can use in their own operations, the agency must explain why substantial competitive harm is not likely to result if the information is disclosed. See, e.g., Occidental, 873 F.2d at 341-42. DCMA instead concluded, without more, that release of the documents will not cause Sikorsky or Pratt substantial competitive harm. A naked conclusion, however, is not enough. See McDonnell Douglas v. U.S. Dep’t of the Air Force, 375 F.3d at 1187 (“[W]e do not defer to the agency’s conclusory or unsupported suppositions.”); Occidental, 873 F.2d at 342 (requiring more than “conclusory statement” regarding substantial competitive harm). Accordingly, because DCMA’s conclusionary statement is “unreviewable,” id., we must remand for it to “examine the relevant data and articulate a satisfactory explanation for its action,” if it can, “including a ‘rational connection between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43 (quoting Burlington, 371 U.S. at 168).
otherwise confidential information and use it to gain a competitive advantage.
B. Impairment Sikorsky and Pratt also argue that disclosure of the documents would “likely . . . impair the Government’s ability to obtain necessary information in the future” and thus run afoul of the impairment prong of National Parks, 498 F.2d at 770; see Critical Mass, 975 F.2d at 878. Precedent suggests that it may be inappropriate to apply this prong in a reverse-FOIA case. See McDonnell Douglas Corp. v. NASA, 180 F.3d 303, 307 n.2 (D.C. Cir. 1999) (declining to reach issue but noting “one circuit has held that a submitter cannot even raise the government’s interests on behalf of the agency in a reverse FOIA case”) (citing Hercules, Inc. v. Marsh, 839 F.2d 1027, 1030 (4th Cir. 1988)); see also McDonnell Douglas Corp. v. U.S. Dep’t of the Air Force, 215 F. Supp. 2d 200, 206 (D.D.C. 2002) (“The managerial decision about how to best protect the government’s interests in gathering information simply does not lend itself easily to judicial review.” (citing Gen. Elec. Co. v. U.S. Nuclear Regulatory Comm’n, 750 F.2d 1394, 1402 (7th Cir. 1984))), rev’d on other grounds, 375 F.3d 1182 (D.C. Cir. 2004); Comdisco, Inc. v. Gen. Servs. Admin., 864 F. Supp. 510, 516 (E.D. Va. 1994) (when agency favors release, “it would be nonsense to block disclosure under the purported rationale of protecting government interests”). Because we remand on the issue of substantial competitive harm, we need not resolve this issue, see Critical Mass, 975 F.2d at 878, 880 (likelihood of either substantial competitive harm or impairment precludes disclosure); Nat’l Parks, 498 F.2d at 770 (same), assuming the impairment prong’s applicability. For the foregoing reasons, we reverse the district court’s grant of summary judgment and remand to the district court with instructions to remand to DoD for further proceedings consistent with this opinion. So ordered. |
United States Court of Appeals for the Federal Circuit 2009-5036
ATK THIOKOL, INC. (now known as ATK Launch Systems Inc.),
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant.
Thomas A. Lemmer, McKenna Long & Aldridge LLP, of Denver, Colorado, argued for plaintiff-appellee. With him on the brief was Phillip R. Seckman.
Robert E. Chandler, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Donald E. Kinner, Assistant Director. Of counsel on the brief was Douglas R. Jacobson, Defense Contract Management Agency, Contract Disputes Center, of Ft. Snelling, Minnesota. Of counsel was James W. Porier, Trial Attorney, of Washington, DC.
Stephen D. Knight, Smith Pachter McWhorter P.L.C., of Vienna, Virginia, for amicus curiae Committee on Government Business of Financial Executives International.
David A. Churchill, Jenner & Block LLP, of Washington, DC, for amicus curiae National Defense Industrial Association. Of counsel on the brief were Kevin C. Dwyer, Jessie K. Liu, and Michael A. Hoffman.
Appealed from: United States Court of Federal Claims
Judge Susan G. Braden United States Court of Appeals for the Federal Circuit
2009-5036
ATK THIOKOL, INC. (now known as ATK Launch Systems Inc.),
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant.
Appeal from the United States Court of Federal Claims in 99-CV-440, Judge Susan G. Braden.
__________________________
DECIDED: March 19, 2010 ___________________________
Before BRYSON, ARCHER, and MOORE, Circuit Judges.
BRYSON, Circuit Judge.
I
ATK Thiokol, Inc., manufactures rocket motors for government and commercial
buyers. One of its products is the Castor family of solid rocket motors, which are “strap-
on” motors designed to attach to a launch vehicle and provide additional thrust. In the
1990s, ATK began developing the Castor IVA-XL rocket. In 1995, ATK announced that
it was closing the Huntsville, Alabama, plant where it had previously built the Castor
IVA-XL motor. At that time, ATK analyzed each of the products made by the Huntsville
plant as part of a corporate restructuring effort. ATK determined that there was a market for the Castor IVA-XL motor and that the motor would be more competitive if it
were upgraded. Specifically, ATK decided to make technical changes to the motor’s
design and test fire the motor. The parties refer to those steps as the “Development
Effort.” ATK moved production of the Castor IVA-XL motor to its Utah facility in 1995.
From 1995 through 1999, ATK marketed the upgraded motor to various potential
customers, including McDonnell Douglas, Lockheed Martin, and the U.S. Air Force.
In February 1996, the Japanese company Mitsubishi Heavy Industries expressed
interest in purchasing modified Castor IVA-XL motors for Japanese government launch
vehicles. While Mitsubishi was willing to pay for adapting and attaching the motors to
the launch vehicles, it refused to pay for the more general, nonrecurring work
associated with upgrading the Castor IVA-XL motor, in particular the Development
Effort. On June 8, 1997, Mitsubishi executed a Statement of Work with ATK. The
Statement of Work required ATK to deliver the motor that ATK was updating “to support
the general requirements of the strap-on market.” ATK began the Development Effort in
July 1997. In October 1998 ATK and Mitsubishi executed a final contract for the
purchase. The contract provided for a lump-sum payment for each upgraded motor and
a price for modifying each motor to fit to the Japanese launch vehicles. There was no
provision for payment of the Development Effort costs.
ATK accounted for the Development Effort costs as indirect independent
research and development (“IR&D”) costs and disclosed them as such in a proposed
advance agreement submitted in 1997 to a U.S. Defense Department Divisional
Administrative Contracting Officer (“DACO”). The effect of including particular charges
as indirect IR&D costs is that the charges are allocated to all of the contractor’s
2009-5036 2 contracts for the year, including government contracts. ATK’s consistent and disclosed
accounting practice was to treat research and development costs as indirect costs
unless (1) the particular contract in question specifically required that ATK incur the
cost; (2) the contract paid for the cost; or (3) the cost had no reasonably foreseeable
benefit to more than one cost objective. From 1990 through 1997, the Defense
Department had periodically reviewed that accounting practice and found it to be in
accordance with the accounting regulations applicable to government contractors.
In March 1999, however, the DACO issued a notice of intent to disallow the cost
of the Development Effort for the upgraded Castor IVA-XL motor by removing that cost
from the category of indirect IR&D. The DACO noted that the definition of IR&D in the
Federal Acquisition Regulation (“FAR”) excludes efforts “required in the performance of
a contract.” The DACO reasoned that, because the upgrade cost was necessary to the
performance of the Mitsubishi contract, the Development Effort did not qualify as IR&D
and that it had to be charged, if at all, directly to the Mitsubishi contract.
ATK filed an action in the Court of Federal Claims, arguing that the DACO’s
refusal to treat the Development Effort costs as indirect IR&D was improper. The court
found that ATK and Mitsubishi did not intend to include the Development Effort costs
among the costs paid for under the contract, that the commercial market for the
upgraded Castor motor appeared viable, that the allocation of the Development Effort
costs to indirect IR&D was in accordance with ATK’s disclosed accounting practices,
and that the government had not contended that the Development Effort costs were
unreasonable. ATK Thiokol, Inc. v. United States, 68 Fed. Cl. 612, 640-41 (2005).
Based on those findings, and after reviewing the pertinent FAR provisions, the
2009-5036 3 corresponding sections of the Cost Accounting Standards (“CAS”), and the regulatory
history of those provisions, the court held that the Development Effort costs were
chargeable as indirect IR&D. Id. at 641. The government appeals from that decision.
II
Whether particular research and development costs qualify as indirect IR&D for
purposes of government contract accounting is determined by several interrelated
regulations. First, section 402 of the Cost Accounting Standards, 48 C.F.R. § 9904.402
(“CAS 402”), defines direct and indirect costs. A “direct cost” is “any cost which is
identified specifically with a particular final cost objective”; an “indirect cost” is “any cost
not directly identified with a single final cost objective, but identified with two or more
final cost objectives, or at least one intermediate cost objective.” CAS 402-30(a)(3), (4).
CAS 402 gives the contractor considerable freedom in the classification of particular
costs, so long as the contractor maintains consistency in making that determination.
See CAS 402-20; see also Boeing Co. v. United States, 862 F.2d 290, 292-93 (Fed. Cir.
1988).
Second, two parallel regulations determine whether certain costs qualify as
IR&D. A provision of the Federal Acquisition Regulation, 48 C.F.R. § 31.205-18 (“FAR
31.205-18”), determines whether particular costs are allowable IR&D charges. A
provision of the Cost Accounting Standards, 48 C.F.R. § 9904.420 (“CAS 420”),
determines whether those costs are allocable to the particular contract in question.
Both the FAR and the CAS define IR&D as excluding costs that are “required in the
performance of a contract.” FAR 31.205-18(a); CAS 420-30(a)(6).
2009-5036 4 In light of the language and interpretation of CAS 402, it was appropriate for ATK
to treat the Development Effort costs at issue in this case as indirect costs. First, those
costs were not specifically required by the Mitsubishi contract. Second, as the trial court
found, ATK had a disclosed and established cost accounting practice of charging as
indirect costs those costs that were not paid for or required by a particular contract and
that had a reasonably foreseeable benefit to more than one contract.
While we conclude that it was proper for ATK to treat its Development Effort
costs as indirect, that does not end the inquiry, because the distinction between IR&D
and other research and development costs does not invariably track the distinction
between direct and indirect costs. For example, depending on a contractor’s disclosed
or established cost accounting practices, the contractor may treat some research and
development costs as indirect costs because they benefit an entire product line, even if
they are expressly required by a particular contract and thus would not qualify as IR&D.
See 1 Karen L. Manos, Government Contract Costs & Pricing § 25:6, at 396 (2009).
As the trial court’s analysis makes clear, however, the costs at issue in this case
qualify as IR&D costs. The dispute over that issue focuses principally on the meaning
of the phrase “required in the performance of a contract” in the definition of IR&D. The
scope of that phrase has been a subject of controversy in the government contracts
community since 1971, when it first appeared as part of the definition of IR&D in the
Armed Services Procurement Regulation (“ASPR”), a predecessor to the FAR. 1 The
government interprets the phrase to mean that IR&D costs do not include the costs of
In 1978, the ASPR was redesignated as the Defense Acquisition Regulation (“DAR”). The DAR definition of IR&D costs was essentially the same. The FAR replaced the DAR in 1984 without any change to the definition of IR&D.
2009-5036 5 efforts that are either explicitly or implicitly required in order to complete a contract.
Under that interpretation, the Development Effort costs would be deemed to be
“required in the performance of” the Mitsubishi contract because that contract could not
have been performed if ATK had not conducted the background research and
development work to upgrade the Castor IVA-XL motor. ATK, by contrast, interprets the
phrase to be limited to costs that are explicitly required by the contract. Under that
interpretation, the Development Effort costs would not be deemed “required in the
performance of” the Mitsubishi contract because there was no explicit requirement in
the contract that obligated ATK to undertake the Development Effort or provided for
payment of the Development Effort costs.
The government argues that the phrase that excludes costs from the category of
IR&D must be construed broadly because it does not simply exclude costs “required by
a contract,” but uses broader language, excluding costs “required in the performance of
a contract.” Thus, the government contends that the words “in the performance of a
contract” indicate that the focus is on whether the research and development work was
necessary to perform the contract, not whether the work was expressly required by the
contract. The government relies heavily on the district court decision in United States v.
Newport News Shipbuilding, Inc., 276 F. Supp. 2d 539 (E.D. Va. 2003), which adopted
that interpretation. ATK, on the other hand, contends that the term “required” must refer
to a requirement of the contract. According to ATK, if the drafters of the regulation had
intended to include research and development costs that were needed but not expressly
included as a contract requirement, they would have used a word such as “necessary”
rather than the word “required.”
2009-5036 6 We do not find either textual argument particularly persuasive. Standing alone,
the language of the regulation is ambiguous. See United States ex rel. Mayman v.
Martin Marietta Corp., 894 F. Supp. 218, 222 (D. Md. 1995) (noting the “considerable
debate” over whether “a contractor can bill to IR&D any work not explicitly called for in
the contract” or whether the contractor may not bill to IR&D anything “implicitly
necessary to carry it out”); John W. Chierichella, IR&D vs. Contract Effort, in 90-2 Gov’t
Contract Costs, Pricing & Accounting Report 8 (Feb. 1990) (noting “sustained intra-
Governmental debate and confusion” over whether research and development effort not
specified or directly funded by a contract may be disallowed as IR&D because it is
deemed “implicitly” necessary).
Both parties invoke the regulatory history for support. Like the text, however, the
regulatory history is inconclusive. 2 Prior to the 1971 amendment that added the
disputed language, the applicable regulation defined IR&D as “research and
development which is not sponsored by a contract, grant, or other arrangement.” The
“ASPR committee,” which was responsible for adopting changes to the ASPR,
suggested changing the definition to cover “technical effort which is not sponsored by,
or in support of a contract, grant, or other arrangement.” Representatives of the
defense and space industries objected that the words “in support of” were too broad and
would be a potential “source for future misinterpretation.” The ASPR committee
acknowledged that the point was “a valid objection” and altered the language by
inserting “required in performance of” in place of the phrase “in support of.” The
The trial court’s opinion contains a thorough and well-documented review of the regulatory history. 68 Fed. Cl. at 635-39. We have merely summarized the pertinent points here.
2009-5036 7 committee explained that the purpose of the change was “to convey the concept that
any work which must be accomplished in order to fulfill contractual requirements is a
contract cost. Other similar type effort may be and should be expected to be
performed” as IR&D. The industry representatives then suggested further clarifying the
definition by adding the words “specifically required by contract provisions” before the
words “in performance of a contract.” The ASPR committee, however, rejected that
suggestion. The Comptroller General subsequently suggested that the exclusion from
the definition of IR&D was too narrow and that the exclusion should be amended to
include “technical effort implicitly required to fulfill a purchaser’s requirement under
terms of a contract.” A Department of Defense representative, however, took a position
contrary to that of the Comptroller General, urging that the exclusion from IR&D should
be understood to turn on “whether the effort was specified as a deliverable requirement
of an existing contract.” The ASPR committee declined to make any further change in
the pertinent regulatory language.
This sequence of events is not particularly instructive as to the meaning of the
regulatory definition. Although the ASPR committee declined the industry’s suggestion
to limit the exclusion from IR&D to costs “specifically required” by the contract, it also
declined the Comptroller General’s suggestion to broaden the exclusion to include costs
“implicitly required” by the contract. When the Board responsible for the Cost
Accounting Standards (“the CAS Board”) promulgated CAS 420 in 1979, it incorporated
in its definition of IR&D the same language that was used in the FAR—“required in the
performance of a contract.” The CAS Board did not offer any explanation as to the
2009-5036 8 intended meaning of that phrase, and there has been no change in the pertinent
regulatory language since then. The regulatory history is thus inconclusive.
While we find the regulatory language and history to be of little help in discerning
the meaning of the phrase “required in the performance of a contract,” we agree with
the trial court and ATK that the meaning of that phrase in the definition of IR&D must be
the same as the meaning of the identical phrase in the definition of bid and proposal
(“B&P”) costs. B&P costs are defined to mean costs incurred in preparing, submitting,
and supporting bids and proposals, but not to include the costs of effort “required in the
performance of a contract.” FAR 31.205-18(a); CAS 420-30(a)(2). B&P costs are
addressed in the same regulations that govern IR&D costs and are treated similarly to
IR&D costs in all pertinent respects. See generally FAR 31.205-18; CAS 420-30. B&P
costs “benefit all business of a contractor rather than a specific existing contract [and
thus] treating all such costs as indirect overhead is logical.” Boeing, 862 F.2d at 293.
A provision of CAS 402, referred to as Interpretation No. 1, supplies important
guidance as to when proposal costs constitute B&P and when they are chargeable
against a single contract. It provides, in pertinent part:
[C]osts incurred in preparing, submitting, and supporting proposals pursuant to a specific requirement of an existing contract are considered to have been incurred in different circumstances from the circumstances under which costs are incurred in preparing proposals which do not result from such specific requirements. The circumstances are different because the costs of preparing proposals specifically required by the provisions of an existing contract relate only to that contract while other proposal costs relate to all work of the contractor.
CAS 402-61(c), 48 C.F.R. § 9904.402-61(c). Interpretation No. 1 distinguishes proposal
costs that are “specifically required by” an existing contract from those that “do not
result from such specific requirements.” The former costs “relate only to [a particular]
2009-5036 9 contract,” while the latter costs “relate to all work of the contractor” and thus qualify as
B&P. The effect of Interpretation No. 1 is to equate the B&P definitional exclusion of
proposal costs that are “required in the performance of a contract” with the category of
costs that are “specifically required by the provisions of a contract.”
In Boeing, this court held, based in part on Interpretation No. 1, that proposal
costs that are not specifically required by a contract are “properly allocated as indirect
B&P costs.” 862 F.2d at 293. As part of its analysis, the court noted that proposal costs
that are “specifically required by an existing contract are incurred in circumstances
different from proposal costs relative to all work of the contractor.” Id. The court ruled
that it would be legal error to require like accounting for B&P costs that are “relate[d] to”
or “caused or generated by” a contract, and those proposal costs that are “specifically
required” by a contract. Id. at 292-93.
The same analysis applies to the closely analogous category of IR&D costs.
Although Interpretation No. 1 does not by its terms address IR&D, the government’s
suggestion that the approach employed in Interpretation No. 1 should be limited to B&P
costs, and that IR&D costs should be treated differently, would result in a construction in
which identical regulatory language—“required in the performance of a contract”—would
be interpreted differently for IR&D than for B&P. There is no support anywhere in the
text or history of the regulations for treating that identical regulatory formulation
differently. We therefore construe the reference to costs “required in the performance of
a contract” to mean, in both contexts, costs that are specifically required by the contract.
The government argues that we should be skeptical of accepting such a result
because it is contrary to sound procurement policy. In particular, the government
2009-5036 10 argues that allowing a government contractor to charge to an indirect IR&D account
those research costs that are necessary to complete a commercial contract but not paid
for in that contract will invite a contractor to “game the system” by shifting commercial
contract costs to the government.
We are not persuaded by the government’s policy argument. First, the purpose
of IR&D is to benefit both government contractors and their customer agencies by
encouraging the contractors to engage in research that is likely to benefit multiple
contracts, both governmental and commercial. Spreading IR&D costs across multiple
contracts encourages general research that enables the contractor to innovate, to
maintain a high level of technological sophistication, and ultimately to improve the
products it offers the government. As the Department of Defense has explained,
providing financial support for IR&D serves several Departmental goals, including
creating “an environment that encourages DoD contractors to expand knowledge in
mathematics and science, improve technology in areas of interest to the Department of
Defense, and enrich and broaden the spectrum of technology available to the
Department of Defense.” Dep’t of Def. Directive No. 3204.1, at 3 (May 10, 1999).
Second, the result of requiring IR&D costs to be borne by a contract for which the
research and development work in question is deemed necessary could have the
perverse effect of charging all of the research and development costs for a proposed
product line against the first contract for the products in that line, whether the contract is
governmental or commercial. That approach would either disproportionately burden the
contract that happened to be first in line or ensure that the first contract would be a
losing one. For research that, by hypothesis, benefits multiple potential contracts, both
2009-5036 11 commercial and governmental, allocating general research and development costs in
that manner is not sensible as a policy matter.
Accordingly, the government’s policy arguments do not persuade us that the
phrase “required in the performance of a contract” in the definition of IR&D costs should
not be accorded the same meaning as the identical phrase in the definition of B&P
costs. Because the research and development costs at issue in this case were related
to the Mitsubishi contract but were not specifically required by that contract, we uphold
the trial court’s decision that those costs were indirect IR&D costs within the meaning of
the pertinent regulatory provisions.
AFFIRMED.
2009-5036 12 |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT
ANTONE L. KNOX,
Plaintiff - Appellant, No. 09-7082 v. (E.D. Oklahoma) CRYSTA PINK-ROBERTS; DEBBIE (D.C. No. 6:08-CV-00195-RAW-SPS) ALDRIDGE, NEAMYRA RIDDLE; AMY THOMAS; KEITH SHERWOOD; DARREL WILSON; KRISTI MUNHOLLAND; JESSICA SMITH; RON PARKER; MARTY SIRMON; LINDA MORGAN; KEVIN WARD; JUSTIN JONES; BOBBY BOONE; DENNIS COTNER; CHESTER MASON; JUDY BREWSTER; DOYLE STEWART; DR. MILLER; DAVID ORMAN,
Defendants - Appellees.
ORDER AND JUDGMENT *
Before MURPHY, GORSUCH, and HOLMES, Circuit Judges.
* This order and judgment is not binding precedent except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination
of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Antone L. Knox appeals an order of the district court dismissing his
42 U.S.C. § 1983 claim for failure to exhaust, denying his request for a temporary
restraining order and preliminary injunction, and denying his motion to amend.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court affirms.
In what the district court appropriately described as “an extremely long and
rambling complaint,” Knox asserted multiple claims against numerous staff
members of the Oklahoma State Prison in McAlester, Oklahoma. The district
court concluded that because the record conclusively established Knox had failed
to properly exhaust his administrative remedies, the defendants were entitled to
dismissal pursuant to 42 U.S.C. § 1997e(a). Upon de novo review, this court
affirms the district court’s order of dismissal for substantially those grounds set
out in the district court’s order dated September 1, 2009. Jernigan v. Stuchell,
304 F.3d 1030, 1032 (10th Cir. 2002) (holding that dismissals pursuant to
§ 1997e(a) are reviewed de novo). Furthermore, in light of the conclusory nature
of Knox’s rambling complaint, the district court was well within its discretion to
deny injunctive relief. Blango v. Thornburgh, 942 F.2d 1487, 1493 (10th Cir.
1991). Likewise, because Knox’s motion to file an amended complaint utterly
failed to demonstrate how the proposed amendments related back to the original
complaint and failed to make any showing the proposed amendments would not
be subject to dismissal for failure to exhaust, the district court properly denied
Knox’s motion to amend. Peterson v. Grisham, 594 F.3d 723, 731 (10th Cir.
2010) (“Although we review a district court’s decision to deny a motion to amend
. . . for abuse of discretion, when the denial is based on a determination that
amendment would be futile, our review for abuse of discretion includes de novo
review of the legal basis for the finding of futility.” (quotation omitted)).
The order of the district court is hereby AFFIRMED. Knox’s motion titled
“Notice of Emergency Official Complaint Against Chief Circuit Judge Robert H.
Henry,” which this court construes as a motion seeking recusal of Chief Judge
Henry, is DENIED AS MOOT given that Chief Judge Henry is not a member of
the panel randomly assigned to dispose of this appeal. All other pending motions
are DENIED.
ENTERED FOR THE COURT
Michael R. Murphy Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT
AUBREY JONES,
Plaintiff - Appellant, No. 09-6228 v. (W.D. Oklahoma) FERGUSON PONTIAC BUICK GMC, (D.C. No. 5:07-CV-00834-HE) INC.; BOBBY HARE, Individually,
Defendants - Appellees.
ORDER AND JUDGMENT *
Before MURPHY, GORSUCH, and HOLMES, Circuit Judges.
After examining the briefs and appellate record, this court has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
* This order and judgment is not binding precedent except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. Aubrey Jones, appearing pro se, appeals the district court’s denial of his
Federal Rule of Civil Procedure 60(b) request for relief from judgment.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court affirms.
After Jones reached a settlement in his employment discrimination case, the
district court dismissed the matter with prejudice on November 27, 2008.
Approximately eleven months later, on September 21, 2009, Jones moved to
reopen the case so he could pursue a claim pursuant to the Lilly Ledbetter Fair
Pay Act of 2009, Pub. L. No. 111-2, 123 Stat. 5 (2009). Noting that the only
provision of Federal Rule of Civil Procedure 60(b) potentially applicable was
Rule 60(b)(6), 1 the district court denied relief on the basis that a simple change in
the law was not grounds for relief in this particular case. See Collins v. City of
Wichita, 254 F.2d 837, 839 (10th Cir. 1958) (holding that in the usual case “[a]
Jones’s assertion on appeal that he is entitled to relief under Rule 60(b)(3) is utterly frivolous.
Rule 60(b)(3) allows a court to relieve a party from a final judgment based on “fraud . . . , misrepresentation, or other misconduct of an adverse party.” Regardless of the specific form of the allegation, the party relying on Rule 60(b)(3) must, by adequate proof, clearly substantiate the claim of fraud, misconduct or misrepresentation. In other words, they must show clear and convincing proof of fraud, misrepresentation, or misconduct. Moreover, the challenged behavior must substantially have interfered with the aggrieved party’s ability fully and fairly to prepare for and proceed at trial.
Zurich N. Am. v. Matrix Serv., Inc., 426 F.3d 1281, 1290 (10th Cir. 2005). The filings attached to Jones’s motion to reopen do not come anywhere close to satisfying this heavy burden.
change in the law . . . is not such an extraordinary circumstance which justifies”
relief under Rule 60(b)).
This court reviews the district court’s denial of a Rule 60(b) motion for
abuse of discretion, keeping in mind that Rule 60(b) is extraordinary relief that
may only be granted in exceptional circumstances. Beugler v. Burlington N. &
Santa Fe Ry. Co., 490 F.3d 1224, 1229 (10th Cir. 2007). “Parties seeking relief
under Rule 60(b) have a higher hurdle to overcome because such a motion is not a
substitute for an appeal.” Cummings v. Gen. Motors Corp., 365 F.3d 944, 955
(10th Cir. 2004). “Rule 60(b)(6) relief is . . . difficult to attain and is appropriate
only when it offends justice to deny such relief. The denial of a 60(b)(6) motion
will be reversed only if we find a complete absence of a reasonable basis and are
certain that the decision is wrong.” Zurich N. Am. v. Matrix Serv., Inc., 426 F.3d
1281, 1293 (10th Cir. 2005) (citation and quotations omitted).
With the appropriate standard in mind, this court has reviewed the parties’
appellate filings, the district court’s order denying relief from judgment, and the
entire record on appeal. For those reasons discussed by the district court, the
interests of justice do not favor granting Jones relief from judgment.
Accordingly, the order of the district court denying Jones’s request for relief from
judgment is hereby AFFIRMED.
ENTERED FOR THE COURT
Michael R. Murphy Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 09-5137 v. (N.D. Oklahoma) MARK EDWARD BROWN, (D.C. No. 4:08-CV-00633-CVE-PJC)
Defendant - Appellant.
ORDER AND JUDGMENT *
Before MURPHY, GORSUCH, and HOLMES, Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination
of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Proceeding pro se, Mark Edward Brown seeks to appeal the district court’s
denial of his 28 U.S.C. § 2255 motion to vacate, set aside, or correct his sentence.
The matter is before this court on Brown’s request for a certificate of
* This order and judgment is not binding precedent except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. appealability (“COA”). 28 U.S.C. § 2253(c)(1)(B) (providing no appeal may be
taken from a “final order in a proceeding under section 2255” unless the movant
first obtains a COA). We grant Brown’s application in part, deny it in part, and
affirm the district court’s denial of habeas relief with respect to the one claim on
which we grant COA.
A federal jury found Brown guilty of attempted robbery, and aiding and
abetting; brandishing a firearm during a crime of violence, and aiding and
abetting; and being a felon in possession of a firearm. After entry of judgment,
Brown’s counsel filed an appellate brief pursuant to Anders v. California, 386
U.S. 738 (1967). Brown filed a response to the Anders brief. This court denied
relief on all the Anders issues and the additional issues raised by Brown in his
response. United States v. Brown, 255 F. App’x 292, 295-96 (10th Cir. 2007).
Brown filed the instant § 2255 motion on October 23, 2008, raising three
claims: (1) ineffective assistance of trial counsel, (2) ineffective assistance of
appellate counsel, and (2) the failure of this court to properly address his request
for substitution of counsel. The district court first addressed Brown’s thirteen
individual claims of ineffective assistance of trial counsel. Applying the two-part
test set out in Strickland v. Washington, 466 U.S. 668, 688-89 (1984), the court
concluded Brown was not entitled to relief on any claim because he was either
unable to demonstrate his trial counsel’s performance was deficient or failed to
show he suffered any prejudice from the alleged deficient performance. The court
next addressed Brown’s ineffective assistance of appellate counsel claim. The
court concluded Brown was not entitled to habeas relief on this claim because the
issues Brown’s counsel failed to include in his Anders brief were raised in
Brown’s response and dismissed by this court as frivolous. See United States v.
Cook, 45 F.3d 388, 392 (10th Cir. 1995) (“If the omitted issue is without merit,
counsel’s failure to raise it ‘does not constitute constitutionally ineffective
assistance of counsel.’”). Finally, the district court concluded Brown was not
entitled to habeas relief on his claim that this court failed to appoint substitute
appellate counsel.
Brown seeks a COA on five of the issues addressed by the district court: (1)
trial counsel was ineffective for failing to challenge the submission of the
brandishing charge to the jury, (2) trial counsel failed to provide him with access
to discovery materials, (3) trial counsel failed to request an instruction on
identification, (4) appellate counsel was ineffective for failing to raise numerous
issues on appeal, and (5) trial counsel was ineffective for failing to file a motion
to recuse the trial judge. To be entitled to a COA, Brown must make “a
substantial showing of the denial of a constitutional right.” 28 U.S.C.
§ 2253(c)(2). To make the requisite showing, he must demonstrate “that
reasonable jurists could debate whether (or, for that matter, agree that) the
petition should have been resolved in a different manner or that the issues
presented were adequate to deserve encouragement to proceed further.” Miller-El
v. Cockrell, 537 U.S. 322, 336 (2003) (quotations omitted). In evaluating whether
Brown has satisfied his burden, this court undertakes “a preliminary, though not
definitive, consideration of the [legal] framework” applicable to each of his
claims. Id. at 338. Although Brown need not demonstrate his appeal will succeed
to be entitled to a COA, he must “prove something more than the absence of
frivolity or the existence of mere good faith.” Id.
Having undertaken a review of Brown’s application for a COA and
appellate filings, the district court’s order, and the entire record on appeal
pursuant to the framework set out by the Supreme Court in Miller-El, this court
concludes Brown is entitled to a COA on his fifth claim. The district court
concluded Brown was not entitled to habeas relief on that claim because he never
previously appeared before Judge Cook. Brown, however, has attached a
judgment showing he appeared before Judge Cook in 1991, and was acquitted of
conspiracy, bank robbery, and carrying a firearm during the commission of a
crime of violence. 1 To prevail on this ineffective assistance claim, Brown must
show both that his attorney’s representation was deficient and the substandard
performance prejudiced him. Strickland, 466 U.S. at 687. Brown, however, has
wholly failed to show how he was prejudiced by counsel’s failure to seek a
recusal. His claim, therefore, fails on the merits and we affirm the district
It appears the Government responded to Brown’s claim by providing the district court with a copy of a judgment in a criminal matter involving a different Mark Edward Brown.
court’s dismissal of it. See id. at 697 (holding a court may resolve an ineffective
assistance of counsel claim on either the performance or the prejudice prong).
The district court’s resolution of Brown’s remaining claims is not reasonably
subject to debate and the issues he seeks to raise on appeal relating to those
claims are not adequate to deserve further proceedings. Thus, we deny COA on
those claims.
Brown’s application for a COA is granted in part and denied in part. As
to the issue on which COA is granted, the district court’s denial of relief is
affirmed. As to the remaining issues, COA is denied and Brown’s appeal is
dismissed.
ENTERED FOR THE COURT
Michael R. Murphy Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court FOR THE TENTH CIRCUIT
TATIANA GROTENDORST,
Plaintiff-Appellant, No. 09-2132 v. (D.C. No. 1:08-CV-00628-CG) (D. N.M.) MICHAEL J. ASTRUE, Commissioner of the Social Security Administration,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before GORSUCH and ANDERSON, Circuit Judges, and BRORBY, Senior Circuit Judge.
Plaintiff-appellant Tatiana Grotendorst appeals from an order of the district
court affirming the Commissioner’s decision denying her application for Social
Security disability benefits. She claims the ALJ failed to properly analyze her
mental impairments, to properly consider the credibility of her claim of disabling
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. back pain, and to properly develop the record with regard to that claim. We agree
the ALJ failed to properly apply the law when considering Ms. Grotendorst’s
mental impairments. Therefore, exercising our jurisdiction under 28 U.S.C.
§ 1291 and 42 U.S.C. § 405(g), we reverse and remand to the district court with
directions to remand to the ALJ for further proceedings consistent with this order
and judgment.
Appellant filed for disability benefits on June 1, 2005, claiming a
combination of impairments, the main one being loss of function in her left hand
from a laceration to her left wrist on November 11, 2003. She also claimed
reduced function due to heel spurs, scoliosis, degenerative spine disease, asthma,
and the mental impairments of anxiety, depression, and a pain disorder. The
agency denied her applications initially and on reconsideration.
On March 6, 2007, appellant received a de novo hearing before an
administrative law judge (ALJ). The Commissioner follows a five-step sequential
evaluation process to determine whether a claimant is disabled. See Williams v.
Bowen, 844 F.2d 748, 750-52 (10th Cir. 1988).
Step one requires the agency to determine whether a claimant is presently engaged in substantial gainful activity. If not, the agency proceeds to consider, at step two, whether a claimant has a medically severe impairment or impairments. An impairment is severe under the applicable regulations if it significantly limits a claimant’s physical or mental ability to perform basic work activities. At step three, the ALJ considers whether a claimant’s medically severe impairments are equivalent to a condition listed in the appendix of the relevant disability regulation. If a claimant’s impairments are not
equivalent to a listed impairment, the ALJ must consider, at step four, whether a claimant’s impairments prevent her from performing her past relevant work. Even if a claimant is so impaired, the agency considers, at step five, whether she possesses the sufficient residual functional capability to perform other work in the national economy.
Wall v. Astrue, 561 F.3d 1048, 1052 (10th Cir. 2009) (quotations and citations
omitted). The claimant bears the burden of establishing a prima facie case of
disability at steps one through four. See Williams, 844 F.2d at 751 n.2. If the
claimant successfully meets this burden, the burden of proof then shifts to the
Commissioner at step five. See id. at 751.
The ALJ concluded that Ms. Grotendorst had the following severe
impairments at step two of the sequential evaluation: “right hip pain secondary to
broken pelvis in 1986 and left wrist pain.” Aplt. App., Vol. I at 15. Because, at
step three, the ALJ concluded that these impairments did not meet or equal one of
the listed impairments, and she then considered Ms. Grotendorst’s residual
functional capacity (RFC), determining she retained the RFC
to lift and or carry 20 pounds occasionally and 10 pounds frequently with no lifting more than 5 pounds with the left upper extremity, stand and or walk about 4 hours in an 8-hour workday, sit about 4 to 6 hours in an 8-hour workday, occasionally crouch, crawl, and climb ladders or scaffolds, no repetitive fine manipulations with the left upper extremity, and no grasping forcefully or pushing and or pulling with the left upper extremity.
Aplt. App., Vol. I at 17. She found at step four that Ms. Grotendorst could not
return to her past relevant work, but, at step five, that Ms. Grotendorst was not
disabled because there were a significant number of other jobs which she could
perform in the national or regional economy. The Appeals Council denied review,
making the ALJ’s decision the Commissioner’s final decision. Following
affirmation by the district court, Ms. Grotendorst appealed to this court.
Our review of the district court’s ruling in a social security case is de novo. Thus, we independently determine whether the ALJ’s decision is free from legal error and supported by substantial evidence. Although we will not reweigh the evidence or retry the case, we meticulously examine the record as a whole, including anything that may undercut or detract from the ALJ’s findings in order to determine if the substantiality test has been met.
Wall, 561 F.3d at 1052 (quotations and citations omitted). Substantial evidence is
“such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.” Fowler v. Bowen, 876 F.2d 1451, 1453 (10th Cir. 1989)
(quotations omitted).
Ms. Grotendorst’s first two points concern her mental impairment claims.
She asserts that the evidence showed the severe mental impairments of
depression, anxiety, and a pain disorder. The ALJ explicitly concluded at step
two of the sequential evaluation that Ms. Grotendorst’s anxiety and depression
were non-severe impairments; did not address the pain disorder diagnosis; and did
not provide for any limitations from mental impairments in the RFC.
Ms. Grotendorst argues that this non-severity determination was error and that the
ALJ further erred by failing to include in the RFC and, specifically, in the
hypothetical questions presented to the vocational expert (VE), a limitation on her
ability to concentrate.
We have reviewed the record in detail. It is clear that Ms. Grotendorst was
diagnosed with mental impairments. Doctors from the Lovelace Sandia Health
System (Lovelace) diagnosed her with anxiety and an alcohol abuse disorder. An
agency examining psychiatrist later diagnosed her with major depression and a
somatic pain disorder. Further, Ms. Grotendorst subjectively claimed both at the
hearing before the ALJ and to other medical professionals that she had mental
impairments. She asserted that she had a history of being treated for anxiety,
depression, and alcoholism. She asserted that she abused alcohol when she
became anxious or lonely. She also testified at the hearing that she was being
treated at that time with an anti-depressant and her representative submitted the
name of the anti-depressant in his post-hearing brief to the ALJ.
The ALJ made two brief assessments regarding Ms. Grotendorst’s claimed
mental impairments. First, at step two of the sequential evaluation, the ALJ
concluded:
The claimant has further alleged that she has anxiety and depression. However, there is no objective medical evidence of record that the claimant has been treated for anxiety or depression at any time during the relevant period under consideration. The claimant reported in March 2005 that her first contact with a mental health professional was for alcohol abuse. There is evidence that the claimant has received some treatment from Lovelace Sandia Health System; however, this treatment was for alcohol abuse. Thus the undersigned concludes that the claimants anxiety and depression are non-severe impairments.
Aplt. App., Vol. I at 16 (citations omitted). The ALJ also concluded, in
determining Ms. Grotendorst’s RFC:
As for the opinion evidence, the undersigned rejects the opinion of the State agency medical consultant wherein it was opined that the claimant has severe mental impairments. There is no objective medical evidence of record that the claimant has a severe mental impairment for the reasons previously mentioned in the body of this decision.
Id. at 19. This analysis was legally insufficient.
When confronted with a claim of mental impairment, the ALJ is required
by regulation to apply a “special technique.” See 20 C.F.R. § 404.1520a. The
first step in that technique is to “evaluate [the claimant’s] pertinent symptoms,
signs, and laboratory findings to determine whether [the claimant has] a medically
determinable mental impairment(s).” Id. § 404.1520a(b)(1). “A physical or
mental impairment must be established by medical evidence consisting of signs,
symptoms, and laboratory findings, not only by [a claimant’s] statement of
symptoms.” Id. § 404.1508.
Here, it appears the ALJ determined that Ms. Grotendorst had the medically
determinable mental impairments of anxiety and depression, simply because the
ALJ proceeded to make severity findings as to those two impairments. 1 Under
§ 404.1520a(b)(2), once medically determinable mental impairments are found,
If this is an incorrect reading of the decision and the ALJ’s holding was that Ms. Grotendorst had no medically determinable mental impairments other than her alcohol addiction, that holding was erroneous considering the evidence in the record.
the ALJ must “rate the degree of functional limitation resulting from the
impairment(s).” The ALJ does this by rating the claimant’s limitations in
“four broad functional areas,” which are: “Activities of daily living; social
functioning; concentration, persistence, or pace; and episodes of
decompensation.” Id. § 404.1520a(c)(3). These ratings are then used to
determine the severity of the mental impairment(s). Under the regulations,
the [ALJ’s] written decision must incorporate the pertinent findings and conclusions based on the technique. The decision must show the significant history, including examination and laboratory findings, and the functional limitations that were considered in reaching a conclusion about the severity of the mental impairment(s). The decision must include a specific finding as to the degree of limitation in each of the [four broad] functional areas . . . .
Id. § 404.1520a(e)(2).
Here, the ALJ concluded that Ms. Grotendorst’s anxiety and depression
were not severe without first making the required findings regarding how limited
she was in each of the four broad functional areas. Instead, the ALJ held that
Ms. Grotendorst’s anxiety and depression were not severe because there was “no
objective medical evidence . . . that [she] ha[d] been treated for anxiety or
depression at any time during the relevant period under consideration.”
Aplt. App., Vol. I at 16.
First, this is a misstatement of the record. Dr. Levis from Lovelace
diagnosed Ms. Grotendorst with alcohol abuse disorder and anxiety disorder (not
otherwise specified) and the progress notes from two follow-up therapy sessions
reiterate that assessment. See id. at 282-83, 293. 2 Those therapy sessions were
“treatment.” In the “PLANS” section of those progress notes, one of the goals set
forth was to “Continue 1:1,” see id. at 282-83, which we take to mean that
Ms. Grotendorst was to continue one-on-one therapy sessions as part of her
treatment plan.
Second, the regulations set out exactly how an ALJ is to determine severity,
and consideration of the amount of treatment received by a claimant does not play
a role in that determination. This is because the lack of treatment for an
impairment does not necessarily mean that the impairment does not exist or
impose functional limitations. Further, attempting to require treatment as a
precondition for disability would clearly undermine the use of consultative
examinations. Thus, the ALJ failed to follow the regulations in reaching her
determination that Ms. Grotendorst’s mental limitations were not severe at step
two of the sequential evaluation.
Nevertheless, an error at step two of the sequential evaluation concerning
one impairment is usually harmless when the ALJ, as occurred here, finds another
impairment is severe and proceeds to the remaining steps of the evaluation. See
Carpenter v. Astrue, 537 F.3d 1264, 1266 (10th Cir. 2008) (“[A]ny error here
The Axis I diagnosis was numbers 305 and 300, which represent alcohol abuse disorder and anxiety disorder (not otherwise specified), respectively. See Am. Psychiatric Ass’n, Diagnostic and Statistical Manual of Mental Disorders DSM-IV-TR 214, 484 (4th ed. 2000).
became harmless when the ALJ reached the proper conclusion that [claimant]
could not be denied benefits conclusively at step two and proceeded to the next
step of the evaluation sequence.”); Oldham v. Astrue, 509 F.3d 1254, 1256-57
(10th Cir. 2007) (“We can easily dispose of . . . arguments[] which relate to the
severity of [claimant’s] impairments. The ALJ . . . made an explicit finding that
[claimant] suffered from severe impairments. That was all the ALJ was required
to do in that regard. [Claimant’s] real complaint is with how the ALJ ruled at
step five.”). This is because all medically determinable impairments, severe or
not, must be taken into account at those later steps. 3
Determining whether the ALJ’s error is harmless in this case brings us to
Ms. Grotendorst’s second point, which is that the ALJ failed to include a
moderate limitation to her ability to concentrate and maintain attention in her
RFC finding and in the hypothetical questions to the VE. Here, Dr. Mellon and
Dr. Chiang, both agency physicians, rated Ms. Grotendorst’s ability to maintain
Under 20 C.F.R. § 404.1523:
In determining whether your physical or mental impairment or impairments are of a sufficient medical severity that such impairment or impairments could be the basis of eligibility under the law, we will consider the combined effect of all of your impairments without regard to whether any such impairment, if considered separately, would be of sufficient severity. If we do find a medically severe combination of impairments, the combined impact of the impairments will be considered throughout the disability determination process.
See also 20 C.F.R. § 404.1545(a)(2) (requiring that all medically determinable impairments be considered when assessing RFC).
attention and concentration for extended periods as moderately limited by her
mental impairments. 4
An ALJ’s RFC determination–which the ALJ then uses at steps four and
five of the sequential evaluation–must consider both severe and non-severe
medically determinable impairments. See 20 C.F.R. § 404.1545(e). Further, the
hypothetical questions posed to the VE to assist with the step-five determination
must reflect with precision all–and only–the impairments and limitations borne
out by the evidentiary record. Decker v. Chater, 86 F.3d 953, 955 (10th Cir.
1996). Nevertheless, despite record evidence of limitations due to mental
impairments, the ALJ failed to either include those limitations in her RFC
determination and her hypothetical questions, or explain that failure. She failed
to even mention Dr. Mellon’s examination in her decision, and she rejected what
she termed Dr. Chiang’s “opinion . . . that the claimant has severe mental
impairments,” because there had been no prior treatment of depression or anxiety.
Aplt. App., Vol. I at 19. Instead, once the ALJ decided, without properly
applying the special technique, that Ms. Grotendorst’s mental impairments were
not severe, she gave those impairments no further consideration. This was
reversible error. We must therefore remand this matter so that the ALJ may
Dr. Mellon conducted a fifty-minute consultative examination on Ms. Grotendorst. Aplt. App., Vol. I at 209-13. Dr. Chiang, a non-examining consulting physician, filled out a Psychiatric Review Technique (PRT) form and a mental RFC assessment that essentially tracked Dr. Mellon’s findings. Id. at 214-31.
properly apply the special technique to determine Ms. Grotendorst’s medically
determinable mental impairments, their severity, and any functional limitations
they cause.
Although we are remanding the case for proper analysis of
Ms. Grotendorst’s mental impairments, we shall also briefly address
Ms. Grotendorst’s other issues. Her next two arguments claim the ALJ failed to
properly consider her lower back pain. She argues the ALJ failed to properly
analyze her pain complaints under Luna v. Bowen, 834 F.2d 161, 163 (10th Cir.
1987). “A claimant’s subjective allegation of pain is not sufficient in itself to
establish disability.” Thompson v. Sullivan, 987 F.2d 1482, 1488 (10th Cir.
1993). Instead, “[b]efore the ALJ need even consider any subjective evidence of
pain, the claimant must first prove by objective medical evidence the existence of
a pain-producing impairment that could reasonably be expected to produce the
alleged disabling pain.” Id. (citations omitted). Therefore, under Luna we must
consider (1) whether Ms. Grotendorst established a pain-producing impairment by
objective medical evidence; (2) if so, whether there is a “loose nexus” between
that impairment and her subjective allegations of pain; and (3) if so, whether,
considering all the evidence, both objective and subjective, Ms. Grotendorst’s
pain is in fact disabling. 834 F.2d at 163-64.
Here, the ALJ concluded: “After considering the evidence of record, the
undersigned finds that the claimant’s medically determinable impairments could
reasonably be expected to produce the alleged symptoms, but that the claimant’s
statements concerning the intensity, persistence and limiting effects of these
symptoms are not entirely credible.” Aplt. App., Vol. I at 19. Thus, the ALJ did
not believe Ms. Grotendorst’s allegations of disabling pain at step three of the
Luna analysis. See Thompson, 987 F.2d at 1489 (holding that at the third step of
the Luna analysis, “the ALJ was required to consider [the claimant’s] assertions
of severe pain and to decide whether he believed them” (quotation and brackets
omitted)). To determine the credibility of a claimant’s complaints of disabling
pain, the ALJ should consider such factors as:
the levels of medication and their effectiveness, the extensiveness of the attempts (medical or nonmedical) to obtain relief, the frequency of medical contacts, the nature of daily activities, subjective measures of credibility that are peculiarly within the judgment of the ALJ, the motivation of and relationship between the claimant and other witnesses, and the consistency or compatibility of nonmedical testimony with objective medical evidence.
Hargis v. Sullivan, 945 F.2d 1482, 1489 (10th Cir. 1991) (quotation omitted).
Ms. Grotendorst argues that the ALJ improperly focused solely on the nature of
her daily activities and that she mischaracterized those activities.
We disagree that the ALJ erred, for the simple reason that Ms. Grotendorst
did not testify to a disabling level of back pain at the hearing. Ms. Grotendorst
has limped due to a curvature of the spine for her entire life. She testified that
she also had arthritis in her hip due to suffering a broken pelvis in 1986 and that
she periodically has injections in her spine because she cannot sit for long. But
she testified that she had worked with these conditions, she just “[had] to be able
to move around.” Aplt. App., Vol. I at 313. 5 She testified that she could sit for
an hour-and-a-half to two hours before her lower back started hurting, stand for
the same amount of time, and walk a mile at a time. 6 Id. at 317-18. She was
asked “when you go to pick up something, what is the problem with lifting,” and
she answered, “[t]he clumsiness in my left hand.” Id. at 327. She testified that
she could carry groceries, except for the heavy ones from Costco. Id. The ALJ’s
treatment of Ms. Grotendorst’s claims of disabling back pain was brief because
those claims were insubstantial.
In her last point, Ms. Grotendorst argues that the ALJ erred by failing to
properly develop the record by obtaining the medical records of Dr. Pamela
Black, who treated her for her back pain.
In a social security disability case, the claimant bears the burden to prove her disability. To be sure, administrative disability hearings are nonadversarial and the ALJ has a duty to ensure that an adequate record is developed during the disability hearing consistent with the issues raised. Further, this duty pertains even if the claimant is represented by counsel.
Wall, 561 F.3d at 1062-63 (citations, quotations, and ellipsis omitted).
Ms. Grotendorst later explained that having to be able to “move around” when sitting meant that she had to be able to shift positions in her chair. Aplt. App., Vol. I at 327. Ms. Grotendorst specifically testified that she could walk the mile-long round-trip to her mailbox, and could probably walk farther if it were not for the altitude where she lived. Id. at 326.
As pointed out by respondent, Ms. Grotendorst was represented by a
non-attorney representative from Action Disability Representatives. Aplt. App.,
Vol. I at 299. While Ms. Grotendorst identified Dr. Black as one of her
physicians in her filings seeking a hearing before the ALJ, neither she nor her
representative made any objection at the hearing to the lack of records from
Dr. Black. Moreover, Ms. Grotendorst’s representative assured the ALJ at the
hearing that there were no further medical records outstanding. But there is a
more important reason why the ALJ did not err by not more fully developing the
record regarding Ms. Grotendorst’s back problems. Because Ms. Grotendorst did
not testify to any disabling symptoms from her back problems, there was no need
to develop the record more fully regarding those back problems.
Ms. Grotendorst also briefly argues that the district court erred in failing to
remand her case to the ALJ pursuant to sentence six of 42 U.S.C. § 405(g), so that
Dr. Black’s records could be considered. 7 She presented the records in question
to the district court and they show that she received injections for her back pain in
August and October of 2005 and, again, in August 2007. Dr. Black’s October 20,
2005, notes stated: “[Ms. Grotendorst] is here today as a follow up for her right
SI joint injection of 10/6/05. The patient has had an excellent response to the
Sentence six of 42 U.S.C. § 405(g) reads, in pertinent part: “The court may . . . at any time order additional evidence to be taken before the Commissioner of Social Security, but only upon a showing that there is new evidence which is material and that there is good cause for the failure to incorporate such evidence into the record in a prior proceeding . . . .”
injection. She is pain free not only in her SI joint, but in her back as well. She is
still not having any pain in her coccyx as well.” Id., Vol. II at 63. In her
assessment, Dr. Black stated: “[t]he patient is now pain free.” Id. The notes
from August 2007–five months after the ALJ’s hearing–stated that
Ms. Grotendorst “reported 80% pain reduction following the [injection].”
Thus, the district court committed no error because the records do not support a
claim of disabling pain and were, therefore, not material. See Cagle v. Califano,
638 F.2d 219, 221 (10th Cir. 1981) (holding that evidence is material if “the
Secretary’s decision might reasonably have been different had the [new]
evidence been before him when his decision was rendered.” (further quotation
omitted)).
The judgment of the district court is REVERSED and REMANDED to the
district court with direction that the case be remanded to the ALJ for further
proceedings consistent with this opinion.
Entered for the Court
Stephen H. Anderson Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court FOR THE TENTH CIRCUIT
LARRY D. BALES,
Plaintiff-Appellant,
v. No. 09-3104 (D.C. No. 2:07-CV-02517-JTM) MICHAEL J. ASTRUE, Commissioner (D. Kan.) of Social Security Administration,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before GORSUCH and ANDERSON, Circuit Judges, and BRORBY, Senior Circuit Judge.
Larry D. Bales appeals the Commissioner’s denial of benefits, claiming an
Administrative Law Judge (ALJ) (1) failed to account for all of his impairments;
(2) inaccurately assessed his residual functional capacity (RFC) by omitting his
treating physician’s opinion; (3) wrongfully discredited his allegations of pain;
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. and (4) improperly relied on the testimony of a vocational expert (VE). We
exercise jurisdiction under 28 U.S.C. § 1291 and 42 U.S.C. § 405(g) and affirm.
I
Mr. Bales alleged he was disabled by problems associated with his elbows
and back. After an administrative hearing, an ALJ determined that Mr. Bales was
impaired by degenerative joint disease of both elbows; degenerative disc
disease/degenerative joint disease of the back; and carpal tunnel syndrome, status
post release, but these impairments were not sufficiently severe to meet or equal a
listed impairment. Hence the ALJ concluded at step five of the five-step
sequential evaluation process, see 20 C.F.R. § 404.1520; Wall v. Astrue, 561 F.3d
1048, 1052 (10th Cir. 2009) (explaining the five-step process), that Mr. Bales was
not disabled because he retained the RFC to perform a significant range of light
work. The Appeals Council denied review, and the district court affirmed. Now
on appeal, Mr. Bales contends the ALJ did not account for specific impairments,
omitted his treating physician’s opinion from the RFC, discredited his complaints
of pain, and elicited unreliable testimony from the VE.
II
We review the ALJ’s decision “to determine whether the factual findings
are supported by substantial evidence in the record and whether the correct legal
standards were applied.” Bowman v. Astrue, 511 F.3d 1270, 1272 (10th Cir.
2008) (quotation omitted). “We consider whether the ALJ followed the specific
rules of law that must be followed in weighing particular types of evidence . . . ,
but we will not reweigh the evidence or substitute our judgment for the
Commissioner’s.” Cowan v. Astrue, 552 F.3d 1182, 1185 (10th Cir. 2008)
(quotation omitted). The ALJ’s decision is “evaluated based solely on the reasons
stated,” as we will not “overstep our institutional role and usurp essential
functions committed in the first instance to the administrative process.” Robinson
v. Barnhart, 366 F.3d 1078, 1084-85 (10th Cir. 2004) (quotation omitted).
A. Impairments
We begin with Mr. Bales’ contention that the ALJ failed to evaluate all of
his impairments. He acknowledges the ALJ considered his degenerative joint
disease of both elbows, degenerative joint and disc disease of the back, and carpal
tunnel syndrome, but asserts the ALJ did not account for several other diagnoses.
See Aplt. Br. at 32-33. This argument fails, however, because the diagnoses to
which Mr. Bales refers are medical findings that contribute to the same
impairments considered by the ALJ. See generally 20 C.F.R. § 404.1508
(“impairment must result from anatomical, physiological, or psychological
abnormalities which can be shown by medically acceptable clinical and laboratory
diagnostic techniques”). And each finding was specifically accounted for by the
ALJ in his recitation of the evidence. See 20 C.F.R. § 404.1520(a)(3) (“We will
consider all evidence in your case record when we make a determination or
decision that you are disabled.”). Indeed, the ALJ recognized that Mr. Bales had
“bilateral medial and lateral epicondylitis,” ROA, Vol. II at 24, “diffuse
spondylosis . . . and multiple bulging discs with mild to moderate foraminal
stenosis and central protrusion of the L5-S1,” and “bilateral ulnar entrapment
neuropathies,” id. at 26, to name a few. On this record, Mr. Bales’ contention is
meritless.
B. RFC and the Treating Physician Rule
Next Mr. Bales contends the ALJ inaccurately assessed his RFC by
omitting limitations imposed by his treating physician, Dr. James Hamilton.
Dr. Hamilton was one of many physicians who treated Mr. Bales, and, during the
course of his treatment, he issued a variety of opinions, including his belief that
Mr. Bales was permanently disabled. He also indicated on a Medical Source
Statement (MSS) that in an eight-hour workday, Mr. Bales could sit no more than
two hours, stand or walk no more than two hours, and must rest for four hours,
without lifting any weight or using his hands or arms for reaching, handling, or
fingering. The ALJ rejected the MSS and assessed an RFC that allowed
Mr. Bales to lift, carry, push, or pull ten pounds frequently and twenty pounds
occasionally; sit or stand and walk for six hours in an eight-hour workday; and
occasionally balance, stoop, kneel, or crouch. Mr. Bales also was restricted from
climbing ladders, ropes, or scaffolding, and performing hard grasping with his
dominant hand, although he had no fine manipulative limitation. Mr. Bales
contends this RFC is not supported by substantial evidence because the ALJ
rejected Dr. Hamilton’s opinion, which was entitled to controlling weight by
virtue of his status as a treating physician.
Initially, Dr. Hamilton’s belief that Mr. Bales was permanently disabled is
not dispositive because, as the ALJ recognized, that issue is reserved to the
Commissioner. 20 C.F.R. § 404.1527(e)(1); Castellano v. Sec’y of Health &
Human Servs., 26 F.3d 1027, 1029 (10th Cir. 1994). With regard to the particular
limitations expressed in the MSS, the treating physician rule generally accords
“greater weight to the opinions of [doctors] who have treated the claimant than
. . . those who have not.” Hackett v. Barnhart, 395 F.3d 1168, 1173 (10th Cir.
2005). So long as an “opinion is supported by medically acceptable clinical and
laboratory diagnostic techniques and is not inconsistent with other substantial
evidence in the record,” a treating physician’s opinion is entitled to controlling
weight. Hamlin v. Barnhart, 365 F.3d 1208, 1215 (10th Cir. 2004). But if either
requirement is not met, the ALJ must decide whether to assign the opinion some
lesser weight or reject it altogether based on the factors enumerated at 20 C.F.R.
§ 404.1527(d). See Pisciotta v. Astrue, 500 F.3d 1074, 1077 (10th Cir. 2007). 1
These factors include:
(1) the length of the treatment relationship and the frequency of examination; (2) the nature and extent of the treatment relationship, including the treatment provided and the kind of examination or testing performed; (3) the degree to which the physician’s opinion is supported by relevant evidence; (4) consistency between the opinion and the record as a whole; (5) whether or not the physician is a (continued...)
The ALJ here acknowledged that Dr. Hamilton was arguably a treating
physician, but he declined to accord the MSS any weight because its limitations
were unsupported by Dr. Hamilton’s own recommendations. See id. at 1078
(“Medical evidence may be discounted if it is internally inconsistent or
inconsistent with other evidence.” (quotation omitted)). In articulating “specific,
legitimate reasons” for rejecting the MSS, Watkins v. Barnhart, 350 F.3d 1297,
1301 (10th Cir. 2003) (quotation omitted), the ALJ explained that Dr. Hamilton
did not see Mr. Bales from December 2001 through March 2004 on account of
positive results from a left epicondylar release he performed. After their March
2004 appointment, however, Dr. Hamilton believed Mr. Bales was permanently
and totally disabled, despite stating only that Mr. Bales could not continue
working as a heavy laborer. Dr. Hamilton also declined to prescribe pain
medication and instead instructed Mr. Bales to perform hand-strengthening
exercises. Additionally, Dr. Hamilton delineated a multitude of restrictions in the
MSS, but his October 2004 exam primarily revealed elbow limitations. And,
while other physicians resisted Mr. Bales’ efforts to be certified as disabled,
Dr. Hamilton yielded. This explanation provides an adequate rationale for
(...continued) specialist in the area upon which an opinion is rendered; and (6) other factors brought to the ALJ’s attention which tend to support or contradict the opinion.
Pisciotta v. Astrue, 500 F.3d 1074, 1077-78 (10th Cir. 2007).
rejecting the MSS based on the factors of § 404.1527(d). See Oldham v. Astrue,
509 F.3d 1254, 1258 (10th Cir. 2007).
Mr. Bales contends this explanation substitutes the ALJ’s opinion for
Dr. Hamilton’s to achieve a greater RFC, but the record confirms that the RFC
was predicated on substantial evidence. Mr. Bales asserts the ALJ should have
recontacted Dr. Hamilton to clarify his opinion, see 20 C.F.R. § 404.1512(e), but
nothing suggests that the evidence the ALJ received from Dr. Hamilton was
inadequate or incomplete. See White v. Barnhart, 287 F.3d 903, 908-09 (10th Cir.
2001). The ALJ correctly evaluated Dr. Hamilton’s opinion, and though there is
evidence that Mr. Bales experiences difficulty with his arms and back, it is not
our function to reweigh that evidence.
C. Credibility
Mr. Bales also contends, as best we can tell, that the ALJ relied on
improper grounds to discredit his allegations of pain and his wife’s testimony.
Our review of the record and the ALJ’s decision, however, confirms that the ALJ
considered appropriate factors in finding that Mr. Bales was “exaggerating his
symptoms and problems.” ROA, Vol. II at 29.
The credibility of a claimant’s pain allegations should be evaluated based
on the following factors:
the levels of medication and their effectiveness, the extensiveness of attempts (medical or nonmedical) to obtain relief, the frequency of medical contacts, the nature of daily activities, subjective measures
of credibility that are peculiarly within the judgment of the ALJ, the motivation of and relationship between the claimant and other witnesses, and the consistency or compatibility of nonmedical testimony with objective medical evidence.
Branum v. Barnhart, 385 F.3d 1268, 1273-74 (10th Cir. 2004) (quotation
omitted). These factors were considered by the ALJ. Indeed, the ALJ observed
that Mr. Bales’ physicians generally refused his requests for narcotics, suggesting
that his condition did not warrant serious pain medication. The ALJ also noted
that despite his claims of disability, Mr. Bales enjoyed nearly two years of good
results from his surgery, while his back condition was relieved by injections. He
also received no treatment, other than a single diagnostic study, during the seven
months preceding his administrative hearing. Moreover, while Mr. Bales sought
to be certified as disabled by his doctors, a consultative examiner found no
significant clinical abnormalities and restricted him only from unreasonable
lifting.
Additionally, the ALJ found inconsistencies between Mr. Bales’ testimony
and his reported daily activities, which included household chores, mowing, and
cooking. The ALJ also found that Mr. Bales’ professed ability to perform
mechanical work and odd jobs, as well as care for his grandson, did not support
his claims of being unable to stand or walk, sit for more than forty-five minutes,
or walk more than thirty to forty feet. Further, Mr. Bales reported differing
accounts concerning his ability to sleep and testified to significant post-operative,
upper extremity limitations, contrary to substantial medical evidence indicating
no such degree of weakness. Finally, the ALJ found that Mr. Bales’ wife offered
her own inconsistent testimony. This recitation of the inconsistencies in the
record not only demonstrates that the ALJ relied on proper grounds to make his
adverse credibility finding, but also that the credibility finding is supported by
substantial evidence.
D. Vocational Expert’s Testimony
Lastly, Mr. Bales challenges the VE’s testimony. He first contends the
hypothetical question posed to the VE inaccurately omitted Dr. Hamilton’s
restrictions. This argument has no merit, however, because we have already
concluded that the restrictions identified in the MSS were not supported by the
record. See Decker v. Chater, 86 F.3d 953, 955 (10th Cir. 1996) (holding that
hypothetical questions “must reflect with precision all of [the claimant’s]
impairments, but they need only reflect impairments and limitations that are borne
out by the evidentiary record” (citation omitted)). He also contends the VE
offered an alternative occupation that does not exist in the Dictionary of
Occupational Titles (DOT), that of “gate guard; DOT code 272.667-038.” ROA,
Vol. II at 339. This argument relies on an apparent misstatement by the VE,
however, as the DOT code for a gate guard is 372.667-030. Finally, Mr. Bales
asserts the VE propounded jobs that exceed his educational and communication
abilities. But the VE assumed an eighth grade skill-level, and when asked by the
ALJ if there were any conflicts between her testimony and the DOT descriptions,
indicated there were none. See Poppa v. Astrue, 569 F.3d 1167, 1173-74
(10th Cir. 2009) (explaining ALJ’s duty to inquire about and resolve any conflicts
between the VE’s testimony and a DOT job description). To the extent Mr. Bales
suggests any further error, his failure to develop the argument obviates our need
to consider it. See Berna v. Chater, 101 F.3d 631, 632 (10th Cir. 1996).
The judgment of the district court is AFFIRMED.
Entered for the Court
Stephen H. Anderson Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 PUBLISH Elisabeth A. Shumaker Clerk of Court UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee, v. No. 09-5131 LUCAS GREGORY FOX,
Defendant-Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA (D.C. No. 4:09-CR-00038-TCK-1)
Stephen J. Greubel, Assistant Federal Public Defender, Office of the Federal Public Defender, Tulsa, Oklahoma, for Defendant-Appellant.
Janet S. Reincke, Assistant United States Attorney, (Thomas Scott Woodward, Acting United States Attorney, with her on the brief), Tulsa, Oklahoma, for Plaintiff-Appellee.
Before BRISCOE, SEYMOUR, and LUCERO, Circuit Judges.
BRISCOE, Circuit Judge.
Defendant-Appellant Lucas Gregory Fox entered a conditional guilty plea
to one count of possession of an unregistered shotgun with a barrel less than 18 inches long, in violation of 26 U.S.C. §§ 5841, 5845(a), 5861(d), and 5871. Law
enforcement officers found the firearm in Fox’s home after his wife consented to
the search. Fox appeals the denial of his motion to suppress evidence, arguing
that his wife’s consent to search the home was invalid. We exercise jurisdiction
pursuant to 28 U.S.C. § 1291, and reverse and remand for further proceedings.
I
At approximately 9:45 p.m. on February 4, 2009, Officers Dupler, Jenkins,
Lamb, and Osterdyk of the Tulsa Police Department were in plain clothes and
unmarked cars, conducting surveillance on Fox’s home in Tulsa, Oklahoma.
Officer Dupler had received information from a confidential informant that Fox
was driving a stolen silver Jeep Wrangler and that he might have drugs with him.
Officer Dupler also learned that Fox was wanted on an outstanding arrest warrant.
While the officers were observing Fox’s house, they saw a black Ford Mustang
park near the house and a woman (later identified as Shawna Chiles) get out of
the Mustang and enter the house. Approximately thirty minutes later, Ms. Chiles
left the house, got back in her car, and drove away. Two officers, Officers Lamb
and Osterdyk, followed the black Mustang in their unmarked police car.
Shortly after Officers Lamb and Osterdyk drove away, the silver Jeep
Wrangler pulled into Fox’s driveway. Fox got out of the Jeep, and Officers
Dupler and Jenkins arrested him. By this time, Officers Lamb and Osterdyk had
lost the black Mustang and had returned to Fox’s house. While Officers Lamb
and Osterdyk were walking towards the house, Ms. Chiles returned in the black
Mustang. Ms. Chiles stopped the car in the middle of the street and asked
“what’s going on?” ROA, Vol. II, at 34. Officer Osterdyk approached Ms.
Chiles, identified himself as a Tulsa police officer, and showed her his badge.
Officer Osterdyk then got in her car and directed her to pull into a nearby
convenience store parking lot across the street, 1 which was where the officers had
been conducting their surveillance.
Officer Osterdyk then had Ms. Chiles get out of the car, and he asked her if
she had a driver’s license or any other identification. She replied that she had not
had a license for some time. After getting her name and information, Officer
Osterdyk checked with the records division to see if she had a driver’s license and
It is unclear from the record precisely what Officer Osterdyk told Ms. Chiles. When Officer Osterdyk was cross-examined by defense counsel at the evidentiary hearing, the following exchange took place:
Q. And then you directed her to move her vehicle somewhere else? A. Yes. Q. And that was to a corner of a convenience store? A. Yes, to get her out of the roadway. Q. So she knew you were an officer? A. She did. Q. And was following your directions? A. Yes. Q. And once you got her to the store, did you have her get out of the vehicle? A. Yes.
ROA, Vol. II, at 48.
any outstanding warrants. While he was waiting to receive that information, he
asked Ms. Chiles if she had anything illegal in the car, and she said that she did
not. He then asked her if “she minded if [he] looked real quick and she said, no,
go ahead, there’s nothing to hide.” ROA, Vol. II, at 35. Officer Osterdyk looked
around the front compartment of the car and found a bag that contained what
appeared to be methamphetamine. Although the substance was not field tested,
Ms. Chiles “acknowledged that it was an illegal substance.” ROA, VOL. II at 54.
Ms. Chiles was not arrested, but was told by Officer Osterdyk that the police were
more interested in Fox. 2 She replied that Fox was her husband and that they lived
together. Officer Osterdyk asked if she was on the lease for the house, and she
said that she was. He also asked her if there was anything illegal in their house,
and she said “nothing that she knew of.” ROA, Vol. II, at 37. Officer Osterdyk
then asked if the police could search the house, and she responded: “that would be
fine. There’s nothing to hide.” ROA, Vol. II, at 38. Officers Osterdyk and Lamb
then walked over to the house with Ms. Chiles, and she unlocked the door, letting
the officers inside.
Once inside the house, the officers asked if she would sign a search waiver
form, and she said that she would. Although the officers did not have a waiver
At the evidentiary hearing, Officer Osterdyk testified that he told Ms. Chiles “that we were more interested in the individual that we were doing surveillance on,” and he mentioned Fox by name. ROA, Vol. II, at 37.
form with them, they began to search the house. While searching Fox’s bedroom,
the officers discovered a sawed-off shotgun and ammunition. Following the
search, the officers obtained a search waiver form, “read over it with [Ms.
Chiles], explained everything on it, and asked her if she understood.” ROA, Vol.
II, at 39. She then signed the form.
Throughout the encounter, the officers spoke in a calm, conversational tone
with Ms. Chiles. They never displayed their weapons, nor did they make any
explicit threats or promises.
As a result of the officers finding the shotgun and ammunition in his house,
Fox was indicted on one count of being a felon in possession of a firearm and
ammunition, in violation of 18 U.S.C. §§ 922(g)(1) and 924(a)(2) and one count
of possession of an unregistered shotgun with a barrel less than 18 inches long, in
violation of 26 U.S.C. §§ 5841, 5845(a), 5861(d), and 5871. Fox filed a motion
to suppress the evidence found in his home, arguing that Ms. Chiles’s consent to
search the home was not voluntary. The district court held an evidentiary hearing
and denied Fox’s motion to suppress, ruling that Ms. Chiles voluntarily consented
to the search. Fox sought reconsideration of the district court’s order, arguing
that the testimony elicited at the evidentiary hearing indicated that Ms. Chiles was
illegally seized, and thus, her subsequent consent was invalid under Brown v.
Illinois, 422 U.S. 590 (1975). The district court ruled that the encounter between
Officer Osterdyk and Ms. Chiles was consensual and not a seizure, and even if
she was illegally seized, application of the Brown factors indicated that her
subsequent consent to search the home was not tainted by any illegality.
Fox entered a conditional guilty plea to count two of the indictment,
knowing possession of an unregistered sawed-off shotgun, reserving the right to
appeal the denial of his motion to suppress. The government dismissed count one
of the indictment, being a felon in possession of a firearm and ammunition. The
district court sentenced Fox to 48 months’ imprisonment. Fox appeals the denial
of his motion to suppress the evidence found in his home.
II
In reviewing the denial of a motion to suppress, we review the factual
findings of the district court for clear error, viewing “the evidence in the light
most favorable to the government.” United States v. Chavez, 534 F.3d 1338,
1343 (10th Cir. 2008) (quotation omitted). We “review de novo the
reasonableness of the government’s action under the Fourth Amendment.” Id.
A warrantless search of an individual’s home is “per se unreasonable under
the Fourth Amendment unless the government can show that it falls within one of
a carefully defined set of exceptions.” United States v. Cos, 498 F.3d 1115, 1123
(10th Cir. 2007) (quotation omitted). Here, the government relied on Ms.
Chiles’s consent to search the home as an exception to the general warrant
requirement. Fox argues that Ms. Chiles’s consent was invalid because it was
tainted by a prior illegal seizure and, as a result, her consent was not voluntary.
When a consensual search follows a Fourth Amendment violation, the
government must prove both (1) that the consent was voluntary under the totality
of the circumstances, and (2) that there was “a break in the causal connection
between the illegality and the evidence thereby obtained.” United States v.
Melendez-Garcia, 28 F.3d 1046, 1053 (10th Cir. 1994) (internal citations,
quotation, and footnote omitted). “Although the two requirements will often
overlap to a considerable degree, they address separate constitutional values and
they are not always coterminous.” Id. at 1054. “We require the government to
demonstrate that any taint of an illegal search or seizure has been purged or
attenuated not only because we are concerned that the illegal seizure may affect
the voluntariness of the defendant’s consent, but also to effectuate the purposes of
the exclusionary rule.” Id.
A
In order to determine whether Ms. Chiles’s consent was tainted by an
unlawful seizure, we must first determine whether Ms. Chiles was unlawfully
seized. We review de novo the district court’s determination that the encounter
between Ms. Chiles and the police was consensual and not a seizure. See United
States v. Abdenbi, 361 F.3d 1282, 1291 (10th Cir. 2004).
We have identified three general categories of encounters between police
and citizens:
(1) consensual encounters which do not implicate the Fourth
Amendment; (2) investigative detentions which are Fourth Amendment seizures of limited scope and duration and must be supported by a reasonable suspicion of criminal activity; and (3) arrests, the most intrusive of Fourth Amendment seizures and reasonable only if supported by probable cause.
United States v. Lopez, 443 F.3d 1280, 1283 (quoting United States v. Torres-
Guevara, 147 F.3d 1261, 1264 (10th Cir. 1998)). Fox argues that although the
encounter was initially consensual when Ms. Chiles stopped her car and asked
what was going on, it soon became a seizure. Specifically, he contends that when
Officer Osterdyk entered Ms. Chiles’s car and directed her to drive to a nearby
parking lot, Ms. Chiles was seized under the Fourth Amendment. We agree.
“[A] person has been ‘seized’ within the meaning of the Fourth Amendment
only if, in view of all of the circumstances surrounding the incident, a reasonable
person would have believed that [s]he was not free to leave.” United States v.
Mendenhall, 446 U.S. 544, 554 (1980). The critical inquiry is whether “the police
conduct would have communicated to a reasonable person that [s]he was not at
liberty to ignore the police presence and go about [her] business.” Florida v.
Bostick, 501 U.S. 429, 437 (1991) (quotation omitted).
In determining whether an individual has been seized, we have considered
several factors, including:
(1) the threatening presence of several officers; (2) the brandishing of a weapon by an officer; (3) physical touching by an officer; (4) aggressive language or tone of voice by an officer indicating compliance is compulsory; (5) prolonged retention of a person’s
personal effects; (6) a request to accompany the officer to the police station; (7) interaction in a small, enclosed, or non-public place; and (8) absence of other members of the public.
United States v. Rogers, 556 F.3d 1130, 1137–38 (10th Cir. 2009). No single
factor is dispositive, and this list is not exhaustive. Id. at 1138. Another relevant
factor that suggests an encounter is not consensual is whether the officer advised
an individual that she is free to leave. United States v. Ledesma, 447 F.3d 1307,
1314 (10th Cir. 2006).
With these principles in mind, we conclude that under the totality of the
circumstances, a reasonable person in Ms. Chiles’s position would not have felt
free to ignore Officer Osterdyk’s presence in her car and go about her business.
The initial encounter between Officer Osterdyk and Ms. Chiles, when Ms. Chiles
stopped her car and asked the officers what was going on, was consensual.
However, Officer Osterdyk’s subsequent actions changed the nature of the
encounter from a consensual encounter to a seizure. See Lopez, 443 F.3d at 1284
(“[I]t is settled that the nature of the police-citizen encounter can change—what
may begin as a consensual encounter may change to an investigative detention if
the police conduct changes and vice versa.” (quotation omitted)). Officer
Osterdyk identified himself as a police officer, displayed his badge, entered Ms.
Chiles’s car, 3 directed her to drive to a nearby parking lot, and never advised her
We note that there is no indication in the record that Officer Osterdyk (continued...)
that she was free to leave. Under these circumstances, the officer’s coercive show
of authority would communicate to a reasonable person that she was not free to
terminate the encounter. Cf. United States v. Elliott, 107 F.3d 810, 814 (10th Cir.
1997) (considering as a “coercive show of authority” whether an officer was
leaning against or touching an individual’s car). Although the government
contends that Ms. Chiles could have told Officer Osterdyk to get out of her car,
we do not think that under the circumstances a reasonable person would have felt
free to do so. Accordingly, we conclude that Ms. Chiles was seized within the
meaning of the Fourth Amendment.
Because we conclude that Ms. Chiles was seized, we must next determine
whether that seizure was lawful. An individual “may not be detained even
momentarily without reasonable, objective grounds for doing so . . . .” Florida v.
Royer, 460 U.S. 491, 498 (1983). The reasonableness of investigative detentions
is outlined in Terry v. Ohio, 392 U.S. 1 (1968), which also applies to traffic stops.
See United States v. Stephenson, 452 F.3d 1173, 1176 (10th Cir. 2006).
Investigative detentions are reasonable if “the detaining officer has a reasonable
suspicion that criminal activity may be afoot.” Stephenson, 452 F.3d at 1176.
(...continued) asked permission to enter Ms. Chiles’s car or that she invited him into her car. Cf. United States v. Spence, 397 F.3d 1280, 1284 (10th Cir. 2005) (concluding that an encounter was consensual and noting that “agents asked for permission to enter [the defendant’s] home and that [the defendant] invited them inside”).
Reasonable suspicion requires “‘a particularized and objective basis’ for
suspecting the person stopped of criminal activity . . . .” Ornelas v. United
States, 517 U.S. 690, 696 (1996) (quoting United States v. Cortez, 449 U.S. 411,
417 (1981)).
The government has not argued (either to the district court or on appeal)
that the seizure of Ms. Chiles was supported by reasonable suspicion.
Additionally, our review of the record indicates that the officers did not have
reasonable suspicion to justify the seizure. 4 The district court made no
determination regarding reasonable suspicion. Rather, the district court appears
to have justified the intrusion because “it was the easiest way to get her out of the
street . . . .” ROA, Vol. II, at 77. In addition to being factually dubious, this
conclusion does not address whether the seizure was justified by reasonable
suspicion of criminal activity. Regardless of whether it was the easiest way to get
her out of the street, it was a seizure, and therefore, must be supported by
reasonable suspicion. See United States v. Alarcon-Gonzalez, 73 F.3d 289,
292–93 (10th Cir. 1996) (“[W]hether or not the command to ‘freeze’ was justified
is immaterial because its effect was to turn the encounter that followed into a
At the evidentiary hearing, Officer Dupler testified he received information from the confidential informant on “the female involved.” ROA, Vol. II, at 18. When asked what information he had “on the female,” Officer Dupler said: “Oh, drugs. Same kind of issue, I think.” ROA, Vol. II, at 18. This single, vague statement does not constitute reasonable and articulable suspicion that would have justified detaining Ms. Chiles.
nonconsensual seizure. . . . Once the reason that justified the initial stop is
dispelled, further detention unsupported by reasonable suspicion violates the
Fourth Amendment.”). Because the officers did not have reasonable suspicion to
detain Ms. Chiles, the seizure was unlawful. See id. 5
B
We now turn to whether the unlawful seizure rendered Ms. Chiles’s consent
to search the home invalid and the subsequently discovered evidence
inadmissible. See Wong Sun v. United States, 371 U.S. 471, 487–88 (1963). To
demonstrate that the taint of an illegal seizure has dissipated, “the government
must prove, from the totality of the circumstances, a sufficient attenuation or
break in the causal connection between the illegal detention and the consent.”
United States v. Gregory, 79 F.3d 973, 979 (10th Cir. 1996) (quotation omitted).
This is a heavy burden. See id. In Brown v. Illinois, the Supreme Court
articulated three factors especially relevant to this inquiry: “1) the temporal
proximity between the police illegality and the consent to search; 2) the presence
of intervening circumstances; and particularly 3) the purpose and flagrancy of the
official misconduct.” Melendez-Garcia, 28 F.3d at 1054 (citing Brown, 422 U.S.
at 603–04). Because this analysis is fact-intensive, “the district court’s findings
Additionally, we note that there is no suggestion that the seizure was supported by probable cause. See United States v. Sokolow, 490 U.S. 1, 7 (1989) (“[T]he level of suspicion required for a Terry stop is obviously less demanding than that for probable cause.”).
must be upheld unless they are clearly erroneous.” United States v. Eylicio-
Montoya, 70 F.3d 1158, 1165 (10th Cir. 1995). A factual finding is clearly
erroneous if “it is without factual support in the record or, after reviewing all the
evidence, we are left with a definite and firm conviction that a mistake has been
made.” United States v. Barnhardt, 93 F.3d 706, 710 (10th Cir. 1996).
Beginning with the first factor, the district court found there was close
temporal proximity between Ms. Chiles’s seizure and her subsequent consent to
search the house. The record does not reveal the exact length of the encounter
between Ms. Chiles and Officer Osterdyk, but during that encounter, Ms. Chiles
drove across the street to a parking lot, Officer Osterdyk ran a records check, and
he searched the front compartment of her car. The district court concluded that
this close temporal proximity weighs against a finding of attenuation. We agree.
See United States v. McSwain, 29 F.3d 558, 563 (10th Cir. 1994) (first factors
“weigh[ed] heavily against finding the taint cleansed” where the defendant
consented “only a few minutes after being illegally detained”); United States v.
Mendoza-Salgado, 964 F.2d 993, 1012 (10th Cir. 1992) (thirty to forty-five
minute period by itself “reveal[ed] little about whether the [time] that elapsed had
any effect on [the] decision to permit the search”); United States v. Maez, 872
F.2d 1444, 1455 (10th Cir. 1989) (thirty minute time period between “the arrest
and Mrs. Maez’ consents clearly indicate that [the] taint [of the Fourth
Amendment] violation was not purged”).
Turning to the second Brown factor, the district court found that there was
an intervening circumstance, stating:
[T]here was a significant intervening circumstance, namely at the time [Ms. Chiles] consented to search, she had voluntarily agreed to let the officers inside, had walked them up to the house, and had let them into the home with a key. The intervening circumstances, or the intervening circumstance in this case was the other [sic] lack of confinement, interrogation or any other coercive circumstance at the time she consented to the search. Thus, the consent to search was not given in any type of detention setting.
ROA, Vol. II, at 78. This finding was clearly erroneous.
The district court clearly erred in suggesting that Ms. Chiles’s voluntary
consent itself was an intervening circumstance. Her consent is not in itself an
intervening event which could remove the taint of the prior illegal seizure. See
Melendez-Garcia, 28 F.3d at 1054 (clarifying the distinction between the “dual
requirement” that consent be voluntary in fact and free of the taint of police
illegality, and rejecting the rule that “consent that is voluntary in fact is in itself
an intervening act that purges any police illegality”). Under the facts presented,
there was no basis for finding an intervening circumstance.
Under the second Brown factor, “there must be proof of facts or events
which ensure that the consent provided . . . [was] not the fruit of the illegal
[seizure]. The facts or events must create a discontinuity between the illegal
[seizure] and the consent such that the original illegality is weakened and
attenuated.” Gregory, 79 F.3d at 980; see also United States v. Reed, 349 F.3d
457, 464 (7th Cir. 2003) (“The type of intervening events that serve to attenuate
official misconduct are those that sever the causal connection between the illegal
[seizure] and the discovery of the evidence.”). Some examples of intervening
circumstances include “carefully explain[ing]” a consent form and advising an
individual of the right to withhold consent, see Mendoza-Salgado, 964 F.2d at
1012, 6 “release from custody, an appearance before a magistrate, or consultation
with an attorney,” United States v. Washington, 387 F.3d 1060, 1074 (9th Cir.
2004), to name a few. After reviewing the record, we conclude there were no
intervening events that would have broken or attenuated the causal connection
between the illegal seizure and the consent. Thus, the district court clearly erred
in concluding that this factor weighed towards a finding of attenuation.
Finally, we look at the third factor, whether the officer’s misconduct was
purposeful or flagrant. The district court found that “any official misconduct that
did occur was in no way flagrant. The Court finds that nothing the police did
during the alleged detention would have impacted Chiles’ decision to consent to
According to the officers’ testimony, Ms. Chiles signed a consent form, and Officer Osterdyk went over the form with her and told her that she had the right to tell him to stop searching at any point. ROA, Vol. II, at 52. However, the officers went over the form with Ms. Chiles after they had already obtained the initial consent and searched the house. Thus, we do not see how this could be an “intervening” event. See United States v. Santa, 236 F.3d 662, 678 (8th Cir. 2000) (“[T]he fact that [the defendant] signed a consent form after the search was complete does not persuade us that his consent was not the product of the illegal arrest.”).
search.” ROA, Vol. II, at 78. But the inquiry under this factor is not whether the
officers’ conduct—apart from the illegal seizure—coerced Ms. Chiles to consent.
See Reed, 349 F.3d at 465 (“‘[P]urposeful and flagrant’ misconduct is not limited
to situations where police act in an outright threatening or coercive manner . . .
.”). Rather, purposeful and flagrant misconduct is generally found where: “(1) the
impropriety of the official’s misconduct was obvious or the official knew, at the
time, that his conduct was likely unconstitutional but engaged in it nevertheless;
and (2) the misconduct was investigatory in design and purpose and executed ‘in
the hope that something might turn up.’” United States v. Simpson, 439 F.3d 490,
496 (8th Cir. 2006) (quoting Brown, 422 U.S. at 605). Additionally, it may be
significant that the “officers ha[d] no right whatsoever to detain the person from
whom consent is sought.” Melendez-Garcia, 28 F.3d at 1055–56; see also United
States v. Chanthasouxat, 342 F.3d 1271, 1280 (11th Cir. 2003) (noting that the
third factor “weigh[ed] toward suppression because . . . the initial stop violated
Defendants’ Fourth Amendment rights”). It does not appear from the record that
the district court conducted the proper analysis under the third Brown factor.
In discussing whether Ms. Chiles was seized, the district court found that
Officer Osterdyk “[e]ntered the car merely because he was on foot, it was the
easiest way to get [Ms. Chiles] out of the street and he directed her to a nearby
parking lot.” ROA, Vol. II, at 77. Arguably, this finding might weigh against the
flagrancy and purposefulness of the officer’s conduct. However, the district
court’s conclusion is without support in the record. Officer Osterdyk did not
explain why he got in Ms. Chiles’s car. Indeed, he never testified that he got in
her car at all; that information came to light only during the testimony of the
government’s final witness, and Officer Osterdyk’s partner, Officer Lamb. The
district court’s conclusion that the seizure was merely “the easiest way to get her
out of the street,” ROA, Vol. II, at 77, is not supported by the record, is pure
speculation, and is not a reasonable inference.
The record suggests that the officer’s conduct was purposeful and flagrant.
Without probable cause or an articulable reasonable suspicion justifying the
seizure of Ms. Chiles, see Melendez-Garcia, 28 F.3d at 1055–56, Officer
Osterdyk got in her car and directed her to drive across the street to a parking lot
where the police were conducting surveillance. Once there, he asked for her
identification, learned that she did not have a license, and then asked to search her
car. Upon searching her car he found what he thought were illegal drugs and told
Ms. Chiles that they were “more interested” in Fox. ROA, Vol. II, at 37. At that
point, she said that Fox was her husband and they lived together; Officer
Osterdyk then asked if she was on the lease to the house, and then asked for her
consent to search the house. At no time did the officers inform Ms. Chiles that
she was free to leave. See United States v. Fernandez, 18 F.3d 874, 882 (10th
Cir. 1994) (although not a prerequisite, informing an individual of the right to
refuse consent is “a factor particularly worth noting”). These circumstances
indicate that Officer Osterdyk detained Ms. Chiles “with a quality of
purposefulness, embarking upon a fishing expedition in the hope that something
might turn up.” McSwain, 29 F.3d at 563 (internal quotations and citations
omitted). This factor also weighs against a finding that the taint of the illegal
seizure had been purged.
After reviewing the totality of the circumstances, including the three
Brown factors, and viewing the evidence in the light most favorable to the
government, we conclude that the district court clearly erred in finding that there
was sufficient attenuation between the illegal seizure of Ms. Chiles and her
subsequent consent. See id. (circumstances indicated that the taint was not
purged—the officer leaned over and rested his arm on the driver’s door when
asking for consent, did not specifically inform the driver that he was free to leave
or refuse to consent, and the illegality had a quality of purposefulness). We are
left with the firm conviction that the government failed to meet its heavy burden
of establishing that Ms. Chiles’s consent was purged of the taint of her unlawful
seizure. Accordingly, the evidence found as a result of that consent must be
suppressed. 7
Because we conclude that the district court clearly erred in determining that the taint of the illegal seizure was sufficiently attenuated, we need not address Fox’s separate argument that Ms. Chiles’s consent was not voluntary under Schneckloth v. Bustamonte, 412 U.S. 218 (1973).
III
We REVERSE the district court’s denial of Fox’s motion to suppress and
REMAND for further proceedings. |
FILED United States Court of Appeals Tenth Circuit UNITED STATES COURT OF APPEALS March 22, 2010 TENTH CIRCUIT Elisabeth A. Shumaker Clerk of Court
ERNEST BRIM, a/k/a Bernard Horne,
Petitioner–Appellant,
v. No. 09-1516 ARISTEDES W. ZAVARAS, Colorado (D.C. No. 1:09-CV-00429-ZLW) DOC Executive Director; JOHN (D. Colo.) SUTHERS, Attorney General of the State of Colorado,
Respondents–Appellees.
ORDER DENYING CERTIFICATE OF APPEALABILITY*
Before KELLY, McKAY, and LUCERO, Circuit Judges.
Ernest Brim a/k/a Bernard Horne, a Colorado state prisoner proceeding pro se,
seeks a certificate of appealability (“COA”) to appeal the denial of his 28 U.S.C. § 2254
habeas petition. For substantially the same reasons set forth by the district court, we deny
a COA and dismiss.
* This order is not binding precedent except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. I
In March 1987, Brim was convicted of aggravated robbery, theft, and conspiracy
to commit aggravated robbery and theft in Colorado state court. He was sentenced as a
habitual criminal to life imprisonment. Brim’s convictions were affirmed on direct
appeal. On March 1, 1991, the Colorado Supreme Court denied certiorari. Brim did not
seek a writ of certiorari from the United States Supreme Court.
In February 1994, Brim filed a motion in state court for post-conviction relief
advancing eighty-five claims. Following a hearing, the court denied many of Brim’s
claims and set others for a subsequent hearing. Brim then filed numerous motions in the
trial court, along with two petitions for writs of mandamus in the Colorado Supreme
Court. The mandamus petitions were denied in late 1997. Brim’s petition for rehearing
was rejected by the Colorado Supreme Court on January 6, 1998.
Brim’s criminal docket sheet shows no activity over the next six years. On June 7,
2004, the court received a letter from Brim, which was characterized as a post-conviction
motion to vacate an illegal sentence. The trial court denied relief and the Colorado Court
of Appeals affirmed. On December 17, 2007, the Colorado Supreme Court denied
certiorari.
Brim filed a motion for a “Temporary Restraining Order In Writ of Habeas
Corpus” in federal district court on February 27, 2009. After the district court informed
him that his filing was deficient, Brim filed a § 2254 petition on May 15, 2009,
advancing seven claims. Brim’s petition was dismissed as time-barred, and the district
court denied him a COA.
II
A petitioner may not appeal the denial of habeas relief under § 2254 without a
COA. § 2253(c)(1). We may issue a COA “only if the applicant has made a substantial
showing of the denial of a constitutional right.” § 2253(c)(2). This requires Brim to
show “that reasonable jurists could debate whether (or, for that matter, agree that) the
petition should have been resolved in a different manner or that the issues presented were
adequate to deserve encouragement to proceed further.” Slack v. McDaniel, 529 U.S.
473, 484 (2000) (quotations omitted).
Brim’s conviction became final on May 30, 1991, when the time to file a petition
for writ of certiorari in the United States Supreme Court expired. See Sup. Ct. R. 13.1
(1990) (amended 1995). “Where a conviction became final before AEDPA took effect,
. . . the limitations period for a federal habeas petition starts on AEDPA’s effective date,
April 24, 1996.” Preston v. Gibson, 234 F.3d 1118, 1120 (10th Cir. 2000). Accordingly,
Brim had until April 24, 1997, to file his federal habeas petition absent tolling. See
United States v. Hurst, 322 F.3d 1256, 1261 n.4 (10th Cir. 2003).
“The time during which a properly filed application for State post-conviction or
other collateral review with respect to the pertinent judgment or claim is pending shall
not be counted toward” AEDPA’s one-year limitations period. § 2244(d)(2); see
§ 2254(d)(1). Even assuming that Brim’s state post-conviction motion was not
abandoned—thus tolling the statute of limitations for the entire period from April 24,
1996, when the limitations period began, to December 17, 2007, when the Colorado
Supreme Court denied certiorari1—Brim’s petition is untimely. He first filed in federal
court on February 27, 2009, more than two months after the limitations period expired on
December 17, 2008. See § 2254(d)(1).
Brim argues that we should add ninety days to the tolled period to account for the
time during which he could have, but did not, file a petition for writ of certiorari with the
United States Supreme Court. He apparently confuses § 2244(d)(2), which tolls the
“time during which a properly filed application for State post-conviction or other
collateral review with respect to the pertinent judgment or claim is pending,” and
§ 2244(d)(1)(A), which sets the start of AEDPA’s limitation period on “the date on which
the judgment became final by the conclusion of direct review or the expiration of the time
for seeking such review.” Although the time to file a certiorari petition in the United
States Supreme Court is counted for the latter, it has no relevance for the former. See
Rhine v. Boone, 182 F.3d 1153, 1155-56 (10th Cir. 1999).
Brim also asserts that he is entitled to equitable tolling, but provides no factual
basis for such tolling. Accordingly, Brim has waived any claim to equitable tolling. See
Brim erroneously argues that his state post-conviction proceedings are still ongoing. The Colorado Supreme Court’s denial of certiorari ended those proceedings.
Marsh v. Soares, 223 F.3d 1217, 1220 (10th Cir. 2000) (“[Equitable tolling] is only
available when an inmate diligently pursues his claims and demonstrates that the failure
to timely file was caused by extraordinary circumstances beyond his control.”).
III
We DENY a COA and DISMISS Brim’s appeal. Brim’s motion for leave to
proceed in forma puaperis is GRANTED. All other pending motions are DENIED.
ENTERED FOR THE COURT
Carlos F. Lucero Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 22, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee, No. 09-4194 v. (D. of Utah) JOEL SOTO, (D.C. Nos. 2:09-CV-00068-TC and 2:07-CR-00171-TC-1) Defendant-Appellant.
ORDER DENYING A CERTIFICATE OF APPEALABILITY *
Before HARTZ, ANDERSON, and TYMKOVICH, Circuit Judges. **
Joel Soto, a federal prisoner represented by counsel, seeks a certificate of
appealability (COA) to appeal the district court’s denial of his 28 U.S.C. § 2255
motion. Exercising jurisdiction under 28 U.S.C. §§ 1291 and 2253, we DENY
Soto’s request for a COA and DISMISS the appeal.
* This order is not binding precedent except under the doctrines of law of the case, res judicata and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. ** After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1(G). The cause is therefore ordered submitted without oral argument. I. Background
Soto was arrested for violating a protective order. During a search of his
vehicle incident to his arrest, police officers found approximately 75 grams of
methamphetamine. A jury subsequently convicted Soto of one count of
possession of 50 grams or more of methamphetamine with intent to distribute, in
violation of 21 U.S.C. § 841(a)(1). Thereafter, the district court sentenced Soto
to 151 months’ imprisonment and 60 months of supervised release.
Following the entry of judgment, Soto pursued a direct appeal, challenging
the admission of unqualified expert testimony. See United States v. Soto, 297 F.
App’x 752 (10th Cir. 2008). We affirmed Soto’s conviction, finding he failed to
show that excluding the challenged evidence would have changed the outcome of
his trial. Id. at 754.
Soto then filed a pro se § 2255 motion, contending he received ineffective
assistance from his trial counsel. After the district court appointed Soto counsel,
the § 2255 motion was amended to include the argument that Soto’s trial counsel
provided ineffective assistance by failing to move to suppress evidence of the
methamphetamine found in Soto’s vehicle. That contention was based on the
Supreme Court’s intervening decision in Arizona v. Gant, 129 S. Ct. 1710 (2009),
which ruled that a police officer “may search a vehicle incident to a recent
occupant’s arrest only if the arrestee is within reaching distance of the passenger
compartment at the time of the search or it is reasonable to believe the vehicle
contains evidence of the offense of arrest.” Id. at 1723. The district court denied
the motion on the merits, holding, among other things, that a reading of pre-Gant
caselaw governing search incident to arrest at the time Soto was arrested did not
support a finding of ineffective assistance.
Soto filed a notice of appeal on October 16, 2009. The district court denied
his request for a COA. 1 Soto now requests a COA from this court to appeal the
district court’s decision regarding his trial counsel’s failure to file a motion to
suppress the evidence found in his vehicle. 2
II. Discussion
A § 2255 movant must obtain a COA before appealing the district court’s
final order. See 28 U.S.C. § 2253(c)(1)(B). “[O]nly if the applicant has made a
substantial showing of the denial of a constitutional right” will the court issue a
COA. 28 U.S.C. § 2253(c)(2). When, as here, the district court denies the
Soto filed a notice of appeal but did not submit a separate application for a COA to the district court. The district court did not issue Soto a COA within 30 days of filing the notice of appeal. Under the applicable version of the Tenth Circuit Rules, the absence of an issued COA within that period is deemed a denial by the district court of a request for a COA. See 10th Cir. R. 22.1(C) (“The district court must consider the propriety of issuing a [COA] in the first instance. Failure of the district court to issue a [COA] within thirty days of filing the notice of appeal shall be deemed a denial.”). While Soto did not submit a separate application for a COA to this court, we deem his notice of appeal an application for a COA pursuant to Rule 22(b)(2) of the Federal Rules of Appellate Procedure. See Fed. R. App. P. 22(b)(2) (“If no express request for a certificate is filed, the notice of appeal constitutes a request addressed to the judges of the court of appeals.”).
movant’s claim on the merits, we will not issue a COA unless the petitioner
demonstrates “that reasonable jurists would find the district court’s assessment of
the constitutional claims debatable or wrong.” Slack v. McDaniel, 529 U.S. 473,
484 (2000).
Soto contends that he was denied his Sixth Amendment right to effective
assistance of counsel due to his trial counsel’s failure to file a motion to suppress
evidence obtained pursuant to an allegedly unconstitutional search of his vehicle.
To prevail on his ineffective assistance of counsel claim, Soto must demonstrate
that “[(1)] counsel’s performance was objectively deficient and [(2)] counsel’s
deficiency prejudiced the defense, depriving [Soto] of a fair trial with a reliable
result.” United States v. Sanders, 372 F.3d 1183, 1185 (10th Cir. 2004). Soto
“must overcome the strong presumption that counsel’s conduct falls within the
wide range of reasonable professional assistance, and we are reminded that there
are countless ways to provide effective assistance of counsel.” Id. (internal
quotation marks omitted). Prejudice is demonstrated by showing that “there is a
reasonable probability that, but for counsel’s unprofessional errors, the result of
the proceeding would have been different.” Strickland v. Washington, 466 U.S.
668, 694 (1984).
After reviewing the record, we are convinced that Soto has failed to
establish a debatable claim of ineffective assistance of counsel. The search at
issue here was “wholly consistent with and supported by this court’s precedent
prior to Gant.” 3 United States v. McCane, 573 F.3d 1037, 1041S42 (10th Cir.
2009), cert. denied, No. 09-402, 2010 U.S. LEXIS 2009 (U.S. Mar. 1, 2010). We
cannot consider Soto’s trial counsel’s decision not to move to suppress the
methamphetamine objectively deficient when the search that led to its discovery
was conducted in conformity with was at the time our settled caselaw. Employing
similar reasoning, in United States v. Davis, 590 F.3d 847 (10th Cir. 2009), we
held that the good-faith exception to the exclusionary rule applied where a vehicle
was searched in violation of Gant: the good-faith exception “applies when an
officer acts in reasonable reliance upon our settled [caselaw] that is later made
unconstitutional by the Supreme Court.” Davis, 590 F.3d at 848.
Accordingly, we find it beyond debate that Soto cannot overcome the
presumption that his trial counsel rendered reasonable professional assistance.
We are not persuaded that the circumstances relating to Soto’s arrest and the search of his vehicle—namely, that a police officer prevented him from closing a locked car door after exiting his vehicle—remove this case from the bounds of our pre-Gant caselaw concerning vehicle searches incident to arrest or our recent cases applying Gant in the evidence suppression context.
III. Conclusion
For the foregoing reasons, we DENY Soto’s application for a COA and
DISMISS this appeal.
Entered for the Court,
Timothy M. Tymkovich Circuit Judge |
06-2103-bk In re Johns-Manville Corporation, Debtor
UNITED STATES COURT OF APPEALS
F OR THE S ECOND C IRCUIT
August Term, 2009
(Argued: October 22, 2009 Decided: March 22, 2010)
Docket Nos. 06-2103-bk, 06-2118-bk, 06-2186-bk
I N RE J OHNS-M ANVILLE C ORPORATION, D EBTOR
J OHNS-M ANVILLE C ORPORATION, M ANVILLE C ORPORATION, M ANVILLE I NTERNATIONAL C ORPORATION, M ANVILLE E XPORT C ORPORATION, J OHNS-M ANVILLE I NTERNATIONAL C ORPORATION, M ANVILLE S ALES C ORPORATION f/k/a J OHNS-M ANVILLE S ALES C ORPORATION, successor by merger to M ANVILLE B UILDINGS M ATERIALS C ORPORATION, M ANVILLE P RODUCTS C ORPORATION AND M ANVILLE S ERVICE C ORPORATION, M ANVILLE I NTERNATIONAL C ANADA, I NC., M ANVILLE C ANADA, I NC., M ANVILLE I NVESTMENT C ORPORATION, M ANVILLE P ROPERTIES C ORPORATION, A LLAN-D EANE C ORPORATION, K EN-C ARYL R ANCH C ORPORATION, J OHNS-M ANVILLE I DAHO I NC., M ANVILLE C ANADA S ERVICE I NC., and S UNBELT C ONTRACTORS I NC.,
Debtors,
T RAVELERS C ASUALTY AND S URETY C OMPANY, T RAVELERS P ROPERTY C ASUALTY C ORP., T RAVELERS I NDEMNITY C OMPANY, C OMMON L AW S ETTLEMENT C OUNSEL, S TATUTORY S ETTLEMENT C OUNSEL, and H AWAII S ETTLEMENT C OUNSEL,
Movants-Appellees,
– v.–
C HUBB I NDEMNITY I NSURANCE C OMPANY, A SBESTOS P ERSONAL I NJURY P LAINTIFFS, C ASCINO A SBESTOS C LAIMANTS, P EARLIE B AILEY, S HIRLEY M ELVIN, G ENERAL L EE C OLE, R OBERT A LVIN G RIFFIN, V ERNON W ARNELL, and L EE F LETCHER A NTHONY, Objectors-Appellants. *
Before: C ALABRESI and W ESLEY, Circuit Judges. **
Appeals from a March 28, 2006 order of the United States District Court for the Southern District of New York (Koeltl, J.), affirming in part and vacating in part an August 17, 2004 order of the United States Bankruptcy Court for the Southern District of New York (Lifland, J.), which granted Travelers’ motions for approval of a settlement agreement and for entry of a “Clarifying Order.”
A FFIRMED IN PART, R EVERSED IN PART, and R EMANDED.
S ANDER L. E SSERMAN (Cliff I. Taylor, Stutzman, Bromberg, Esserman & Plifka, PC; Douglas T. Tabachnik, Law Offices of Douglas T. Tabachnik, Manalapan, New Jersey, on the brief), Stutzman, Bromberg, Esserman & Plifka, PC, Dallas, Texas, for Objector-Appellant Asbestos Personal Injury Plaintiffs.
J ACOB C. C OHN (William P. Shelley, on the brief), Cozen O’Connor, Philadelphia, Pennsylvania, for Objector-Appellant Chubb Indemnity Insurance Company.
J ASON R. S EARCY (Joshua P. Searcy, on the brief), Jason R. Searcy, P.C., Longview, Texas, for Objector-Appellant Cascino Asbestos Claimants.
* The Clerk of the Court is respectfully directed to amend the official captions in these actions to conform to the caption listed above.
** The Honorable Sonia Sotomayor, originally a member of the panel, was elevated to the Supreme Court on August 8, 2009. The two remaining members of the panel, who are in agreement, have determined the matter. See 28 U.S.C. § 46(d); 2d Cir. Local Rules, Internal Operating Procedure E; see also United States v. Desimone, 140 F.3d 457, 458-59 (2d Cir. 1998).
B ARRY R. O STRAGER (Andrew T. Frankel, Robert J. Pfister, on the brief), Simpson Thatcher & Bartlett, LLP, New York, New York, for Movants-Appellees Travelers Casualty and Surety Company, Travelers Property Casualty Corp., and Travelers Indemnity Company.
R ONALD B ARLIANT (Kenneth S. Ulrich, Kathryn A. Pamenter, Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.; Karen A. Giannelli, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, PC, Newark, New Jersey, on the brief), Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., Chicago, Illinois, for Movant-Appellee Common Law Settlement Counsel.
M ATTHEW G LUCK (Kent A. Bronson, on the brief), Milberg Weiss Bershad & Schulman, LLP, New York, New York, for Movants-Appellees Statutory Settlement Counsel and Hawaii Settlement Counsel.
P ER C URIAM:
For almost 30 years, the Johns-Manville Corporation
(“Manville”) and its insurers have sought to navigate the
monumental liability arising out of its production of a
once-valued substance — asbestos. These appeals are yet
another judicial stop on that long journey.
The matter is before us on remand from the Supreme
Court of the United States, which determined that the
bankruptcy court’s 1986 orders in Manville’s Chapter 11
proceedings — “whether or not proper exercises of bankruptcy
court jurisdiction and power” — are not subject to
collateral attack by either the parties to the 1986
proceedings or those in privity with them. Travelers Indem.
Co. v. Bailey, 129 S. Ct. 2195, 2205, 2207 (2009). The
Court directed us to address the parties’ remaining,
properly preserved arguments. See id. at 2207. As the
Bailey Court suggested, the primary current contention is
the argument of Chubb Indemnity Insurance Company (“Chubb”)
that “it was not given constitutionally sufficient notice of
the 1986 Orders, so that due process absolves it from
following them, whatever their scope.” Id. In our view,
Chubb is correct.
Every court that has played a role in this case has
acknowledged that the magnitude and complexity of the
underlying bankruptcy proceedings are unparalleled. Insofar
as the law of bankruptcy is concerned, the Manville Chapter
11 reorganization has few, if any, peers. The remaining
issues in this case, however, implicate bedrock concepts of
due process of law. Applying these principles, we conclude
that Chubb was not afforded constitutionally sufficient
notice of the proceedings that led to the entry of the 1986
orders by the bankruptcy court. As such, Chubb is not bound
by the bankruptcy court’s 2004 interpretation of those
orders. Accordingly, the district court’s order is reversed
as to Chubb, and the case is remanded for further
proceedings.
I. BACKGROUND
A. Facts
The immediate object of this appeal is a March 28, 2006
order of the United States District Court for the Southern
District of New York (Koeltl, J.), which affirmed in part
and vacated in part two August 17, 2004 orders from the
United States Bankruptcy Court for the Southern District of
New York (Lifland, J.). The due process issues that we must
resolve, however, require us to revisit the nascent stages
of Manville’s Chapter 11 proceedings in the early 1980s.
1. Manville’s Chapter 11 Petition
“From the 1920s to the 1970s, Manville was, by most
accounts, the largest supplier of raw asbestos and
manufacturer of asbestos-containing products in the United
States, and for much of that time Travelers was Manville’s
primary liability insurer.” Bailey, 129 S. Ct. at 2198
(internal citation omitted). 1 When the health effects
resulting from exposure to the substance became a matter of
public knowledge, Manville was “crushed by the weight of
[its] century-long entanglement with asbestos,” and it filed
a voluntary Chapter 11 petition in the Southern District of
New York on August 26, 1982. In re Johns-Manville Corp.
(“Manville I”), Nos. 82 B. 11656 et al., 2004 WL 1876046, at
*14 ¶ 52 (S.D.N.Y. Bankr. Aug. 17, 2004), aff’d in part and
vacated in part by In re Johns-Manville Corp. (“Manville
II”), 340 B.R. 49 (S.D.N.Y. 2006). Soon after the petition
was filed, the bankruptcy court recognized “that Manville’s
insurance policies were the bankruptcy estate’s most
valuable asset.” In re Johns-Manville Corp. (“Manville
III”), 517 F.3d 52, 56 (2d Cir. 2008). The value of those
policies was uncertain, however, because they were the
subject of a series of “contentious, costly and
time-consuming coverage dispute[s]” between Manville and a
number of asbestos-industry insurers in the California
Superior Court. Manville I, 2004 WL 1876046, at *14 ¶ 54.
We use the term “Travelers” to refer to Travelers Casualty and Surety Company, Travelers Property Casualty Corporation, and Travelers Indemnity Company, as well as their respective affiliates, predecessors, successors, assigns, officers, and directors. See Manville III, 517 F.3d at 55 n.3.
The insurers’ ability to honor the Manville policies,
whether at full value or not, was also complicated by
potential liability arising out of other asbestos litigation
in which they were involved. Id. ¶¶ 54-57.
Between October 1983 and July 1984, in order “[t]o
avoid the uncertainty of the insurance litigation and to
fund its plan of reorganization, Manville sought to settle
its insurance [coverage] claims.” Manville III, 517 F.3d at
56. The result of these negotiations, which were admirably
facilitated by the bankruptcy court, was a settlement that
ultimately yielded over $850 million paid by the insurers to
the Manville estate. Id. at 56 & n.8.
On May 25, 1984, Manville publicly announced that it
had agreed in principle to a settlement of its insurance
coverage disputes. Soon after the announcement, Manville
and a group of insurers — Travelers among them — executed a
settlement agreement (the “1984 Insurance Settlement
Agreement”).
The settlement[] provided that, in exchange for cash payments [into a settlement fund], the insurers would be relieved of all obligations related to the disputed policies and the insurers would be protected from claims based on such obligations by injunctive orders of the Bankruptcy Court.
MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 90 (2d
Cir. 1988).
More specifically, the 1984 Insurance Settlement
Agreement contained three parts. First, the Settling
Insurers agreed that, if Manville voluntarily withdrew its
claims in the insurance coverage disputes, they would make a
series of payments into the Manville Personal Injury
Settlement Trust (“Manville Trust”). Manville III, 517 F.3d
at 57. 2 Travelers paid $80 million into the Manville Trust
pursuant to the agreement. Id. Second, the agreement
required that the order confirming Manville’s Chapter 11
reorganization would contain an injunction that: (1)
channeled “solely” to the Manville Trust all “Policy
Claims,” which the agreement defined as “any and all claims
. . . by any Person . . . based upon, arising out of or
related to any or all of the Policies” at issue in the
settlement; 3 and (2) barred “Policy Claims against any or
Chubb was not a party to the 1984 Insurance Settlement Agreement. Rather, the “Settling Insurers” were “The Travelers Indemnity Company on behalf of itself and each of its Affiliates, The Home Insurance Company on behalf of itself and each of its Affiliates and each Lloyd’s Syndicate and British Company.” The full definition of “Policy Claims” in the 1984 Insurance Settlement Agreement was identical to the definition of that term in the orders that were ultimately
all members of the Settling Insurer Group.” Third, in order
to resolve the asbestos-related claims that were to be
channeled to the Manville Trust, the parties to the
settlement agreed that compensation from the Manville Trust
would only be available to claimants that executed “broad
releases” of liability as to the Settling Insurers relating
to “any and all claims . . . whether or not presently known
. . . based upon, arising out of or related to the
Policies.” 4
On August 2, 1984, Manville sought the bankruptcy
court’s preliminary approval of the 1984 Insurance
Settlement Agreement. Manville’s submission stated that:
The parties to the Agreement will request this Court to order that[,] because these [insurance] policies constitute property of the [Manville] estate under Section 541 of the [Bankruptcy] Code . . . , the property be liquidated by this settlement, and that all claims by any person to the res be channeled to that liquidated fund, and that all persons be enjoined from suing the Settling Insurers because the property of the estate has been liquidated and will be in possession of the Court.
entered by the bankruptcy court. The administrators of the Manville Trust have used at least three different versions of this release, but the language relating to its scope has not been revised in a material fashion. See Manville I, 2004 WL 1876046, at *16- 17 ¶¶ 67-68 & n.5.
In a separate “Application” that was simultaneously
submitted to the bankruptcy court, Manville proposed “notice
and service procedures with respect to the Insurance
Settlement Agreement and the hearing to be held by [the
bankruptcy court] to consider the fairness and approval
thereof.” The Application proposed that notice of the
settlement and hearing be provided by mail to several groups
of “interested” parties, as well as by publication in
approximately 91 newspapers throughout the United States and
Canada. Manville indicated that the “supplemental”
publication notice was appropriate “because of the
‘channeling’ mechanism and injunctive relief required by the
proposed Insurance Settlement Agreement and the effect
thereof on those who might assert an interest in the
insurance policies and the Debtors’ claims against the
Settling [Insurers].”
In response to Manville’s request, also on August 2,
1984, the bankruptcy court issued a “Notice of Hearing to
Consider Approval of Compromise and Settlement of Insurance
Litigation.” The Notice stated:
The proposed Insurance Settlement Agreement provides [that] . . . [a]n order of the Bankruptcy Court shall be obtained providing that all persons shall be restrained and enjoined from commencing
and/or continuing any suit, arbitration or other proceeding of any type or nature for any and all claims, demands, allegations, duties, liabilities and obligations (whether or not presently known) which have been, or could have been, or might be asserted by any person against any and all the Settling [Insurers] based upon, arising out of or relating to any or all of the insurance policies . . . .
On August 14, 1984, shortly after beginning the
approval process for the 1984 Insurance Settlement
Agreement, the bankruptcy court appointed a Future Claims
Representative (“FCR”) to represent future asbestos
claimants whose interest in the Manville Chapter 11
proceedings might vest after the settlement was approved and
Manville’s reorganization plan was confirmed. The
bankruptcy court defined the class of “Future Claimants” as
“those persons who have been exposed to asbestos or asbestos
products mined, manufactured or supplied by Manville pre-
petition and have manifested or will manifest disease post-
petition and who are not otherwise represented in these
proceedings.” The court then appointed the FCR, “nunc pro
tunc as of August 1, 1984,” to represent the Future
Claimants by “exercis[ing] the powers and perform[ing] the
duties of a Committee under Section 1103 of the Bankruptcy
Code.”
Following the bankruptcy court’s approval of notice
procedures and the appointment of an FCR, it conducted
settlement-approval proceedings on an ongoing basis between
1984 and 1986. After receiving notice, several parties
objected to the settlement. In one pertinent example, the
“Committee of Asbestos-Related Litigants and/or Creditors”
challenged the definition of “Policy Claims” in the 1984
Insurance Settlement Agreement:
The [Settling] Insurers’ breach of covenants of good faith and fair dealing and consumer protection statutes (e.g., Calif. Insur. Code § 790.09(h)) clearly arise out of or relate to the Policies [at issue in the Settlement]
. . .
But these claims are not direct actions for proceeds; they are independent third party claims against the [Settling] Insurers which are not derivative of Manville’s rights. The [Manville] Estate never has, or can ever have, any right in these claim proceeds, for they are not contractual — they are personal rights which the victims have for the tortious conduct of the [Settling] Insurers.
(Reply Memorandum of the Asbestos Committee Opposing the
Proposed Insurance Settlement Agreement on Legal Grounds, at
8-9 (May 13, 1985) (emphasis in original).) In support of
this contention, the Committee asserted that “[i]t is well-
established that the [Bankruptcy] Court has no jurisdiction
. . . to grant the discharge of and injunction against these
independent, non-derivative claims, as the [1984 Insurance
Settlement] Agreement requires.” (Id. at 10.)
In response to these and other objections to the
settlement, the parties executed a letter agreement on June
3, 1985, which indicated that it was to operate as an
amendment to the 1984 Insurance Settlement Agreement. One
portion of the letter agreement stated:
The Court has in rem jurisdiction over the Policies and thus the power to enter appropriate orders to protect that jurisdiction. The channeling order is intended only to channel claims against the res [of the Manville estate] to the Settlement Fund and the injunction is intended only to restrain claims against the res (i.e., the Policies) which are or may be asserted against the Settling Insurers.
(emphasis added). The letters were executed by Travelers’
counsel and indicated that “[t]he foregoing is confirmed on
behalf of the Travelers Indemnity Company . . . and each of
its Affiliates.”
After conducting periodic hearings and conferences
throughout 1984 and 1985, the bankruptcy court entered an
order on September 26, 1985 that “approved pursuant to Rule
9019 of the Rules of Bankruptcy Procedure” the 1984
Insurance Settlement Agreement “together with” the June 3,
1985 letter agreement. The order conditioned the final
approval of the settlement on “the result of a hearing” that
would resolve, inter alia, whether the “amounts paid in
settlement fall within the range of reasonableness.”
2. The Confirmation of the Manville Reorganization Plan and Approval of the 1984 Insurance Settlement Agreement
In August 1986, the bankruptcy court entered an order
setting the procedures that would be followed to confirm the
Manville Plan. The order directed Manville to provide
notice of the confirmation proceedings pursuant to an August
22, 1986 “Plan of Notification” of the confirmation
proceedings, which included a series of newspaper and
television advertisements and a direct mailing to interested
parties. The ongoing evidentiary hearing relating to the
1984 Insurance Settlement Agreement was concluded on
November 19, 1986. Several parties filed additional
objections to the Manville Plan itself, and the bankruptcy
court conducted the last hearing relating to the Manville
Plan on December 16, 1986. Two days later, on December 18,
the bankruptcy court granted final approval to the 1984
Insurance Settlement Agreement (the “Insurance Settlement
Order”), and it entered an order confirming the Manville
Plan on December 22 (the “Confirmation Order,” collectively,
with the Insurance Settlement Order, the “1986 Orders”).
The Insurance Settlement Order contained a series of
provisions that were required by the terms of the 1984
Insurance Settlement Agreement in order to: (1) enjoin
“Policy Claims” against Travelers and the other Settling
Insurers; and (2) “channel” asbestos claimants with Policy
Claims to the settlement proceeds housed in the Manville
Trust. See generally Manville I, 2004 WL 1876046, at *15 ¶
61. The term “Policy Claims” was defined in the Order as
any and all claims . . . (whether or not presently known) which have been, or could have been, or might be, asserted by any Person against any or all members of [Manville] or against any or all members of the Settling Insurer Group based upon, arising out of or relating to any or all of the Policies.
A “channeling injunction” directed that Policy Claims were
to be “transferred, and shall attach, solely” to the
Manville Trust. The Insurance Settlement Order also
provided the Settling Insurers with a release from all
“duties or obligations based upon, arising out of or related
to the Policies and . . . from any and all Policy Claims.”
Finally, the Order contained a permanent injunction that
prohibited “all Persons . . . from commencing and/or
continuing any suit . . . of any type or nature for Policy
Claims against any or all members of the Settling Insurer
Group.”
The Confirmation Order incorporated by reference the
Insurance Settlement Order, and this Court rejected
challenges to both of the 1986 Orders on direct appeal in
MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 94 (2d
Cir. 1988). Congress subsequently used the bankruptcy
court’s orders as a model to add a provision relating to
channeling injunctions to the Bankruptcy Code. See Manville
III, 517 F.3d at 61 (citing 11 U.S.C. § 524(g)). As of
2004, the Manville Trust had paid more than $3.2 billion to
over 606,000 asbestos claimants. See Bailey, 129 S. Ct. at
2199.
3. The “Direct Actions”
Long after the 1986 Orders were entered by the
bankruptcy court, asbestos claimants began to file claims
against Travelers and other insurers in several states
across the country. “Because many of the suits at issue
[sought] to hold Travelers liable for independent wrongdoing
rather than for a legal wrong by Manville, they [were] not
direct actions in the terms of strict usage.” Bailey, 129
S. Ct. at 2200 n.2. Nevertheless, we again use the phrase
“Direct Actions,” for purposes of simplicity, to describe
these claims. See Manville III, 517 F.3d at 55 n.4. 5
Viewed broadly, they came in two flavors: (1) “Statutory
Direct Actions” based on states’ statutory regulation of
insurance practices; and (2) “Common Law Direct Actions,” in
which it was alleged that Travelers and others violated
“duties to disclose certain asbestos-related information
[that they] learned” as asbestos-industry insurers. Id. at
58.
In 2002, relying on the terms of the 1986 Orders,
Travelers sought an injunction from the bankruptcy court
against several then-pending Direct Actions. 6 The court
issued a temporary restraining order and referred the matter
to mediation before Mario Cuomo, former governor of New
The claims brought pursuant to Louisiana’s direct action statute, La. Rev. Stat. 22:1269 (2009), are the only true direct actions resolved by the 2004 Direct Action Settlement. See Manville III, 517 F.3d at 62-63 (citing In re Davis, 730 F.2d 176 (5th Cir. 1984) (per curiam)). There is no dispute that these actions are enjoined by the 1986 Orders. Travelers’ initial motion for a preliminary injunction related to Direct Actions in the state courts of Louisiana, Massachusetts, Texas, and West Virginia. In 2003, Travelers filed two similar motions for injunctions of Direct Actions in Texas and Ohio. See Manville III, 517 F.3d at 58 & n.11.
York. Id. The mediation ultimately allowed Travelers to
reach a tripartite settlement — the “2004 Direct Action
Settlement” — involving three categories of Direct Actions:
the Common Law Direct Actions, the Statutory Direct Actions,
and another set of Statutory Direct Actions separately
referred to as the Hawaii Direct Actions.
In November 2003, as part of the resolution of the
Statutory Direct Actions, Travelers agreed to pay up to $360
million into a fund that would be used to compensate
claimants with those sorts of claims. Manville I, 2004 WL
1876046, at *22 ¶ 96. In May 2004, Travelers agreed to
create a similar $70 million fund for present and future
claimants in Common Law Direct Actions, as well as a $15
million fund for the plaintiffs in the Hawaii Direct
Actions. Id. at *22-23 ¶¶ 101, 105. In order to gain
access to the funds established by Travelers, which are
separate from the Manville Trust created pursuant to the
1984 Insurance Settlement Agreement, the 2004 Direct Action
Settlement required that claimants release Travelers from
further liability “separate and apart from Travelers’
protection under the 1986 Orders.” Bailey, 129 S. Ct. at
2200. The Settlement was also conditioned upon the entry of
a “Clarifying Order” by the bankruptcy court. The
contemplated order was to state, in essence, that the Direct
Actions “are, and have always been, prohibited by the 1986
[O]rders.” Manville III, 517 F.3d at 58.
Travelers filed a motion seeking the bankruptcy court’s
approval of the Common Law Direct Action settlement in March
2004, and then sought approval of the latter two agreements
in June of the same year. The bankruptcy court approved an
extensive set of party-driven notice procedures, and
conducted hearings on July 6 and August 17, 2004 to resolve
objections to the settlement.
Among the objectors was Chubb, an asbestos-industry
insurer that was one of Travelers’ co-defendants in the
Common Law Direct Actions but not a party to the 1984
Insurance Settlement Agreement. Through its objections,
Chubb sought to preserve its ability to bring claims against
Travelers for contribution and indemnity relating to their
potential joint liability in the Common Law Direct Actions.
See Manville I, 2004 WL 1876046, at *33 ¶ 33; see also
Manville III, 517 F.3d at 60 n.17. Chubb contended that the
bankruptcy court lacked authority to enjoin it from doing
so, and presented two principal arguments in support of its
position. First, Chubb joined an argument presented by
certain individual asbestos claimants that the bankruptcy
court lacked subject matter jurisdiction to enjoin non-
derivative claims against Travelers, a third-party non-
debtor, in Manville’s Chapter 11 proceedings. Second, Chubb
asserted that Travelers was seeking injunctive relief that
could not “constitutionally be applied” to it because, in
the 1980s, Chubb “was in the position of a potential future
claimant with no knowledge of its potential future claims
[against Travelers] and for which no future claims
representative . . . was appointed to protect its rights.”
On August 17, 2004, the bankruptcy court issued
“Findings of Fact and Conclusions of Law” in which it
rejected, inter alia, Chubb’s two-pronged challenge to the
2004 Direct Action Settlement. On the same day, the
bankruptcy court entered the “Clarifying Order” that was
contemplated by settlement (collectively, with the
bankruptcy court’s “Findings of Fact and Conclusions of
Law,” the “2004 Orders”).
The 2004 Orders have three primary features that are
relevant to these appeals. First, based on its fact finding
that “Travelers learned virtually everything it knew about
asbestos from its relationship with Manville,” the
bankruptcy court “clarifie[d]” that all of the Direct
Actions “are within the scope of the [1986 Orders’]
prohibitions, and are — and always have been — permanently
barred.” Manville I, 2004 WL 1876046, at *30 ¶ 19. Second,
the bankruptcy court rejected Chubb’s arguments that it was
“unauthorized to bar the contribution or indemnity claims
[Chubb] may have against Travelers.” Id. at *33 ¶ 33. It
reasoned that those claims, too, were barred by the 1986
Orders, and that a “Judgment Reduction Provision” in the
2004 Orders “protects the interests of non-settling
defendants in the direct action claims so completely as to
render their objections to the settlements moot.” Id. at
*34 ¶ 38; see also id. at *33-34 ¶¶ 34-35. 7 Finally, in
The Judgment Reduction Provision states that:
Any judgment obtained against . . . any objecting insurer [e.g., Chubb] . . . regardless of whether such Insurer was a settling Manville insurer [in 1986], with respect to any claim asserted in any lawsuit that is enjoined as to Travelers and not enjoined as to said Insurer shall be reduced by the greater of: (a) the amount (if any) the Claimant has recovered or is entitled to recover from the [Direct Action Settlement] Fund . . . to the extent that the Insurer is entitled to such a reduction for that amount under the applicable state law; or (b) to the extent permitted under the applicable state law, the amount or percentage (up to 100%) that the Insurer would have been able to recover from Travelers, whether by
response to claims by what it deemed “creative plaintiffs,”
the bankruptcy court approved a “Gate-keeping” Provision
that “vest[ed] the initial determination regarding whether
an asbestos suit against Travelers will violate the [1986
and 2004] orders” with the bankruptcy court rather than the
court in which the claims were filed. Id. at *35 ¶¶ 42, 44;
see generally id. at *34-35 ¶¶ 39-44.
B. Procedural History
Two groups of parties appealed the bankruptcy court’s
2004 Orders to the district court: (1) a number of insurers
that included Chubb; and (2) asbestos claimants separately
referred to as the Asbestos Personal Injury Plaintiffs and
the Cascino Asbestos Claimants (collectively, the “Objecting
Plaintiffs”). 8 See Manville II, 340 B.R. at 55. The
contribution, indemnity or otherwise under applicable state law, had Travelers been joined in said lawsuit and/or sued for indemnity and/or contribution in a separate lawsuit. The parties comprising the Asbestos Personal Injury Plaintiffs and the Cascino Asbestos Claimants were discussed in our prior decision, and those terms have the same meaning here. See Manville III, 517 F.3d at 55 nn.1-2. Although the groups filed separate opening briefs prior to Manville III, the Cascino Asbestos Claimants declined to file supplemental briefing following the Supreme Court’s remand and did not present additional oral argument. Unless otherwise stated, we find the substance of their remaining arguments to be materially indistinguishable from those of the Asbestos Personal Injury Plaintiffs.
district court affirmed the bankruptcy court’s 2004 Orders
in all respects except as to the Gate-keeping Provision.
The bulk of the district court’s decision related to
the Objecting Plaintiffs’ argument that “the injunction in
the [2004] Clarifying Order is broader than the 1986 Orders,
and that, even if the 1986 Orders contemplated Direct Action
Suits, the Bankruptcy Court had no jurisdiction in 1986 to
bar such suits.” Id. at 59. The district court rejected
this contention for three reasons. First, the court agreed
with the bankruptcy court that the language of the 1986
Orders barred all of the Direct Actions. See id. at 61.
Second, emphasizing the bankruptcy court’s factual findings
relating to Travelers’ relationship with Manville and the
nature of the Direct Actions, it held that “the Bankruptcy
Court had jurisdiction over Travelers’ insurance policies,
and could act to protect them from dissipation by direct
action claims by enjoining those claims and channeling them
into the Manville Trust.” Id. at 63. Third, the district
court concluded that it was “unlikely” that the 2004 Orders
“impermissibly bar[] suits involving Travelers’ conduct with
respect to insureds other than Manville and asbestos injury
completely unrelated to Manville.” Id. at 65. Based on
that reasoning, the district court held that the bankruptcy
court had “subject matter jurisdiction to enjoin the Direct
Action Suits pursuant to the 1986 Orders and the Clarifying
Order.” Id. at 67.
The district court also rejected Chubb’s argument that
it could not be bound by the 1986 Orders. See id. at 68.
The court held that, because Chubb was a “sophisticated
insurer with asbestos-related insurance policies,” the
bankruptcy court’s August 2, 1984 Notice relating to the
1984 Insurance Settlement Agreement “should have put Chubb
. . . on notice with regards to whatever asbestos-related
claims it may have against Travelers and the other settling
insurers.” Id.
The district court also rejected Chubb’s reliance on
Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) and
Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999). The court
reasoned that, “[u]nlike the class action settlements in
Amchem and Ortiz,” which involved exercises of in personam
jurisdiction over asbestos manufacturers, “the injunction
here is based on the Bankruptcy Court’s in rem power over
the Manville estate.” Manville II, 340 B.R. at 68-69.
Thus, in the district court’s view, “there is an exception
to the due process concerns raised by Chubb” because the
bankruptcy code creates “‘a special remedial scheme’” that
allows for the foreclosure of “‘successive litigation by
nonlitigants.’” Id. at 68 (quoting Ortiz, 527 U.S. at 846).
The district court reached a different conclusion,
however, with respect to the Gate-keeping Provision in the
2004 Orders. The court reasoned that, while the bankruptcy
court possessed contempt authority to sanction litigants
that violated the 1986 Orders, it lacked “jurisdiction to
screen, in the first instance, suits against a non-debtor
that purport to assert claims unrelated to the debtor or the
estate.” Id. at 66.
Following the district court’s decision, Chubb,
OneBeacon America Insurance Company, Continental Casualty
Company, 9 and the Objecting Plaintiffs appealed to this
Court. 10 In Manville III, we focused on whether the
OneBeacon America Insurance Company and Continental Casualty Company withdrew their appeals prior to our decision in Manville III. See Dkt. Nos. 06-2099-bk, 06- 2105-bk. Travelers also filed an untimely appeal challenging the district court’s vacatur of the Gate-keeping Provision. See Dkt. No. 06-2320-bk. “Acknowledging its tardiness in filing its notice of cross-appeal, Travelers [also] filed with the District Court a motion to extend by one day the time allotted to file a notice of cross-appeal,” pursuant to Federal Rule of Appellate Procedure 4(a)(5)(A). In re
bankruptcy court possessed subject matter jurisdiction “to
enjoin the Direct Action Claims against Travelers.”
Manville III, 517 F.3d at 65. In finding that it did not,
we reasoned that “clarification cannot be used as a
predicate to enjoin claims over which [the bankruptcy court]
had no jurisdiction.” Id. at 61. In light of Travelers’
in-court concession that “both the statutory and common law
[direct action] claims seek damages . . . that are unrelated
to the policy proceeds” that are part of Manville’s
bankruptcy estate, we criticized the jurisdictional analysis
undertaken below for its failure to analyze separately the
state-law legal duties that serve as the basis for the
various types of Direct Actions. See id. at 63, 67
(emphasis omitted). In that regard, we distinguished
between true “direct action[s] against an insurer when the
insured is insolvent,” and claims that “seek to recover
directly from the debtor’s insurer for the insurer’s own
Johns-Manville Corp., 476 F.3d 118, 120 (2d Cir. 2007). The district court denied Travelers’ motion, and Travelers appealed that decision as well. See Dkt. No. 06-3317-bk. In a consolidated opinion, we affirmed the district court’s denial of Travelers’ motion for an extension of time and dismissed as untimely Travelers’ cross-appeal. In re Johns- Manville Corp., 476 F.3d at 124. Consequently, the district court’s ruling regarding the Gate-keeping Provision is not before us.
independent wrongdoing.” Id. at 64-65. While we concluded
that the 2004 Orders were “on sound jurisdictional ground”
to the extent that they “clarified” that the former type of
claims was enjoined, id. at 64 (citing Louisiana’s direct
action statute), we held that the bankruptcy court lacked
jurisdiction to enjoin claims that “aim to pursue the assets
of Travelers” and “make no claim against an asset of the
bankruptcy estate.” Id. at 65; see also Bailey, 129 S. Ct.
at 2208-09 (Stevens, J., dissenting) (“Recognizing the
distinction between insurer actions and independent actions,
the Court of Appeals held that the Bankruptcy Court had
improperly enjoined the latter in its 2004 order.”). In
short, we concluded that “a bankruptcy court only has
jurisdiction to enjoin third-party non-debtor claims that
directly affect the res of the bankruptcy estate.” Manville
III, 517 F.3d at 66. As such, we held that the bankruptcy
court erred by using the 2004 Orders as a “jurisdictional
bootstrap” to enjoin non-derivative claims against
Travelers, a non-debtor, that did not seek to collect from
Manville’s bankruptcy estate. Id. at 68.
The Supreme Court granted certiorari and reversed
Manville III in Bailey. The Bailey Court characterized
appellants’ jurisdictional argument as an impermissible
collateral attack, and held that the 1986 Orders mean what
they say. The Court reasoned that the Direct Actions — and,
presumably, claims by Chubb against Travelers for
contribution and indemnity — are “Policy Claims” under the
1986 Orders. See Bailey, 129 S. Ct. at 2203. This point
was “drive[n] home” by the bankruptcy court’s undisputed
factual findings relating to the extent of the knowledge
that Travelers obtained from Manville during their insurer-
insured relationship. Id. The Court acknowledged that
there are “certainly . . . statements in the record”
indicating that “some parties to the Manville bankruptcy
(including Travelers) understood the proposed [1986]
injunction to bar only claims derivative of Manville’s
liability,” but nevertheless held that the “plain terms” of
the 1986 Orders “unambiguously” bar the Direct Actions. Id.
at 2204. The 1986 Orders, in turn, “became final on direct
review over two decades ago” following MacArthur Co. v.
Johns-Manville Corp., 837 F.2d 89, 90 (2d Cir. 1988).
Bailey, 129 S. Ct. at 2203. The Court then held that the
bankruptcy court’s jurisdiction to enter the 1986 Orders was
not subject to collateral attack in these proceedings by
parties who were bound by the previous Orders, and that the
2004 Orders were a proper exercise of the bankruptcy court’s
authority to interpret the 1986 Orders. See id. at 2203.
The Supreme Court characterized Manville III as having
undertaken a “different jurisdictional inquiry” relating to
whether the bankruptcy court “had exceeded its jurisdiction
when it issued the orders in 1986.” Id. at 2205. This, the
Court reasoned, was error:
[O]nce the 1986 Orders became final on direct review (whether or not proper exercises of bankruptcy court jurisdiction and power), they became res judicata to the “parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.”
Id. at 2205 (quoting Nevada v. United States, 463 U.S. 110,
130 (1983)). The Bailey Court emphasized, however, that its
holding was “narrow.” Id. at 2207. First, “owing to the
posture of this litigation,” the Court “[did] not resolve
whether a bankruptcy court, in 1986 or today, could properly
enjoin claims against nondebtor insurers that are not
derivative of the debtor’s wrongdoing.” Id. Second, it
declined to “decide whether any particular [party] is bound
by the 1986 Orders,” and instructed us to address Chubb’s
due process argument and other properly preserved objections
raised in these appeals. Id.
On remand, we accepted supplemental briefing from the
parties and conducted another oral argument. On October 21,
2009, on the eve of the second argument, the Objecting
Plaintiffs voluntarily withdrew their challenges to the
portions of the 2004 Direct Action Settlement relating to
the Statutory Direct Actions (including the Hawaii Direct
Actions). Remaining to be resolved, then, are the preserved
objections — including those of Chubb — to the portion of
the 2004 Direct Action Settlement relating to the Common Law
Direct Actions.
II. DISCUSSION
In an appeal from a district court order affirming a
decision of the bankruptcy court, we perform an independent,
de novo review of the bankruptcy court’s conclusions. E.g.,
O’Rourke v. United States, 587 F.3d 537, 540 (2d Cir. 2009).
The remaining appeals present one primary question: whether
it would offend the Due Process Clause to enforce the 1986
Orders against the Objecting Plaintiffs and Chubb. The
Objecting Plaintiffs forfeited this argument by failing to
raise it in their direct appeals from the district court’s
decision. Chubb, however, has raised this objection
consistently from the outset, and we conclude that it would
be inconsistent with fundamental notions of due process to
bind Chubb to the 1986 Orders. Accordingly, for the reasons
set forth below, we reverse as to Chubb but affirm as to the
Objecting Plaintiffs.
A. The Objecting Plaintiffs
The Objecting Plaintiffs argue on remand that they were
not adequately represented at the proceedings that led to
the entry of the 1986 Orders, and therefore they are not
bound by the bankruptcy court’s 2004 interpretation of those
Orders. This contention has been forfeited, however,
because the Objecting Plaintiffs have raised it for the
first time after the Supreme Court’s remand. See Sniado v.
Bank Austria AG, 378 F.3d 210, 213 (2d Cir. 2004).
Generally speaking, of course, this waiver principle is
prudential rather than jurisdictional. Id. Nevertheless,
we lack the authority to reach the merits of this due
process question because the Supreme Court instructed us to
address only properly preserved arguments on remand. See
Bailey, 129 S. Ct. at 2207. In other words, the Supreme
Court itself decided, in its discretion, that forfeited
arguments should not be considered. As a result, because
the Objecting Plaintiffs failed to raise this argument in
their initial appeals, and because it would be inconsistent
with the terms of the Supreme Court’s remand instructions to
reach it now, we hold that this argument by the Objecting
Plaintiffs has been forfeited.
The Asbestos Personal Injury Plaintiffs have preserved
a narrower objection couched in terms of due process. In
their opening appellate brief, they argued that the
bankruptcy court employed an improperly “truncated” approval
process in 2004 relating to the Direct Action Settlement,
which “[did] not meet due process standards as enunciated by
the United States Supreme Court.” They further contended
that the “expedited approval” of the 2004 Direct Action
Settlement did not “allow[] them an opportunity to ‘weigh
in’ on the proposed settlement.”
These assertions are meritless. In MacArthur, for
example, we rejected an argument that due process required
that an objector to the 1984 Insurance Settlement Agreement
receive notice of the settlement negotiations before terms
were reached by the parties to the agreement. See
MacArthur, 837 F.2d at 94. We did so because the appellant
was “provided with notice and a hearing before the
settlements were approved by the Bankruptcy Court.” Id.
The same is true here. The terms of a settlement regarding
the Common Law Direct Actions were reached in May 2004 as a
result of the mediation conducted by Governor Cuomo; on June
9, 2004, the bankruptcy court approved extensive notice
procedures relating to the settlement-approval process; and
the bankruptcy court conducted fairness hearings — at which
the Objecting Plaintiffs were represented — on July 6 and
August 17, 2004. See Manville I, 2004 WL 1876046, at *22 ¶
101, *24 ¶ 116, *30 ¶ 15. Under these circumstances, we
find no basis in the record for the Asbestos Personal Injury
Plaintiffs’ assertion that the Due Process Clause required
more. We therefore reject this narrower due process
argument as well, and hold that all of the Objecting
Plaintiffs are bound by the bankruptcy court’s 2004
interpretation of the 1986 Orders.
B. Chubb
In the proceedings that led to the entry of the 2004
Orders, Chubb objected to the Direct Action Settlement on
the grounds that: (1) the bankruptcy court lacked subject
matter jurisdiction to bar its contribution and indemnity
claims against Travelers, and (2) it could not, as a matter
of due process, be bound to the 1986 Orders’ terms. Both
the bankruptcy court and the district court rejected these
arguments, albeit for different reasons. Chubb raised the
same due process contention before this Court in its opening
appellate brief, but we did not reach the issue in Manville
III. See 517 F.3d at 60 n.17. In light of the Bailey
Court’s remand instructions, we must address this due
process question now.
The significance of this issue must be understood in
light of the Supreme Court’s opinion and our earlier
opinion. The Supreme Court did not decide whether the
bankruptcy court had jurisdiction to issue the broad orders
that it did in 1986. We had held in Manville III that the
bankruptcy court exceeded its jurisdiction in issuing those
orders, at least as those orders were interpreted in the
2004 Orders. But the bankruptcy court’s error did not
matter as far as the Supreme Court was concerned, because
most of the litigants, having failed to raise that claim of
error at the time of the 1986 Orders, were, the Bailey Court
held, barred from raising it later on. The same would be
true of Chubb if the 1986 Orders properly bound Chubb. If,
instead, the 1986 Orders could not bind Chubb because such a
holding would violate due process, then Chubb may challenge
the bankruptcy court’s jurisdiction. And that challenge
would necessarily be successful in our Court, pursuant to
our holding in Manville III — which the Supreme Court
neither embraced nor assailed — that the bankruptcy court
exceeded its subject matter jurisdiction in issuing the 1986
Orders (as interpreted).
With that context, we proceed to the question at hand.
For the following reasons, we hold that both the bankruptcy
court and the district court erred in rejecting Chubb’s due
process argument. Chubb, therefore, is permitted to
challenge the bankruptcy court’s jurisdiction to issue the
1986 Orders. And, because we adhere to our holding in
Manville III that the bankruptcy court exceeded its
jurisdiction in 1986, it follows that Chubb is not bound by
the terms of the 1986 Orders.
1. The Bankruptcy Court’s Ruling in Manville I
The bankruptcy court treated Chubb’s arguments as a
generalized assertion that the court was “unauthorized to
bar the contribution or indemnity claims [Chubb] may have
against Travelers.” Manville I, 2004 WL 1876046, at *33 ¶
33. The court offered two reasons for rejecting Chubb’s
position. First, it reasoned that the contribution and
indemnity claims at issue — like the Direct Actions — were
barred by the terms of the 1986 Orders. See id. at *33-34
¶¶ 34-35. Second, the bankruptcy court held that the
Judgment Reduction Provision in the 2004 Orders not only
“enforces the [1986 Orders] by clarifying that Policy Claims
arising from Travelers[’] alleged conduct may not be
surreptitiously collected by [Direct Action plaintiffs] from
other insurers,” but also “protects the interests of
non-settling defendants in the direct action claims so
completely as to render their objections to the settlements
moot.” Id. at *34 ¶¶ 36, 38. We are not persuaded.
With respect to due process, it is of no moment
whether the terms of the 1986 Orders have been, in effect,
read by the bankruptcy court to bar Chubb’s claims. Put
differently, the text of the orders that were ultimately
entered in 1986 does not speak to whether Chubb was afforded
due process during the proceedings that led to the entry of
those orders in the first place. In reasoning otherwise,
and by grouping together what should have been distinct
inquiries regarding subject matter jurisdiction and Chubb’s
due process rights, the bankruptcy court put the proverbial
cart before the horse by assuming that Chubb was bound by
the 1986 Orders. The Supreme Court impliedly recognized
this by remanding to us the due process question.
Similarly deficient is the bankruptcy court’s reference
to the Judgment Reduction Provision in the 2004 Orders.
This provision neither “completely” protects Chubb’s due
process rights with respect to the entry of the 1986 Orders,
nor renders Chubb’s objection “moot.” Id. at *33 ¶ 38.
Relying on the 2004 Judgment Reduction Provision as an
enforcement mechanism for the 1986 Orders — like the
bankruptcy court’s emphasis of the terms of the 1986 Orders
— ignores, rather than addresses, Chubb’s due process
argument. Indeed, the Judgment Reduction Provision is only
relevant to the extent that the 1986 Orders actually
prohibit Chubb from bringing non-derivative claims against
Travelers for contribution and indemnity. Chubb contests
this premise; the issue is therefore whether Chubb may be
bound at all by the 1986 Orders, whatever their meaning.
With respect to that contention, it is beside the point that
the 2004 Orders “enforc[e]” the 1986 Orders, id. at *34 ¶
38, or that the Judgment Reduction Provision may in some
circumstances ameliorate Chubb’s liability exposure in the
Common Law Direct Actions. 11 We therefore hold that the
bankruptcy court erred by relying on the terms of the 1986
Orders and the 2004 Judgment Reduction Provision to reject
Chubb’s due process argument.
2. The District Court’s Ruling in Manville II
Assuming, arguendo, that the Judgment Reduction Provision could affect Chubb at all, the bankruptcy court also erred by suggesting that the Provision “completely” protects Chubb’s “interests.” Manville I, 2004 WL 1876046, at *34 ¶ 38. The Provision contemplates two methods of calculating judgment reduction: (1) the pro tanto method, see, e.g., Singer v. Olympia Brewing Co., 878 F.2d 596, 600 (2d Cir. 1989); and (2) reducing the value of a judgment against a non-settling insurer by the amount of Travelers’ proportionate share of liability. The Provision, however, makes the availability of these judgment-reduction methods a function of “applicable state law.” Some states permit only pro tanto judgment reduction. See Manville II, 340 B.R. at 72 (citing West Virginia, Ohio, and Massachusetts as examples). In such states, any judgment against Chubb in a claim enjoined as to Travelers could only be reduced by the amount that the plaintiff was entitled to receive from the settlement funds established by the 2004 Orders, regardless of Travelers’ actual proportion of the liability. See Gerber v. MTC Elec. Techs. Co., 329 F.3d 297, 303 (2d Cir. 2003); Singer, 878 F.2d at 600. As Chubb points out, if the settlement funds are exhausted, then the plaintiff in question would not be entitled to receive any compensation from the 2004 Direct Action Settlement. Under such circumstances, the Judgment Reduction Provision would be virtually meaningless to a non-settling insurer named as a Direct Action defendant in a state where only pro tanto judgment reduction is available. See Manville II, 340 B.R. at 72. As such, the Provision does not “completely” protect Chubb’s financial exposure, much less its due process rights.
Perhaps in recognition of the difficulties with the
bankruptcy court’s analysis, the district court analyzed
Chubb’s due process argument independently and rejected it
on three grounds. See Manville II, 340 B.R. at 68-69. The
court’s reasoning was based on our prior holding in
MacArthur, the nature of Chapter 11’s “special remedial
scheme,” Ortiz, 527 U.S. at 846, and the bankruptcy court’s
August 2, 1984 Notice of Hearing to Consider Approval of
Compromise and Settlement of Insurance Litigation. See
Manville II, 340 B.R. at 68-69. We consider each in turn.
First, MacArthur is inapposite. Chubb was not a party
to the 1986 proceedings and there is no indication in the
record of a privity relationship between Chubb and any of
the actual parties. 12 As a result, Chubb’s due process
Although Travelers’ arguments focused on publication notice, it also briefly argued that Chubb had actual notice of the proceedings. In the supplemental brief submitted to this Court following the Supreme Court’s remand, Travelers asserted that (1) Pacific Indemnity Company was a wholly owned subsidiary of Chubb that was a party to the insurance coverage disputes in the California state courts, and (2) Chubb received actual notice of the 1986 Orders because the August 2, 1984 Notice document was sent to Pacific Indemnity Company. In an October 26, 2009 post-argument submission, however, Travelers conceded that “[a] direct corporate relationship between [Chubb] and Pacific Indemnity Company . . . may not have existed.” Travelers also failed to provide any legal authority for its position. In light of these concessions, and because we, too, are unaware of any authority supporting Travelers’ contention, we reject this
argument cannot be rejected on res judicata grounds. See,
e.g., Bailey, 129 S. Ct. at 2205 (reasoning that a final
decision is entitled to res judicata effect only as to “the
parties and those in privity with them” (internal quotation
omitted)); cf. Stephenson v. Dow Chem. Co., 273 F.3d 249,
257 (2d Cir. 2001) (“The injunction was part and parcel of
the judgment that plaintiffs contend failed to afford them
adequate representation. If plaintiffs’ inadequate
representation allegations prevail, as we so conclude, the
judgment, which includes the injunction on which defendants
rely, is not binding as to these plaintiffs.”), vacated in
part and remanded, 539 U.S. 111, 112 (2003).
Nor does the “law of the case” doctrine foreclose
Chubb’s due process argument. This doctrine “directs a
court’s discretion, it does not limit the tribunal’s power.”
Arizona v. California, 460 U.S. 605, 618 (1983). Because
MacArthur is readily distinguishable, it does not affect the
result here. In MacArthur, the appellant asserted that “it
was denied due process of law because it received notice of
the insurance settlements only after the settlements had
been negotiated.” MacArthur, 837 F.2d at 94. Here, Chubb
actual-notice argument.
asserts that it received no notice at all of the 1986 Orders
or the pre-confirmation fairness hearings relating to the
1984 Insurance Settlement Agreement. Moreover, the party
objecting to the settlement in MacArthur participated in the
proceedings that led to the entry of the 1986 Orders and was
well aware of its interest in the matter at that time. In
contrast, Travelers forthrightly acknowledged to the
bankruptcy court in 2004 that the Direct Actions — and,
consequently, Chubb’s contribution and indemnity claims —
were “unimaginable” at the time the 1986 Orders were
entered. Finally, in MacArthur, the appellant’s “rights as
an insured vendor [were] completely derivative of Manville’s
rights as the primary insured” on the insurance policies at
issue. Id. at 92 (emphasis added); see also Manville III,
517 F.3d at 62 (noting that, in MacArthur, we “reason[ed]
that the 1986 orders precluded suits against a significant
asset of the bankruptcy estate — Manville’s insurance
policies — and that MacArthur’s coverage claim clearly
affected that asset” (footnote omitted)). Chubb, however,
seeks to preserve its rights against a non-debtor relating
to funds that are not part of Manville’s bankruptcy estate.
Therefore, the discretionary “law of the case” doctrine does
not counsel us to affirm based on our prior holding in
MacArthur.
In addition to its citation to MacArthur, the district
court offered two more reasons for its rejection of Chubb’s
due process argument. The court reasoned that there is “an
exception to the due process concerns raised by Chubb ‘where
a special remedial scheme exists expressly foreclosing
successive litigation by nonlitigants, as for example in
bankruptcy or probate.’” Manville II, 340 B.R. at 68
(quoting Ortiz, 527 U.S. at 846). It also held that the
publication notice issued in 1984 was sufficient to “put
Chubb . . . on notice with regards to whatever
asbestos-related claims it may have against Travelers and
the other settling insurers.” Id. To consider the merits
of this reasoning, we must begin with an examination of the
Direct Actions, Chubb’s claims against Travelers for
contribution and indemnity, and the 1986 Orders as they were
interpreted by the bankruptcy court in 2004.
The gravamen of the Common Law Direct Actions, as the
bankruptcy court acknowledged, is that “the insurance
industry as a whole had a duty to warn the general public
about the dangers of asbestos.” Manville III, 517 F.3d at
60 n.17 (citing Manville I, 2004 WL 1876046, at *19-21); see
also id. at 58 (describing the Common Law Direct Actions).
The first time that this case was before us, Travelers
“candidly admit[ted]” that these actions “seek damages from
Travelers that are unrelated to the policy proceeds” that
are assets of Manville’s Chapter 11 estate. Id. at 63
(emphasis in original). Relatedly, we pointed out that the
Direct Actions were “quite unlike the claims in MacArthur,”
and that they did not “seek to collect on the basis of
Manville’s conduct.” Id. The Supreme Court made similar
observations in Bailey: “It is undisputed that many of the
[Direct Action] plaintiffs seek to recover from Travelers,
not indirectly for Manville’s wrongdoing, but for Travelers’
own alleged violations of state law,” and “many of the suits
at issue seek to hold Travelers liable for independent
wrongdoing rather than for a legal wrong by Manville.”
Bailey, 129 S. Ct. at 2200 & n.2. In short, whatever the
text of the 1986 Orders, many of the Direct Actions
referenced in the bankruptcy court’s 2004 Orders do not seek
to collect from the res of Manville’s Chapter 11 bankruptcy
estate.
Chubb’s contribution and indemnity claims are similar
in this regard. See Manville III, 517 F.3d at 60 n.17.
Chubb has been named as a defendant, along with other
asbestos-industry insurers, in the sort of Common Law Direct
Actions that the bankruptcy court held are barred against
Travelers by the 1986 Orders. See Bailey, 129 S. Ct. at
2202 n.3. Chubb, like the plaintiffs in the Direct Actions,
does not seek to collect from the proceeds of the policies
that Travelers issued to Manville. Rather, Chubb seeks to
preserve its ability to collect from Travelers itself —
through state-law claims for contribution and indemnity — a
portion of any liability that might be imposed on “the
insurance industry as a whole” in the Common Law Direct
Actions. Manville III, 517 F.3d at 60 n.17. These claims,
like the vast majority of the Direct Actions, are not
derivative of Manville’s liability and do not seek to
collect from the res of the Manville estate.
In Manville III, we held that the bankruptcy court
lacked subject matter jurisdiction to enjoin such claims
against non-debtor Travelers in Manville’s Chapter 11
proceedings. “[A] bankruptcy court only has jurisdiction to
enjoin third-party non-debtor claims that directly affect
the res of the bankruptcy estate.” Id. at 66. Our
reasoning was straightforward. The bankruptcy court’s power
derives, in part, from statutes enacted by Congress. See In
re Combustion Eng’g, Inc., 391 F.3d 190, 225 (3d Cir. 2004)
(“[T]he exercise of bankruptcy power must be grounded in
statutory bankruptcy jurisdiction.”). In the bankruptcy
code, “Congress has granted the . . . courts expansive
bankruptcy jurisdiction to adjudicate claims against a
debtor’s estate.” In re Millenium Seacarriers, Inc., 419
F.3d 83, 92 (2d Cir. 2005). This jurisdiction is in rem in
nature; it “permits a determination of all claims that
‘anyone, whether named in the action or not, has to the
property or thing in question.’” Id. (emphasis added)
(quoting Tenn. Student Assistance Corp. v. Hood, 541 U.S.
440, 448 (2004)).
In this case, the “thing in question” is the Manville
bankruptcy estate, and the insurance policies that Travelers
issued to Manville are the estate’s most valuable asset.
See MacArthur, 837 F.2d at 94. In Manville III, we held
that the bankruptcy court’s in rem jurisdiction was
insufficient to allow it to enjoin Direct Actions based on
state-law legal theories that seek to impose liability on
Travelers as a separate entity rather than on the policies
that it issued to Manville. Although we focused on the
Direct Actions in our analysis, Chubb’s contribution and
indemnity claims against Travelers are functionally
identical in this respect.
In Bailey, the Supreme Court reversed Manville III on
“narrow” grounds. Bailey, 129 S. Ct. at 2207. The Bailey
Court did not contradict the conclusion of our
jurisdictional inquiry. See id. (“We do not resolve whether
a bankruptcy court, in 1986 or today, could properly enjoin
claims against nondebtor insurers that are not derivative of
the debtor’s wrongdoing.”). Instead, it held that the
jurisdictional issue was not subject to collateral attack.
Following direct review in MacArthur, the 1986 Orders
“became res judicata to the parties and those in privity
with them . . . as to any . . . admissible matter [that]
might have been offered” to defeat the bankruptcy court’s
entry of the 1986 Orders. Id. at 2205 (internal quotation
marks omitted). The Bailey Court’s holding was grounded in
the “practical necessit[ies]” served by res judicata and
principles of finality. Id. at 2206. These necessities
were dispositive as to the parties to the 1986 proceedings
“and those in privity with them,” “whether or not [the 1986
Orders were] proper exercises of bankruptcy court
jurisdiction and power.” Id. at 2205, 2206 (emphasis
added).
On remand, we remain persuaded that the 1986 Orders, as
interpreted in 2004, exceed the bounds of the bankruptcy
court’s in rem jurisdiction. In 2004, the bankruptcy court
interpreted the 1986 Orders to enjoin not only claims that
are directed at the Travelers insurance policies in the res
of the Manville estate, but also non-derivative claims by
Chubb that seek to impose liability on Travelers separately.
The bankruptcy court, in essence, interpreted the 1986
Orders to have an in personam effect. 13 Tellingly, although
When a court exercises in personam authority, it addresses a claim for liability, such as one involving a claim for money damages, against a particular party. See Restatement (Second) of Judgments § 2 cmt. b, at 36-37; Black’s Law Dictionary 930 (9th ed. 2009) (defining “personal jurisdiction”); see also Ret. Sys. of Ala. v. J.P. Morgan Chase & Co., 386 F.3d 419, 426 (2d Cir. 2004) (“[A]n in personam action involves a controversy over liability rather than over possession of a thing.”). In contrast, the bankruptcy court’s in rem authority is, for the most part, limited to the resolution of claims against the property in the bankruptcy estate. See Restatement (Second) of Judgments § 2 cmt. b, at 37; see also Black’s Law Dictionary 929 (9th ed. 2009) (defining in rem jurisdiction as “[a] court’s power to adjudicate the rights to a given piece of property”). Here, because Chubb’s claims against Travelers for indemnity and contribution seek to impose liability on Travelers itself rather than the insurance policies that are assets of the Manville bankruptcy estate, the bankruptcy court’s 2004 interpretation of the 1986 Orders attributed to
Congress codified a version of the bankruptcy court’s 1986
channeling injunction at 11 U.S.C. § 524(g), see Manville
III, 517 F.3d at 67, the statute does not authorize
injunctions of these sorts of claims against non-debtor
third parties. Rather, section 524(g) only “limits the
situations where a channeling injunction may enjoin actions
against third parties to those where a third party has
derivative liability for the claims against the debtor.” In
re Combustion Eng’g, Inc., 391 F.3d at 234; see also id. at
235 n.47. Nevertheless, under Bailey, the parties who were
present or represented in the proceedings that led to the
entry of the 1986 Orders are barred from collaterally
attacking the bankruptcy court’s 2004 interpretation. But
that cannot be so as to Chubb, if making it subject to the
1986 Orders would violate due process. As a result, our due
process analysis must take into account the in personam
manner in which the 1986 Orders were interpreted by the
bankruptcy court in 2004. Viewed from this perspective, the
district court’s reasoning unravels.
The due process “exception” relied on by the district
court and discussed by the Supreme Court in Ortiz was
those prior judicial acts an in personam effect.
juxtaposed against the “‘principle of general application in
Anglo-American jurisprudence that one is not bound by a
judgment in personam in a litigation in which he is not
designated as a party or to which he has not been made a
party by service of process.’” Ortiz, 527 U.S. at 846
(quoting Hansberry v. Lee, 311 U.S. 32, 40 (1940)). Thus,
the Ortiz Court was discussing an in rem “exception” to the
due process principles associated with in personam
jurisdictional acts. Moreover, the Ortiz Court quoted from
Martin v. Wilks, 490 U.S. 755 (1989). The full sentence
from Martin reads:
[W]here a special remedial scheme exists expressly foreclosing successive litigation by nonlitigants, as for example in bankruptcy or probate, legal proceedings may terminate preexisting rights if the scheme is otherwise consistent with due process.
Id. at 762 n.2 (emphasis added).
Relying on this authority, the district court reasoned
that the bankruptcy court acted on an in rem basis: “Unlike
the class action settlements in [Amchem Products, Inc. v.
Windsor, 521 U.S. 591 (1997)] and Ortiz, the injunction here
is based on the Bankruptcy Court’s in rem power over the
Manville estate, including the insurance policies.”
Manville II, 340 B.R. at 68-69. The contrast between in rem
bankruptcy proceedings and the in personam class action
settlements in Amchem and Ortiz was apt. But the court
placed the Manville proceedings — at least in their present
procedural posture — in the wrong category.
As we have already said, whatever the bankruptcy
court’s factual findings, Chubb’s claims for contribution
and indemnity seek to proceed against Travelers on an in
personam basis. See Manville III, 517 F.3d at 63 (“[T]he
factual determination was only half of the equation . . . .
Neither court looked to the laws of the states where the
claims arose to determine if indeed Travelers did have an
independent legal duty in its dealing with plaintiffs,
notwithstanding the factual background in which the duty
arose.”). The district court reasoned that, factually
speaking, the Direct Actions and Chubb’s claims fit within
the 1986 Orders’ injunction of claims “based upon, arising
out of, or relating to any or all of the” policies issued by
Travelers to Manville. See Manville II, 340 B.R. at 61. In
doing so, it appears to have taken the view that the “based
upon, arising out of, or relating to” language was
necessarily confined to in rem claims against the Manville
estate.
But the bankruptcy court’s 2004 interpretation of the
1986 Orders is not so limited. Chubb does not, as a legal
matter, seek to collect from the insurance policies that
Travelers issued to Manville. Thus, contrary to the
district court’s ruling, the bankruptcy court was not
exercising its in rem power when it concluded that Chubb’s
claims were enjoined. 14 Therefore, the “special remedial
scheme” due process “exception” relating to in
rem bankruptcy proceedings is insufficient to sustain the
bankruptcy court’s action as to Chubb.
Finally, we are also unpersuaded by the district
court’s conclusion that Chubb’s due process rights were
satisfied by the bankruptcy court’s August 2, 1984 Notice of
Hearing to Consider Approval of Compromise and Settlement of
Insurance Litigation. Given the manner in which the 1986
Orders have been interpreted, we are placed in legal
territory that is undoubtedly sui generis as to the due
process question before us. But, because the 1986 Orders
Travelers seems to agree that the bankruptcy court did more than resolve claims against the res of the Manville estate. In its October 26, 2009 post-argument submission, Travelers argued that the bankruptcy court’s notice procedures relating to the 1986 Orders were “wholly consistent” with the exercise of “both in rem jurisdiction and in personam jurisdiction over all Chubb entities.”
purport to bind Chubb’s in personam claims, the better due
process analogy in terms of notice and representation
principles is to class action settlements, not in rem
bankruptcy proceedings. As a result, we find Amchem
Products, Inc. v. Windsor, 521 U.S. 591 (1997) and
Stephenson v. Dow Chemical Co., 273 F.3d 249 (2d Cir. 2001)
to be the pertinent authority.
In Amchem, a group of asbestos manufacturers sought to
achieve final resolution of their liability by attempting to
settle future, unfiled claims by potential asbestos
claimants. 521 U.S. at 600-01. Their chosen litigation
mechanism was a settlement-only class action pursuant to
Rule 23(b)(3) of the Federal Rules of Civil Procedure. The
manufacturers proposed a class of those who: (1) had not
already filed an asbestos claim against the defendants, and
(2) either had been exposed to asbestos or had family
members who had been exposed. Id. at 603. The lawyers
purporting to act on behalf of this class “had no attorney-
client relationship with such claimants,” id. at 601, but
the parties’ settlement applied to nearly all of the class’s
future claims. See id. at 604. For example, the agreement
sought to enjoin, and provided no compensation for, certain
types of claims that would otherwise have been available
under state law. See id. at 604.
The district court conducted fairness hearings,
certified the class, and ultimately approved the settlement.
Id. at 608. The Third Circuit vacated the district court’s
orders, holding that factual and legal differences created
“‘serious intra-class conflicts.’” Id. at 610 (quoting
Georgine v. Amchem Prods., Inc., 83 F.3d 610, 630 (3d Cir.
1996)).
The Supreme Court affirmed the court of appeals based
on deficiencies in the proposed class under Rule 23. First,
the Court held that the class could not satisfy the
predominance requirement of Rule 23(b)(3) because, inter
alia, “[d]ifferences in state law . . . compound[ed] the[]
disparities” in the interests of the class. Id. at 624.
Second, the Court held that the named plaintiffs could not
adequately represent the broad class of claimants because of
the conflict between the presently injured claimants’
interest in “generous immediate payments” and the exposure-
only claimants’ interest in “ensuring an ample, inflation-
protected fund for the future.” Id. at 626 (relying on
Federal Rule of Civil Proecdure 23(a)(4)). Finally, in
language that we find directly relevant, the Court observed
that
[i]mpediments to the provision of adequate notice . . . rendered highly problematic any endeavor to tie to a settlement class persons with no perceptible asbestos-related disease at the time of the settlement . . . . Even if they fully appreciate the significance of class notice, those without current afflictions may not have the information or foresight needed to decide, intelligently, whether to stay in or opt out.
Id. at 628. The Court declined to resolve this due process
issue in light of its holding that the proposed class could
not satisfy Rule 23, but it recognized “the gravity of the
question whether class action notice sufficient under the
Constitution and Rule 23 could ever be given to legions so
unselfconscious and amorphous.” Id.
In Stephenson, we relied on Amchem to address similar
concerns regarding representation and notice in settlement-
only class action proceedings. There, two veterans (the
“Stephenson plaintiffs”) commenced separate state-law
actions based on allegations that they were exposed to Agent
Orange during the Vietnam War. Both actions were filed well
after a broad settlement agreement had been approved
relating to a Rule 23(b)(3) class action against the same
defendants based on similar allegations. 273 F.3d at 255-
56. The previous settlement purported to resolve the claims
of individuals who had been exposed to Agent Orange but had
not yet manifested injuries. Id. at 252. The Stephenson
plaintiffs fit within the prior class, and their claims were
transferred by the Multidistrict Litigation Panel to the
Eastern District of New York, where the class action
settlement had been adjudicated. See id. at 256. The
district court characterized the Stephenson plaintiffs’
actions as impermissible collateral attacks on the prior
settlement, and it dismissed their claims pursuant to Rule
12(b)(6). Id.
We reversed, holding that the attack was permissible
because the plaintiffs were not adequately represented in
the prior litigation, and that the previous settlement was
not res judicata as to the Stephenson plaintiffs’ claims.
See id. at 261. Regarding the collateral attack, we
reasoned that the injunction that purported to bar the
claims was “part and parcel of the judgment that plaintiffs
contend failed to afford them adequate representation.” Id.
at 257. Consequently, the attack was permissible because it
sought “only to prevent the prior settlement from operating
as res judicata to their claims.” Id.
With respect to whether the Stephenson plaintiffs’
claims were barred by the prior settlement and the doctrine
of res judicata, we relied on the due process concerns
raised by the Supreme Court in Amchem and Ortiz and held
that the plaintiffs were not adequately represented in the
prior litigation. Id. at 260-61. In doing so, we reasoned
that both plaintiffs fell within the earlier class
definition, but that (1) neither had learned of their claims
until after the settlement fund was exhausted, and (2) the
settlement made no provision for their claims. Id. at 260.
Although our holding was based on representational concerns,
we also pointed out that the plaintiffs “likely received
inadequate notice” of the class action settlement because
“Amchem indicates that effective notice could likely not
ever be given to exposure-only class members.” Id. at 261
n.8.
Because of the in personam manner in which the 1986
Orders have been interpreted, the due process issues
discussed in Stephenson and Amchem present grave
representation and notice problems with respect to Chubb.
As to representation, there is no indication in the record
that the sort of claims Chubb seeks to bring against
Travelers were contemplated, much less accounted for, during
the proceedings that led to the 1986 Orders. Neither
Travelers nor the district court have suggested otherwise,
and the terms of the bankruptcy court’s August 14, 1984
Order appointing the FCR make this point plain. The
bankruptcy court ordered the FCR to concern himself with
“persons who have been exposed to” Manville’s asbestos
products and who may subsequently “manifest disease post-
petition.” Chubb does not fall within that category, and
its interests relating to inchoate, non-derivative, post-
petition claims against Travelers were not spoken for in
those proceedings.
We also conclude that the interests of the asbestos
claimants who participated in the negotiations and hearings
leading up to the 1986 Orders diverged from Chubb’s future
interests in a manner that precluded the claimants from
adequately representing Chubb in those proceedings. In
Amchem, the Supreme Court found that single-class
representation was inadequate under Rule 23(a)(4) because
the interests of presently injured asbestos claimants
conflicted with those of the exposure-only claimants:
“[F]or the currently injured, the critical goal is generous
immediate payments. That goal tugs against the interest of
exposure-only plaintiffs in ensuring an ample,
inflation-protected fund for the future.” 521 U.S. at 626.
Although we do not rely on Rule 23 here, there is a similar
divergence of interests between Chubb and the groups of
asbestos claimants that participated in the negotiations
that led to the 1986 Orders. Chubb’s interest in the
Manville proceedings in the early 1980s was far more
attenuated than the exposure-only claimants at issue in
Amchem, who at least had cause for concern regarding the
same sort of harm as the presently injured claimants. More
importantly, like the currently injured claimants in Amchem,
asbestos claimants capable of bringing claims against
Manville’s insurance policies in 1986 were most likely
focused on maximizing the value of immediate payments from a
settlement fund. In contrast, Chubb’s interest, similar to
that of the exposure-only claimants in Amchem, would have
been more directed at creating an “inflation-protected fund
for the future,” which would guard against the event,
however improbable, that Chubb is found liable in a Common
Law Direct Action and wishes to shift a proportionate share
of the joint liability to Travelers. No such fund was
created in 1986 (or 2004). Given these divergent interests,
it cannot be said that counsel for the claimants at the
negotiations leading to the 1986 Orders sufficiently
represented Chubb.
With respect to notice, we need not break any new
ground relating to the constitutional requirements of an in
rem bankruptcy proceeding. Nor are we called upon to set
the outer bounds of the notice that would be required to
satisfy Chubb’s due process rights based on the manner in
which the 1986 Orders have been interpreted. Under the
unique circumstances of this case, there can be little doubt
that the publication notice employed by the bankruptcy court
in 1984 was insufficient to bind Chubb to the 2004
interpretation of the 1986 Orders.
The bankruptcy court’s August 2, 1984 Notice of Hearing
to Consider Approval of Compromise and Settlement of
Insurance Litigation indicated that the parties to the
Manville Chapter 11 proceedings were seeking an order
enjoining all claims, “whether or not presently known,”
against the Settling Insurers “based upon, arising out of or
relating to any or all of the insurance policies” that the
Settling Insurers had issued to Manville. In order to
comprehend that the contemplated channeling injunction would
bar Chubb’s in personam, non-derivative claims against
Travelers, the recipient of this Notice would have to
predict that the bankruptcy court would exceed its in rem
jurisdiction in entering the 1986 Orders. Such a recipient
would also have to be presumed to know — or to be able to
discern from the 1984 Notice document — the factual extent
of Travelers’ relationship with Manville, which ultimately
served as the lynchpin of the bankruptcy court’s 2004
interpretation of the 1986 Orders. See Bailey, 129 S. Ct.
at 2203. The bankruptcy court’s factfindings are presently
uncontested, and Chubb was undoubtedly a “sophisticated
insurer” in the early 1980s. Manville II, 340 B.R. at 68.
But we cannot attribute to Chubb the sort of prescience that
these predictions would have required, and the August 2,
1984 Notice was insufficient to communicate these issues.
To the extent that the Notice document could be
interpreted to suggest that the 1984 Insurance Settlement
Agreement would bar non-derivative claims against non-
debtors, the parties publicly clarified their intentions by
amending the agreement in a manner that indicated that Chubb
was not an interested party in Manville’s Chapter 11
proceedings. Specifically, when certain objectors to the
settlement argued that the terms of the proposed channeling
injunction exceeded the scope of the bankruptcy court’s in
rem jurisdiction, Travelers signed a letter agreement
indicating that the objectors were wrong. The June 3, 1985
letter agreement stated that it was intended to “clarif[y]
the intent of the parties with respect to certain provisions
of the [1984 Insurance] Settlement Agreement,” and that it
was an “amendment” to the Agreement. One portion of the
letter stated that “[t]he channeling order is intended only
to channel claims against the res to the Settlement Fund and
the injunction is intended only to restrain claims against
the res (i.e., the Policies) which are or may be asserted
against the Settling Insurers.”
Following this amendment to the 1984 Insurance
Settlement Agreement, Chubb could not have known that it was
an interested party in Manville’s bankruptcy proceedings or
that the 1986 Orders would bar its non-derivative in
personam claims against Travelers. In Amchem, the Supreme
Court was concerned that, even if the exposure-only
claimants “appreciate[d] the significance of class notice,”
they might “not have the information or the foresight needed
to decide, intelligently, whether to stay in or opt out.”
Amchem, 521 U.S. at 628. Similarly, even if Chubb received
the Notice document, it could not have anticipated from the
way the proceedings unfolded that its contribution and
indemnity claims — which were abstract, “unimaginable,” and
inchoate at the time — would be enjoined. Therefore, it
cannot be said that Chubb had constitutionally sufficient
notice of the 1986 Orders, as interpreted by the bankruptcy
court in 2004.
* * *
In conclusion, we hold that MacArthur does not
foreclose Chubb’s due process argument. We further hold
that Chubb was not adequately represented in the proceedings
that lead to the bankruptcy court’s approval of the 1984
Insurance Settlement Agreement and the Manville Plan, and
that it did not receive adequate notice of the 1986 Orders.
Accordingly, both the bankruptcy court and the district
court erred by rejecting Chubb’s due process argument.
Chubb is therefore not bound by the terms of the 1986
Orders. Consequently, it may attack the Orders collaterally
as jurisdictionally void. And, as we held in Manville III,
that attack is meritorious.
C. The Status of the Statutory and Hawaii Direct Action Settlements
The 2004 Direct Action Settlement relates to three
categories of claims: the Common Law Direct Actions, the
Statutory Direct Actions, and the Hawaii Direct Actions.
Chubb only seeks to bring contribution and indemnity claims
against Travelers in the Common Law Direct Actions, and our
holding primarily relates to that portion of the broader
settlement. Following the stipulated dismissal of the
portions of these appeals relating to the Statutory and
Hawaii Direct Actions, the parties to those agreements have
requested that we sever them from the broader 2004 Direct
Action Settlement and affirm the district court’s rulings as
to those agreements.
In Manville III, however, we declined in light of our
holding to determine the prospective status of these
agreements or to resolve arguments relating to technical
objections and the 2004 Direct Action Settlement’s overall
fairness. See Manville III, 517 F.3d at 58 n.13, 68 n.26.
Prudence counsels the same course here. Moreover, there is
nothing in the 2004 Direct Action Settlement suggesting that
severance would be an option at this juncture, or that such
a remedial act would be undertaken by a court of appeals.
We therefore decline to address the parties’ remaining
arguments relating to, inter alia, the reasonableness of the
Common Law Direct Action Settlement and the bankruptcy
court’s award of attorneys’ fees, and we again “leave it to
the parties, with the aid of the bankruptcy court, to
determine the status of their settlements.” Manville III,
517 F.3d at 68 n.26.
III. CONCLUSION
For the foregoing reasons, the district court’s March
28, 2006 order is AFFIRMED as to the Objecting Plaintiffs
and REVERSED as to Chubb. The case is REMANDED for further
proceedings consistent with this opinion. |
09-1074-cr United States v. Bari
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2009
(Argued: February 23, 2010 Decided: March 22, 2010)
Docket No. 09-1074-cr
UNITED STATES OF AMERICA ,
Appellee,
v.
ANTHONY BARI,
Defendant-Appellant.
Before: CABRANES and PARKER , Circuit Judges, and UNDERHILL, District Judge.*
We consider whether the District Court for the Southern District of New York (Denny
Chin, Judge) erred in considering during a supervised release revocation hearing information
confirmed by its own Internet search. Defendant Anthony Bari (“Bari”) appeals from the District
Court’s March 11, 2009 judgment revoking Bari’s term of supervised release, imposed after an earlier
conviction for bank robbery and, after revocation, sentencing him principally to a term of thirty-six
months’ imprisonment. During the supervised release revocation hearing, Judge Chin noted that his
chambers “did a Google search” to confirm that “there are also lots of different rain hats . . . that
one could buy.” On appeal, Bari argues that this independent Internet search violated Rule 605 of
the Federal Rules of Evidence. We now consider (1) to what extent the Federal Rules of Evidence
* The Honorable Stefan R. Underhill, of the United States District Court for the District of Connecticut, sitting by designation.
apply in supervised release revocation hearings, and (2) whether the use of an Internet search to
confirm a judge’s intuition about a fact not subject to reasonable dispute is grounds for reversal. We
conclude that the Federal Rules of Evidence do not apply with their full force in supervised release
revocation hearings. We also conclude that the District Court did not commit reversible error in
conducting an Internet search to confirm his intuition regarding a matter of common knowledge.
Affirmed.
DAVID S. HAMMER , New York, NY, for Defendant-Appellant.
PETER M. SKINNER , Assistant United States Attorney (Preet Bharara, United States Attorney, on the brief, and Andrew L. Fish, Assistant United States Attorney, of counsel) United States Attorney for the District of Connecticut, for Appellee.
PER CURIAM :
We consider whether the District Court for the Southern District of New York (Denny
Chin, Judge) erred in considering during a supervised release revocation hearing information
confirmed by its own Internet search. Defendant Anthony Bari appeals from the District Court’s
March 11, 2009 judgment revoking Bari’s term of supervised release, imposed after an earlier
conviction for bank robbery, and sentencing him principally to a term of thirty-six months’
imprisonment. During the supervised release revocation hearing, Judge Chin noted that his
chambers “did a Google search” to confirm that “there are also lots of different rain hats . . . that
one could buy.” A. 89a. On appeal, Bari argues that this independent Internet search violated Rule
605 of the Federal Rules of Evidence (“Rule 605”). We therefore consider (1) the extent to which
the Federal Rules of Evidence (the “Rules”) apply in supervised release revocation hearings, and (2)
whether the use of an Internet search to confirm the judge’s intuition about a fact not subject to
reasonable dispute is grounds for reversal.
BACKGROUND
Unless stated otherwise, the following facts are not in dispute.
Bari pleaded guilty to, and was convicted of, one count of bank robbery. In a judgment
entered on October 18, 1995, he was sentenced principally to 188 months’ imprisonment to be
followed by five years’ supervised release. In May 2008, Bari was released from custody and began
serving his term of supervised release.
On October 24, 2008, the United States Probation Office submitted to the District Court an
Amended Request for Court Action alleging that Bari had violated the terms of his supervised
release. The Amended Request alleged several violations of the terms of Bari’s supervised release,
including that on September 9, 2008 Bari had committed bank robbery in violation of 18 U.S.C. §
2113 (a).1
On November 18 and 19, 2008, the District Court held a hearing on the charged violations.
At the conclusion of the hearing, the District Court found Bari not guilty of some of the violations
alleged, but guilty of the bank robbery violation and a firearms violation. With respect to the bank
robbery violation, the District Court based its finding that Bari had indeed violated the terms of his
supervised release on the cumulative effect of multiple items of evidence. Specifically, Judge Chin
This statute provides, in relevant part, as follows:
Whoever, by force and violence, or by intimidation, takes, or attempts to take, from the person or presence of another, or obtains or attempts to obtain by extortion any property or money or any other thing of value belonging to, or in the care, custody, control, management, or possession of, any bank, credit union, or any savings and loan association . . . Shall be fined under this title or imprisoned not more than twenty years, or both.
18 U.S.C. § 2113(a).
observed that a bank employee’s identification of Bari’s voice was “worth something,” A. 91,
because Bari “speaks in a loud, aggressive manner,” and “that his voice is recognizable.” A. 92. He
also noted that numerous witnesses estimated the robber’s height and weight, which were similar to
Bari’s height and weight. Moreover, the height, weight, and posture captured on the video footage
taken by the security cameras matched Bari’s height, weight, and posture. A. 92-93. Judge Chin was
also persuaded by similarities between Bari’s car and a car that drove by the bank shortly after the
robbery. A. 94. Additionally, he considered the evidence of “Mr. Bari’s suspicious conduct at the
bank or in the vicinity of the bank” in the days before and after the robbery. A. 96. He also found
“troubling” the evidence that a stolen license plate was found in Bari’s car. A. 98. In addition, he
concluded that there was evidence to show that Bari was in the area of the bank on the day of the
robbery. A. 98.
Most relevant to this appeal, Judge Chin considered evidence that the bank’s surveillance
footage showed that the robber wore a yellow rain hat and that a yellow rain hat was found in the
garage of Bari’s landlord. He stated as follows:
In addition, and I think this is the strongest piece of evidence frankly, we have the yellow hat. I am convinced from looking at the surveillance video [from the bank] of September 9 that [the hat found in the garage] is the same type of hat as appears in the video. It may not be precisely the actual hat, but it is the same type of hat. It is just too much of a coincidence that the bank robber would be wearing the same hat that we find in [his landlord’s] garage.
A. 93. Judge Chin then noted several similarities between the hat found in the landlord’s garage and
the hat worn by the robber. To emphasize the similarity between the hats, he stated that “there are
clearly lots of yellow hats out there,” and that “[o]ne can Google yellow rain hats and find lots of
different yellow rain hats.” Id. Earlier in the proceeding, he had also stated that “[w]e did a Google
search, and you can find yellow hats, yellow rain hats like this. But there are also lots of different
rain hats, many different kinds of rain hats that one could buy.” A. 89a.
Taking all of the evidence together, he concluded that there were “too many coincidences,”
and, accordingly, found “by a preponderance of the evidence and plus some” that the government
had met its burden to establish that Bari had violated the terms of his supervised release by robbing
a bank. A. 99.
On February 27, 2009, the District Court reversed its ruling with respect to the firearms
violation and sentenced Bari to a term of 36 months’ imprisonment, to be followed by two years’
supervised release, in connection with the bank robbery violation.
Bari now appeals.
DISCUSSION
On appeal, Bari argues that the District Court violated Rule 6052 by conducting its own
Internet search and relying on the results of that search in making its decision to revoke Bari’s
supervised release. The government argues that the Federal Rules of Evidence do not apply to
supervised release revocation proceedings. Alternatively, the government argues that if the Federal
Rules of Evidence apply to this proceeding, the District Court took proper judicial notice of a fact
not subject to reasonable dispute, as allowed by Rule 201 of the Federal Rules of Evidence.
We consider first to what extent the Federal Rules of Evidence apply in supervised release
revocation proceedings. We then consider whether the use of an Internet search to confirm the
judge’s intuition about a fact not subject to reasonable dispute is grounds for reversal.
A. Federal Rules of Evidence in Supervised Release Revocation Proceedings
The government argues that the Federal Rules of Evidence are not applicable in supervised
release revocation hearings. Because this is a question of law, we review it de novo. See, e.g., In re
Rule 605 states that “[t]he judge presiding at the trial may not testify in that trial as a witness. No objection need be made in order to preserve the point.” Fed. R. Evid. 605.
N.Y. Times Co. to Unseal Wiretap & Search Warrant Materials, 577 F.3d 401, 405 (2d Cir. 2009). As a
general matter, we agree with the government that the Federal Rules of Evidence, except those
governing privileges, do not apply in supervised release revocation proceedings. It is well settled
that the Federal Rules of Evidence do not apply in full in probation revocation proceedings. See, e.g.,
United States v. Aspinall, 389 F.3d 332, 344 (2d Cir. 2004) (concluding that the Federal Rules of
Evidence, except those governing privileges, do not apply at probation revocation proceedings); see
also United States v. Carlton, 442 F.3d 802, 809 (2d Cir. 2006) (“The full panoply of procedural
safeguards does not attach to revocation proceedings,” because a “probationer already stands convicted
of a crime.” (internal quotations omitted)). Moreover, the Rules expressly state that they are
inapplicable in proceedings “granting or revoking probation.” Fed. R. Evid. 1101(d)(3). We have
also previously established that “the constitutional guarantees governing revocation of supervised
release are identical to those applicable to revocation of parole or probation.” United States v. Jones,
299 F.3d 103, 109 (2d Cir. 2002). Accordingly, we have no difficulty concluding that the Federal
Rules of Evidence do not apply in full at supervised release revocation hearings.3
Although we conclude that the Federal Rules of Evidence do not apply with their normal
force in supervised release revocation hearings, the Rules nevertheless provide some useful
guidelines to ensure that any findings made by a district court at such hearings are based on “verified
facts” and “accurate knowledge.” See generally Morrissey v. Brewer, 408 U.S. 471, 489 (1972) (discussing
the “flexible” evidentiary guidelines in parole revocation proceedings before state parole boards). As
we observed in Aspinall, “in revocation proceedings the normal evidentiary constrictions should be
We note that several of our sister Circuits have also concluded that the Federal Rules of Evidence do not apply at supervised release revocation hearings. See, e.g., United States v. Lloyd, 566 F.3d 341, 343 (3d Cir. 2009); United States v. Black Bear, 542 F.3d 249, 255 (8th Cir. 2008); United States v. Verduzco, 330 F.3d 1182, 1185 (9th Cir. 2003); United States v. Armstrong, 187 F.3d 392, 394 (4th Cir. 1999).
relaxed.” 389 F.3d at 344 (emphasis added). We emphasize that the evidentiary constraints in such
proceedings should be loosened, although not altogether absent. Furthermore, in relaxing those
constraints, we consider “verified facts” and “accurate knowledge” to be the touchstones of our
inquiry. See Morrissey, 408 U.S. at 489. Put differently, district courts need not comply with the
Federal Rules of Evidence during supervised release revocation proceedings, so long as their
findings are based on “verified facts” and “accurate knowledge.”
B. Independent Internet Searches and Judicial Notice
Applying relaxed evidentiary constraints to the instant case, we now consider whether the
District Court committed reversible error when it conducted an independent Internet search to
confirm its intuition that there are many types of yellow rain hats for sale. Bari argues that the
District Court’s search violates Rule 605 of the Federal Rules of Evidence; the government argues
that the search is permissible under Rule 201 of the Federal Rules of Evidence. We agree with the
government that Rule 201—in some relaxed form—governs this inquiry.4 Because Bari did not
object to the District Court’s statement that “there are lots of different rain hats . . . that one could
First, a few words on the relationship between Rules 605 and 201. Rule 605 prohibits the judge presiding at the trial from testifying in that trial as a witness. Rule 201 permits a judge to take judicial notice of certain types of facts. Logically, then, if a fact is of a kind that a judge may properly take judicial notice of it, then he is not improperly “testifying” at trial by noting that fact. Any other conclusion would lead to Rule 605 effectively subsuming Rule 201. If, after all, a judge was improperly testifying at trial each time he took judicial notice of a fact, it would be effectively impermissible to take judicial notice of any fact. Accordingly, we must first consider whether the judge was taking permissible judicial notice of a fact, pursuant to Rule 201. If he could not have taken judicial notice of that fact within the bounds of Rule 201—because, for example, it was not a “matter[ ] of common knowledge”—then we consider whether the judge violated Rule 605. Here, we conclude that Judge Chin did permissibly take judicial notice of the fact that there are many kinds of rain hats for sale, and therefore we need not consider whether he “testified” at a trial over which he was presiding.
buy,” A. 89a, we review Judge Chin’s decision to consider that fact as evidence for plain error.5
Under Rule 201, “[a] court may take judicial notice, whether requested or not” of a fact that
is “not subject to reasonable dispute in that it is either (1) generally known within the territorial
jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources
whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)-(c); see also Black’s Law
Dictionary 923 (9th ed. 2009) (defining judicial notice as “[a] court’s acceptance, for purposes of
convenience and without requiring a party’s proof, of a well-known and indisputable fact”). More
generally, the “traditional textbook treatment” of Rule 201 has included two categories for judicial
notice: “matters of common knowledge” and “facts capable of verification.” Fed. R. Evid. 201,
Advisory Committee Notes, Note to Subdivision (b).
Here, the District Court made a statement on a “matter[ ] of common knowledge.” Id.; cf.
Kaggen v. IRS, 71 F.3d 1018, 1019 (2d Cir. 1995) (holding that “[t]his Court may appropriately take
judicial notice of the fact that banks send customers monthly bank statements”). Common sense
leads one to suppose that there is not only one type of yellow rain hat for sale. Instead, one would
imagine that there are many types of yellow rain hats, with one sufficient to suit nearly any taste in
brim-width or shade. The District Court’s independent Internet search served only to confirm this
common sense supposition.
Bari argues in his reply brief6 that “Judge Chin undertook his internet search precisely
because the fact at issue . . . was an open question whose answer was not obvious.” Reply Br. 8. We
We note, however, that plain error review would not apply if Rule 605 governed our inquiry because “[n]o objection need be made in order to preserve the point.” Fed. R. Evid. 605. We note that although we normally will not consider issues raised only in reply briefs, see, e.g., Poupore v. Astrue, 566 F.3d 303, 306 (2d Cir. 2009); Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998), we will consider arguments raised in response to arguments made in appellee’s brief.
do not find this argument persuasive. As broadband speeds increase and Internet search engines
improve, the cost of confirming one’s intuitions decreases. Twenty years ago, to confirm an
intuition about the variety of rain hats, a trial judge may have needed to travel to a local department
store to survey the rain hats on offer. Rather than expend that time, he likely would have relied on
his common sense to take judicial notice of the fact that not all rain hats are alike. Today, however,
a judge need only take a few moments to confirm his intuition by conducting a basic Internet search.
See Reno v. ACLU, 521 U.S. 844, 853 (1997) (“The Web is . . . comparable . . . to both a vast library
including millions of readily available and indexed publications and a sprawling mall offering goods
and services.”).
As the cost of confirming one’s intuition decreases, we would expect to see more judges
doing just that. More generally, with so much information at our fingertips (almost literally), we all
likely confirm hunches with a brief visit to our favorite search engine that in the not-so-distant past
would have gone unconfirmed. We will not consider it reversible error when a judge, during the
course of a revocation hearing where only a relaxed form of Rule 201 applies, states that he
confirmed his intuition on a “matter[ ] of common knowledge.”
CONCLUSION
In summary, we hold as follows:
(1) The Federal Rules of Evidence, except those governing privileges, do not apply with their
full force in supervised release revocation hearings; and
(2) In the circumstances presented here, it was not reversible error for a judge to employ an
Internet search to confirm a reasonable intuition on a matter of common knowledge.
For the foregoing reasons, the judgment of the District Court is AFFIRMED. |
PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 09-4266
IN RE: PHILADELPHIA NEWSPAPERS, LLC, ET AL.
-----------------------------
CITIZENS BANK OF PENNSYLVANIA; STEERING GROUP OF PREPETITION SECURED LENDERS,
Appellants
No. 09-4349
IN RE: PHILADELPHIA NEWSPAPERS, INC.,
-----------------------------
OFFICIAL COMMITTEE OF UNSECURED CREDITORS, CITIZENS BANK OF PENNSYLVANIA; STEERING GROUP OF PREPETITION SECURED LENDERS,
Official Committee of Unsecured Creditors, Appellant
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 09-mc-00178) District Judge: Honorable Eduardo C. Robreno
Argued December 15, 2009 Before: AMBRO, SMITH and FISHER, Circuit Judges.
(Filed: March 22, 2010)
David F. Abernethy Andrew J. Flame Andrew C. Kassner Alfred W. Putnam, Jr. (Argued) Drinker, Biddle & Reath 18th & Cherry Streets One Logan Square Philadelphia, PA 19103 Counsel for Appellant / Cross Appellee Citizens Bank of Pennsylvania
Alex Freeman Fred S. Hodara Abid Qureshi (Argued) Akin, Gump, Strauss, Hauer & Feld One Bryant Park
New York, NY 10036
L. Rachel Helyar Akin, Gump, Strauss, Hauer & Feld 2029 Century Park East, Suite 2400 Los Angeles, CA 90067 Counsel for Appellant / Cross Appellee Steering Group of Prepetition Secured Lenders
Kerry A. Brennan Rick B. Antonoff Pillsbury, Winthrop, Shaw & Pittman 1540 Broadway, 9th Floor New York, NY 10036
Elliot Ganz Loan Syndications and Trading Association 366 Madison Avenue New York, NY 10017 Counsel for Amicus Loan Syndications and Trading Association in support of Appellants
Jonathan N. Helfat James M. Cretella Otterbourg, Steindler, Houston & Rosen 230 Park Avenue New York, NY 10169
Richard M. Kohn Ronald Barliant Goldberg Kohn, Ltd. 55 East Monroe Street, Suite 3300
Chicago, IL 60603 Counsel for Amicus Commercial Finance Association in Support of Appellants
Ann M. Aaronson Lawrence G. McMichael (Argued) Dilworth Paxson 1500 Market Street, Suite 2500E Philadelphia, PA 19102 Counsel for Appellees Philadelphia Newspapers, LLC, et al.
Ronald S. Gellert Brya M. Keilson Gary M. Schildhorn Eckert, Seamans, Cherin & Mellott 50 South 16th Street Two Liberty Place, 22nd Floor Philadelphia, PA 19102
Ben H. Logan, III (Argued) O'Melveny & Myers 400 South Hope Street, 15th Floor Los Angeles, CA 90071 Counsel for Appellee / Cross Appellant Official Committee of Unsecured Creditors
OPINION
FISHER, Circuit Judge.
We are asked in this appeal to decide whether Section 1129(b)(2)(A) of the Bankruptcy Code requires that any debtor who proposes, as part of its plan of reorganization, a sale of assets free of liens must allow creditors whose loans are secured by those assets to bid their credit at the auction. Because subsection (iii) of Section 1129(b)(2)(A) unambiguously permits a debtor to proceed with any plan that provides secured lenders with the “indubitable equivalent” of their secured interest in the assets and contains no statutory right to credit bidding, we will affirm the District Court’s approval of the proposed bid procedures.
I.
Philadelphia Newspapers, LLC (the “Debtors1”) own and operate the print newspapers the Philadelphia Inquirer and Philadelphia Daily News and the online publication philly.com. The Debtors acquired these assets in July 2006 for $515 million as part of an acquisition of the businesses by an investor group led by Philadelphia PR executive, Brian Tierney. $295 million of this purchase price came from a consortium of lenders who are collectively the appellants in this action (the “Lenders”).2
The Debtors include PMH Acquisition, LLC; Broad Street Video, LLC; Philadelphia Newspapers, LLC; Philadelphia Direct, LLC; Philly Online, LLC; PMH Holdings, LLC; Broad Street Publishing, LLC; and Philadelphia Media, LLC. PMH is the parent company of all other debtors. The parties to this appeal are the Steering Group of Prepetition Secured Lenders, Citizens Bank of Pennsylvania as
This loan was made pursuant to a Credit and Guaranty Agreement dated June 29, 2006, between the Lenders and the Debtors (the “Loan Agreement”). The Loan Agreement and other loan documents provide that the Lenders hold first priority liens in substantially all of the Debtors’ real and personal property. The present value of the loan is approximately $318 million.
The Debtors were in default under covenants in the Loan Agreement as of December 31, 2007, and defaulted on a loan payment in September 2008. All of the Debtors besides PMH Holdings filed voluntary petitions under Chapter 11 of the Bankruptcy Code on February 22, 2009. PMH Holdings, the parent company, filed in June 2009. Currently, the Debtors control their businesses and property as debtors in possession.
On August 20, 2009, the Debtors filed a joint Chapter 11 plan of reorganization (the “Plan”). The Plan provides that substantially all of the Debtors’ assets will be sold at a public auction and that the assets would transfer free of liens. Debtors simultaneously signed an asset purchase agreement with Philly Papers, LLC (the “Stalking Horse Bidder”). A majority interest in the Stalking Horse Bidder is held by the Carpenters Pension and Annuity Fund of Philadelphia and Vicinity (“Carpenters”) and Bruce Toll. The Carpenters own approximately 30% of the equity in debtor PMH Holdings, LLC and Toll owned approximately 20% of the equity in PMH Holdings, LLC until the day before the asset purchase agreement was signed.
their agent, and the Official Committee of Unsecured Creditors.
Under the Plan, the purchase will generate approximately $37 million in cash for the Lenders. Additionally, the Lenders will receive the Debtors’ Philadelphia headquarters which the Debtors have valued at $29.5 million, subject to a two-year rent free lease for the entity that will operate the newspapers. The Lenders would receive any cash that is generated by a higher bid at the public auction.3
The Debtors filed a motion for approval of bid procedures on August 28, 2009. As part of the motion, the Debtors sought to preclude the Lenders from “credit bidding” for the assets.4 Instead, the Debtors insisted that any qualified bidder fund its purchase with cash. In their motion to the Court, Debtors stated the basis for their procedures:
The plan also establishes a $750,000 to $1.2 million liquidating trust fund in favor of general unsecured trade creditors and provides for a distribution of 3% ownership in the successful purchaser to other general unsecured creditors if the senior lenders waive their deficiency claims. Only the plan treatment of secured lenders is the subject of this appeal, though unsecured lenders assert that they have an interest in the treatment of secured lenders under the Plan because the Lenders have agreed to waive deficiency claims if they are permitted to credit bid. (Official Committee of Unsecured Creditor’s Opening Br. 23.) A credit bid allows a secured lender to bid its debt in lieu of cash.
The Plan sale is being conducted under section 1123(a) and (b) of the Bankruptcy Code, and not section 363 of the Bankruptcy Code. As such, no holder of a lien on any asset of the Debtors shall be permitted to credit bid pursuant to section 363(k) of the Bankruptcy Code.
(App. 1291.) Objections to the motion were filed by the Lenders, the Creditors’ Committee, the Office of the United States Trustee, the Pension Benefit Guaranty Corporations, and other creditors and debtor pension plans.
On October 8, 2009, the Bankruptcy Court issued an order refusing to bar the lenders from credit bidding. In re Philadelphia Newspapers, LLC, No. 09-11204, slip op. (Bankr. E.D. Pa. Oct. 8, 2009). The Court reasoned that while the Plan proceeded under the “indubitable equivalent” prong of § 1129(b)(2)(A)(iii), it was structured as a § 1129(b)(2)(A)(ii) plan sale in every respect other than credit bidding. Reading § 1129(b)(2)(A) in light of other provisions of the Code – specifically §§ 363(k) and 1111(b) – the Court determined that any sale of the Debtors’ assets required that a secured lender be able to participate in a sale by credit bidding its debt.
The Bankruptcy Court then approved a revised set of bid procedures without the ban on credit bidding on October 15, 2009. The revised bid procedures specifically allowed the Lenders to bid their secured debt up to $318,763,725. The Bankruptcy Court’s ruling was appealed to the District Court.
On November 10, 2009, the District Court reversed the Bankruptcy Court. In re Philadelphia Newspapers, LLC, No. 09-mc-178, slip op. (E.D. Pa. Nov. 10, 2009) [hereinafter Dist. Ct. slip op.]. It disagreed with the Bankruptcy Court’s interpretation of § 1129(b)(2)(A) and held that the Code provides no legal entitlement for secured lenders to credit bid at an auction sale pursuant to a reorganization plan.
The District Court relied on the plain language of § 1129(b)(2)(A), which provides three distinct routes to plan confirmation – retention of liens and deferred cash payments under subsection (i), a free and clear sale of assets subject to credit bidding under subsection (ii), or provision of the “indubitable equivalent” of the secured interest under subsection (iii). The Court reasoned that these three routes were independent prongs, separated by the disjunctive “or,” and therefore each was sufficient for confirmation of a plan as “fair and equitable” under the Code. Because the right to credit bid was not incorporated into subsection (iii), as it was in subsection (ii), Congress did not intend that a debtor who proceeded under the third prong would be required to permit credit bidding. Instead, subsection (iii) required only that a debtor provide secured lenders with the “indubitable equivalent” of their secured interest in the assets. The District Court pointed out that this broad language served as an “invitation to debtors to craft an appropriate treatment of a secured creditor’s claim, separate and apart from the provisions of subsection (ii).” Dist. Ct. slip op. at 39. As such, “a plan sale is potentially another means to satisfy this indubitable equivalent standard.” Id. at 39-40.
The District Court’s order was appealed to us along with a motion for a stay. We granted the stay on November 17, 2009, pending resolution of this appeal on the merits.
II.
The District Court had jurisdiction under 28 U.S.C. § 158(a)(3) over the appeal from the Bankruptcy Court,5 which had jurisdiction under 28 U.S.C. § 157(b). We have jurisdiction under 28 U.S.C. § 158(d).
We exercise plenary review over the District Court’s conclusions of law, including matters of statutory interpretation. In re Tower Air, Inc., 397 F.3d 191, 195 (3d Cir. 2005) (citing In re Prof’l Ins. Mgmt., 285 F.3d 268, 282-83 (3d Cir. 2002)). Because the District Court sat as an appellate court to review the Bankruptcy Court’s ruling, we review the Bankruptcy Court’s legal determinations de novo, its factual findings for clear error, and its exercises of discretion for abuse thereof. Id. (citing In re Engel, 124 F.3d 567, 571 (3d Cir. 1997)).
III.
Chapter 11 of the Bankruptcy Code strikes a balance between two principal interests: facilitating the reorganization
The District Court construed the filing of the appeal as an appropriate motion for leave to appeal pursuant to Fed. R. Bankr. P. 8003(c). This vested the District Court with jurisdiction over the interlocutory order. See Dist. Ct. slip op. at 11-13.
and rehabilitation of the debtor as an economically viable entity, and protecting creditors’ interests by maximizing the value of the bankruptcy estate. See In re Integrated Telecom Express, Inc., 384 F.3d 108, 119 (3d Cir. 2004) (citing Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 453 (1999)). In furtherance of those objectives, the Code permits a debtor preparing a Chapter 11 reorganization plan to “provide adequate means for the plan’s implementation” including arranging for the “sale of all or any part of the property of the estate, either subject to or free of any lien[.]” 11 U.S.C. § 1123(a)(5)(D). We are asked in this appeal to determine what rights a secured lender has when its collateral is sold pursuant to § 1123(a)(5)(D).
As a starting point for our analysis, we note that the “plan sale” authorized by § 1123(a)(5)(D) contains no explicit procedures for the sale of assets that secure debts of the estate. Lacking direct authority, we look to the plan confirmation provision of the Code, § 1129(b), to determine what requirements the court will later have to find are satisfied in order to confirm the plan, including the asset sale. The meaning of § 1129(b), and what rights it confers on secured lenders as a matter of law, is thus the central question in this appeal. Because § 1129(b) unambiguously permits a court to confirm a reorganization plan so long as secured lenders are provided the “indubitable equivalent” of their secured interest, we will affirm the District Court.
The Lenders offer three principal arguments in support of their right to credit bid at the auction of the assets securing their loan: First, they contend that the plain language of
§ 1129(b)(2)(A), in light of applicable canons of statutory interpretation, requires that all sales of assets free and clear of liens must proceed under subsection (ii) of that provision, which includes the right to credit bid. Second, they argue that subsection (iii) calling for the “indubitable equivalent” of a lender’s secured interest is ambiguous, requiring resort to other provisions of the Code that purportedly confirm the Lenders’ right to credit bid. Finally, they argue that denying secured lenders a right to credit bid is inconsistent with other provisions of the Bankruptcy Code. We will address each argument in turn.
A. The Plain Meaning of Section 1129(b)(2)(A) Permits a Debtor to Conduct an Asset Sale Under Subsection (iii) Without Allowing Secured Lenders to Credit Bid
It is the cardinal canon of statutory interpretation that a court must begin with the statutory language. “[C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then this first canon is also the last: judicial inquiry is complete.” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (internal citations and quotations omitted); see also Price v. Del. State Police Fed. Credit Union, 370 F.3d 362, 368 (3d Cir. 2004) (“We are to begin with the text of a provision and, if its meaning is clear, end there.”). Where the statutory language is unambiguous, the court should not consider statutory purpose or legislative history. See AT&T, Inc. v. F.C.C., 582 F.3d 490, 498 (3d Cir. 2009).
In determining whether language is unambiguous, we “read the statute in its ordinary and natural sense.” Harvard Secured Creditors Liquidation Trust v. I.R.S., 568 F.3d 444, 451 (3d Cir. 2009). A provision is ambiguous only where the disputed language is “reasonably susceptible of different interpretations.” Dobrek v. Phelan, 419 F.3d 259, 264 (3d Cir. 2005) (quoting Nat’l R.R. Passenger Corp. v. Atchinson Topeka & Santa Fe Ry. Co., 470 U.S. 451, 473 n.27 (1985)).
With that framework in mind, we turn to the language of § 1129(b)(2)(A). Section 1129(b) provides circumstances under which a reorganization plan can be confirmed over the objection of secured creditors – a process referred to as a “cramdown” because the secured claims are reduced to the present value of the collateral, while the remainder of the debt becomes unsecured, forcing the secured creditor to accept less than the full value of its claim and thereby allowing the plan to be “crammed down the throats of objecting creditors.” Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1359 (7th Cir. 1990) (Easterbrook, J.). Section 1129(b)(1) requires the court to assess whether the proposed treatment of the secured claims is “fair and equitable.” 11 U.S.C. § 1129(b)(1).
Section 1129(b)(2)(A) provides three circumstances under which a plan is “fair and equitable” to secured creditors:
(A) With respect to a class of secured claims, the plan provides--
(i) (I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claims; and (II) that each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder’s interest in the estate’s interest in such property.
(ii) for the sale, subject to section 363(k) of this title, of any property that is subject to the liens securing such claims, free and clear of such liens, with such liens to attach to the proceeds of such sale, and the treatment of such liens on proceeds under clause (i) or (iii) of this subparagraph; or
(iii) for the realization by the holders of the indubitable equivalent of such claims.
11 U.S.C. § 1129(b)(2)(A)(i)-(iii) (emphasis added).
The three subsections of § 1129(b)(2)(A) each propose means of satisfying a lender’s lien against assets of the bankruptcy estate. Subsection (i) provides for the transfer of assets with the liens intact and deferred cash payments equal to the present value of the lender’s secured interest in the collateral. Subsection (ii) provides for the sale of the collateral that secures a lender free and clear of liens so long as the lender has the opportunity to “credit bid” at the sale (i.e., offset its bid with the value of its secured interest in the collateral) with the liens to attach to the proceeds of the sale.6 Subsection (iii) provides for the realization of the claim by any means that provides the lender with the “indubitable equivalent” of its claim.
The right to credit bid is found in § 363(k) and explicitly incorporated into subsection (ii). Section 363(k) provides:
At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property.
11 U.S.C. § 363(k).
The Lenders concede, as they must, that § 1129(b)(2)(A) is phrased in the disjunctive. The use of the word “or” in this provision operates to provide alternatives – a debtor may proceed under subsection (i), (ii), or (iii), and need not satisfy more than one subsection. This approach is consistent with the definitions provided by the Code. Section 102(5) provides that ‘or’ is not exclusive[.]” 11 U.S.C. § 102(5). The statutory note to § 102(5) further explains that “if a party ‘may do (a) or (b)’, then the party may do either or both. The party is not limited to a mutually exclusive choice between the two alternatives.” 11 U.S.C. § 102 hist. n. (West 2004) (Revision Notes and Legislative Reports); see also H.R. Rep. No. 95-595, at 315 (1977) as reprinted in 1978 U.S.C.C.A.N. 5963, 6272; S.Rep. No. 95-989, at 28 (1978) as reprinted in 1978 U.S.C.C.A.N. 5787, 5814. Thus, any doubt as to whether subsections (i), (ii), and (iii) were meant to be alternative paths to meeting the fair and equitable test of § 1129(b)(2)(A) is resolved by the Bankruptcy Code itself, and courts have followed this uncontroversial mandate. See, e.g., Pacific Lumber, 584 F.3d at 245 (affirming “the obvious proposition that because the three subsections of § 1129(b)(2)(A) are joined by the disjunctive ‘or,’ they are alternatives”); Wade v. Bradford, 39 F.3d 1126, 1130 (10th Cir. 1994) (“These requirements [of § 1129(b)(2)(A)] are written in the disjunctive, requiring the plan to satisfy only one before it could be confirmed over creditor’s objection.”); In re Brisco Enters., Ltd. II, 994 F.2d 1160, 1168 (5th Cir. 1993) (holding that the court “has not transformed the ‘or’ in 1129(b)(2)(A) to an ‘and’”); accord Corestates Bank, N.A. v. United Chem. Techs., Inc., 202 B.R. 33, 50 (E.D. Pa. 1996) (“Courts consider Congresses’ use of the disjunctive ‘or’ between subsections (i), (ii), and (iii) indicative
of Congressional intent that only one of the three subsections need be satisfied in order to find a plan fair and equitable.”).
Though the ordinary operation of the word “or” is not genuinely disputed among the parties,7 the Lenders rely on a traditional canon of statutory interpretation – that the specific term prevails over the general term – to argue that a plan sale of
We do note, with some confusion, our dissenting colleague’s discussion of the “exclusive” nature of “or” under certain circumstances. See Dissent op. Part II.B. We readily concede that there are circumstances where the enumerated options, though separated by “or,” necessarily preclude the selection of both – such as where a statute calls for distinct treatments “before” or “after” a specified event. See, e.g., 11 U.S.C. § 365(g)(2)(B)(i)-(ii). We also agree that a list of three options, separated by “or,” creates a type of exclusivity in that it does not permit the selection of a fourth non-enumerated option. See, e.g., Williams v. Tower Loan of Miss., Inc. (In re Williams), 168 F.3d 845, 847-48 (5th Cir. 1999) (holding that where Congress has provided three permissible treatments of secured claims under 11 U.S.C. § 1325(a)(5) the parties may not construct a fourth extra-statutory option). None of these observations, however, inform our analysis here. Section 1129(b)(2)(A) provides three treatments of secured claims, none of which facially preclude the selection of any one treatment (as in the case of a statute addressing “before” and “after”). The Debtors here seek to elect one of those enumerated treatments, subsection (iii), not invent a fourth option not intended by Congress. We thus fail to see how an “exclusive” reading of “or” aids the Lenders’ position in this case.
assets free and clear of liens must comply with the more specific requirements of subsection (ii). In other words, the proposed treatment of collateral determines which of the § 1129(b)(2)(A) alternatives is applicable. Under this interpretation, any Chapter 11 plan proposing the transfer of assets encumbered by their original liens must proceed under subsection (i), any plan proposing the free and clear sale of assets must proceed under subsection (ii), and only those plans proposing a disposition not covered by subsections (i) and (ii), most notably the substitution of collateral, may then proceed under subsection (iii). This reasoning dictates that, because the Plan includes a sale of collateral free and clear of liens, the Lenders would have a statutory right to credit bid pursuant to the express terms of subsection (ii).
It is “a well-settled maxim that specific statutory provisions prevail over more general provisions.” In re Combustion Eng’g, 391 F.3d 190, 237 n.49 (3d Cir. 2004). In Combustion Engineering, we applied this principle to hold that the broad equitable authority granted to bankruptcy courts by § 105(a) to issue “any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title,” 11 U.S.C. § 105(a), could not be used to circumvent the express limitations of § 524(g), which enumerated limited circumstances under which the court could enjoin suits against non-debtors whose asbestos liabilities were derivative of the debtor’s, 11 U.S.C. § 524(g)(4)(a)(ii). Accordingly, we vacated an injunction precluding suit against non-debtors whose liabilities did not fall within those articulated in § 524(g), notwithstanding the court’s more general equitable authority under § 105(a).
However, the Supreme Court has cautioned that “[t]o apply a canon properly one must understand its rationale.” Varity Corp. v. Howe, 516 U.S. 489, 511 (1996). The principle motivating the outcome in Combustion Engineering was “a warning against applying a general provision when doing so would undermine limitations created by a more specific provision.” 391 F.3d at 237 n.49 (quoting Varity Corp., 516 U.S. at 511) (emphasis added). Thus, the principle is only applicable here if we find that the specificity of subsection (ii) operates as a limitation on the broader language in subsection (iii). We believe it does not.
The Supreme Court has addressed a nearly identical argument, albeit under a different statutory scheme, and held that a specific enumeration followed by a broader “catchall” provision does not require application of the more specific provision. Varity Corp., 516 U.S. at 511-12. The question in Varity Corp. was whether § 502(a)(3) of ERISA authorized individual relief when plan beneficiaries sued for breach of fiduciary duty. ERISA’s remedial provision provides, in relevant part:
Sec. 502. (a) A civil action may be brought- . . .
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title; [or]
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the
plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.]
29 U.S.C. § 1132(a). Section 1109, describing the relief available under subsection (2), is titled “Liability for Breach of Fiduciary Duty” and provides that any individual who breaches a fiduciary duty is personally liable to “make good to such plan any losses to the plan.” 29 U.S.C. § 1109(a). Prior Supreme Court analysis made clear that this language limited relief to restitution to the plan, and thereby precluded individual relief under § 1109(a). See Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144 (1985). Plaintiffs, as participants and beneficiaries of the plan, sued Varity under subsection (3) alleging breach of fiduciary duty and seeking individual equitable relief.
The argument advanced by Varity mirrored the argument advanced by the Lenders here: Varity argued that, because subsection (2) specifically pertains to breaches of fiduciary duty, and because it incorporates the § 1109(a) prohibition on individual recovery, the plaintiffs could not avail themselves of the more general subsection (3) when their suit was premised on breach of fiduciary duty. To permit as much, Varity argued, was to allow a circumvention of subsection (2)’s restrictions on individual relief.
The Supreme Court rejected this argument. Considering the application of the canon “the specific governs the general,” the Court reasoned that it only applied where the more specific
provision clearly placed a limitation on the general. 516 U.S. at 511. The Court observed no such limitation in the narrower provision of subsection (2):
To the contrary, one can read [§1109] as reflecting a special congressional concern about plan asset management without also finding that Congress intended that section to contain the exclusive set of remedies for every kind of fiduciary breach. . . . Why should we not conclude that Congress provided yet other remedies for yet other breaches of other sorts of fiduciary obligations in another, “catchall” remedial section?
Id. at 511-12. The plaintiffs were thus permitted to proceed under subsection (3) and seek individual equitable relief for the alleged breach of fiduciary duty.
The Court’s reasoning in Varity Corp. helps to resolve our inquiry into the relationship between the subsections of § 1129(b)(2)(A). Although subsection (ii) specifically refers to a “sale” and incorporates a credit bid right under § 363(k), we have no statutory basis to conclude that it is the only provision under which a debtor may propose to sell its assets free and clear of liens. While the proposed disposition of assets in subsection (ii) may reflect “a special congressional concern” about the free and clear transfer of collateral that secures a loan, Varity Corp., 516 U.S. at 511, this does not lead inexorably to the conclusion that Congress meant for subsection (ii) to be the exclusive means through which such collateral is transferred.
Just as the Court in Varity Corp. concluded that the “catchall” provision permitted “yet other remedies for yet other breaches of other sorts of fiduciary obligations,” 516 U.S. at 512, it is apparent here that Congress’ inclusion of the indubitable equivalence prong intentionally left open the potential for yet other methods of conducting asset sales, so long as those methods sufficiently protected the secured creditor’s interests. Accord In re CRIIMI MAE, Inc., 251 B.R. 796, 807 (Bankr. D. Md. 2000) (“11 U.S.C. § 1129(b)(2)(A) plainly indicates that subsections (i), (ii) and (iii) are to be treated as distinct alternatives. As a result, the provisions are not in conflict and the [‘specific governs the general’] rule of construction is inapplicable.”).8
The Court’s reasoning in Varity Corp. also makes abundantly clear that application of a broader provision, which the court self-terms a “catchall,” 516 U.S. at 512, does not automatically render narrower provisions superfluous. Such would only be the case where the narrower provision facially precludes application of that broader provision. Though our dissenting colleague would hold otherwise, permitting a sale of assets under subsection (iii) is not “contrary to the express terms” of subsection (ii), dissent op. Part III.A.2. Subsection (ii) provides a specific, though non-exclusive, route to a “fair and equitable” plan of reorganization. Subsection (iii) provides a more open-ended directive towards the same goal. The selection of one option does not facially negate the other (as in the case of provisions directing conduct “before” or “after,”see supra note 7). Rather, the dissent suggests that the proposed plan in this case – a free and clear sale of assets under the “indubitable equivalent” prong – will have the effect of denying
The Lenders’ argument in this regard elevates form over substance. A proposed plan of reorganization, even one that fully compensates lenders for their secured interest, would necessarily fail under their reading if the plan proposed a free and clear asset sale without complying with the additional requirements of subsection (ii). Reading the statute in this manner significantly curtails the ways in which a debtor can fund its reorganization – an outcome at odds with the fundamental function of the asset sale, to permit debtors to “provide adequate means for the plan’s implementation.” 11 U.S.C. § 1123(a)(5)(D); see also Varity Corp., 516 U.S. at 513 (rejecting a limited reading of the “catchall” provision because “ERISA’s basic purposes favor a reading of the third subsection that provides the plaintiffs with a remedy”).
secured creditors the established “fair and equitable” treatment of subsection (ii), thus demonstrating statutory conflict. This argument is not directed at the statute; it is directed at the ultimate outcome. The question of whether a particular asset sale is “fair and equitable” is a question for plan confirmation and cannot be answered at this stage by manufacturing extra- textual statutory constraints. See Pacific Lumber, 584 F.3d at 246 (“Clause (iii) does not render Clause (ii) superfluous facially or as applied to the MRC/Marathon plan. Although a credit bid option might render Clause (ii) imperative in some cases, it is unnecessary here because the plan offered a cash payment to the Noteholders. Clause (iii) thus affords a distinct basis for confirming a plan if it offered the Noteholders the ‘realization . . . of the indubitable equivalent of such claims.’”).
The Fifth Circuit in Pacific Lumber, 584 F.3d 229, reached this same conclusion. The transaction in Pacific Lumber was an inside transfer of assets to the reorganized entities, free and clear of the liens, which the Fifth Circuit determined was a sale under the Code. Id. at 245. In exchange, the secured lenders received the full cash equivalent of their undersecured claims but were not permitted to bid their credit to attain possession of the assets. The secured lenders objected to the confirmation of the plan based on their inability to credit bid.
In analyzing the confirmation, the Fifth Circuit required the creditors to “do more than show that Clause (ii) theoretically applied to this transaction. They have to demonstrate its exclusive applicability.” Id. The court reasoned that the creditors could not demonstrate the exclusive application of subsection (ii) because the three subsections of § 1129(b)(2)(A) were “alternatives” and “not even exhaustive” of the ways in which a debtor might satisfy the “fair and equitable” requirement. Id. Thus, even though the debtors’ proposed asset transfer was a “sale” under the Code, the court did not limit the debtors to confirmation under subsection (ii). Id. at 245-46. Rather, the court looked to whether the transaction satisfied the requirements of subsection (iii). Id. at 246. Because the proposed cash payout of the value of the collateral provided the secured lenders with the “indubitable equivalent” of their claims, the plan was confirmable under subsection (iii) notwithstanding its structure as an asset sale and the exclusion of the secured lenders’ right to credit bid. Id. at 246-47.
The court’s approach in Pacific Lumber focuses on fairness to the creditors over the structure of the cramdown.
Under the scheme proposed by the Lenders, because the Pacific Lumber plan involved a sale of assets, the debtor would be required to proceed under subsection (ii); and, if it could not meet the subsection (ii) requirements, then the plan could not be confirmed. The Fifth Circuit instead took the more flexible approach, consistent with the disjunctive nature of the statute, that a plan could be confirmed so long as it met any one of the three subsections’ requirements, regardless of whether the plan’s structure more closely resembled another subsection. Id.; accord Corestates Bank, 202 B.R. at 50 (holding that a plan permitting retention of liens on some but not all collateral could not proceed under subsection (i) and remanding for consideration of whether the plan provided the indubitable equivalent under subsection (iii)); CRIIMI MAE, 251 B.R. at 806 (rejecting argument that “no plan that contemplates the sale of collateral of a dissenting class of secured claims can be found ‘fair and equitable’ unless it complies with section 1129(b)(2)(A)(ii)”).
This approach recognizes that Congress’ use of “or” in § 1129(b)(2)(A) was not without purpose. A plan of reorganization cannot be confirmed over the objection of secured lenders unless it is “fair and equitable.” 11 U.S.C. § 1129(b)(1). To guide courts in interpreting that standard, Congress provided examples: a transfer of lien-encumbered assets with deferred cash payments, a free and clear sale of assets subject to credit bidding, or any other disposition that provides lenders with the “indubitable equivalent” of their secured interest. The final option elevates fair return to the lenders over the methodology the debtor selects to achieve that return, and invites debtors “to craft an appropriate treatment of
a secured creditor’s claim, separate and apart from the provisions of subsection (ii).” Dist. Ct. slip op. at 39. We have no statutory basis for concluding that such flexibility, consistent with both the language and purpose of the Code, should be curtailed.
B. Subsection (iii)’s “Indubitable Equivalent” Language Unambiguously Excludes the Right to Credit Bid
Next, the Lenders argue that the term “indubitable equivalent” is ambiguously broad and we should therefore resort to other canons of statutory construction to determine whether a sale of collateral in the absence of credit bidding can ever provide the “indubitable equivalent” of the secured interest.
The term “indubitable equivalent,” while infrequently employed in popular parlance, was not plucked from the congressional ether. Judge Learned Hand first coined the phrase “indubitable equivalent” in his opinion In re Murel Holding Corp., 75 F.2d 941, 942 (2d Cir. 1935). In that opinion, Judge Hand rejected a debtor’s offer to repay the balance of a secured debt in a balloon payment ten years after plan confirmation with interim interest payments but no requirements to protect the collateral. Judge Hand reasoned that, under the Bankruptcy Act of 1898, a secured creditor could not be deprived of his collateral “unless by a substitute of the most indubitable equivalence.” Id. This phrase was later added to the Bankruptcy Code. The phrase, as the Fifth Circuit noted, is “rarely explained in caselaw, because most contested reorganization plans follow familiar paths outlined in Clauses (i) and (ii).” Pacific Lumber, 584 F.3d at 246.
As a general matter of statutory construction, a term in a statute is not ambiguous merely because it is broad in scope. See Penn. Dep’t of Corrections v. Yeskey, 524 U.S. 206, 212 (1998). In employing intentionally broad language, Congress avoids the necessity of spelling out in advance every contingency to which a statute could apply. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 499 (1985) (holding that the fact that a statute can be “applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth.”).
Though broad, the phrase “indubitable equivalent” is not unclear. Indubitable means “not open to question or doubt,” Webster’s Third New Int’l Dictionary 1154 (1971), while equivalent means one that is “equal in force or amount” or “equal in value,” id. at 769. The Code fixes the relevant “value” as that of the collateral. See 11 U.S.C. § 1129(b)(2)(A)(iii) (requiring the “indubitable equivalent” of the secured claim); id. § 506(a) (defining a secured claim as “the extent of the value of such creditor’s interest in the estate’s interest in such property”). Thus the “indubitable equivalent” under subsection (iii) is the unquestionable value of a lender’s secured interest in the collateral.
Further, the scope of the “indubitable equivalent” prong is circumscribed by the same principles that underlie subsections (i) and (ii), specifically, the protection of a fair return to secured lenders.9 As the Fifth Circuit reasoned:
The dissent misunderstands this point. See Dissent op. Part III.A.1. Subsections (i) and (ii) do not, as noted supra,
Congress did not adopt indubitable equivalent as a capacious but empty semantic vessel. Quite the contrary, these examples focus on what is really at stake in secured credit: repayment of principal and the time value of money. Clauses (i) and (ii) explicitly protect repayment to the extent of the secured creditors’ collateral value and the time value compensating for the risk and delay of repayment. Indubitable equivalent is therefore no less demanding a standard than its companions.
Pacific Lumber, 584 F.3d at 246.
Applying this standard, courts have concluded in a variety of circumstances that a debtor has provided the “indubitable equivalent” of a secured lender’s claim. See id. at 246 (holding a cash payout satisfied the “indubitable equivalent” prong); In re Sun Country, 764 F.2d 406, 409 (5th Cir. 1985) (holding 21 notes secured by 21 lots of land was the “indubitable equivalent” of a first lien on a 200 acre lot); accord CRIIMI MAE, 251 B.R. at 807-08 (holding exchange of collateral satisfied the “indubitable equivalent” prong); see also Kenneth N. Klee, All You Ever Wanted to Know About Cram Down under the Bankruptcy Code, 53 Am. Bankr. L.J. 133, 156 (1979) (hypothesizing that “[a]bandonment of the collateral to the class would satisfy [indubitable equivalent], as would a replacement lien on similar collateral”).
operate as limitations on subsection (iii). Rather, the requirement that the disposition of assets is “fair and equitable” to secured lenders acts as an equal limitation on all subsections.
Because we decline to hold that subsection (iii) is ambiguous, the Lenders may only assert a right to credit bid under subsection (iii) if that right is contained in the plain language of the statute. Section 1129(b)(2)(A)(iii) states that a plan of reorganization is fair and equitable if it provides “for the realization by the holders of the indubitable equivalent of [allowed secured] claims.” Subsection (iii), unlike subsection (ii), incorporates no reference to the right to credit bid created in § 363(k). A plain reading of § 1129(b)(2)(A)(iii) therefore compels the conclusion that, when a debtor proceeds under subsection (iii), Congress has provided secured lenders with no right to credit bid at a sale of the collateral.
The Lenders counter this conclusion by arguing that, even if subsection (iii) contains no explicit right to credit bid, that right is necessary to providing secured lenders with the “indubitable equivalent” of their claims. This argument is premised on our decision in In re SubMicron Systems Corp., 432 F.3d 448 (3d Cir. 2006), where we held that credit bidders in a § 363(b) sale could bid up to the full value of their loan, and that the amount of the credit bid became the value of the lender’s secured interest in the collateral. In light of SubMicron, the Lenders ask us to hold that a secured lender who is not allowed to credit bid can never receive the “indubitable equivalent” of its secured interest because its credit bid sets the value of the collateral.
The Lenders’ argument is well-taken that determining whether a secured lender has received the full value of its interest in the collateral is more complicated when the collateral undersecures the debt. To illustrate the distinction: A lender
who makes a loan of $100 secured by a lien against a truck worth $500 indisputably has a secured interest of $100. If the value of the truck depreciates such that, at the time of bankruptcy, the truck is worth less than $100, then the lender has a secured interest only up to the “value” of the truck. The source of this “value” is central to this dispute to the extent that it informs whether a lender has received the indubitable equivalent of its secured interest.
SubMicron is consistent with our analysis in this case. Our holding that a credit bid sets the value of a lender’s secured interest in collateral does not equate to a holding that a credit bid must be the successful bid at a public auction. Rather, a court is called at plan confirmation to determine only whether a lender has received the “indubitable equivalent” of its secured interest. Logically, this can include not only the cash value generated by the public auction, but other forms of compensation or security such as substituted collateral or, as here, real property. In other words, it is the plan of reorganization, and not the auction itself, that must generate the “indubitable equivalent.” For this reason, the District Court noted that Lenders “retain the right to argue at confirmation, if appropriate, that the restriction on credit bidding failed to generate fair market value at the Auction, thereby preventing them from receiving the indubitable equivalent of their claim.” Dist. Ct. slip op. at 55.
Although the Lenders contend that our approach here is anomalous, the case law favors the Debtors. While the reasoning in the myriad cases touching upon this issue is admittedly inconsistent, no case cited by the Lenders reaches the conclusion they advance here: that credit bidding is required
when confirmation is sought under subsection (iii). See, e.g., In re River Village, 181 B.R. 795, 805 (E.D. Pa 1995) (permitting credit bidding in a § 363(b) pre-confirmation sale but confirming the reorganization under subsection (i)); In re California Hancock, 88 B.R. 226, 230 (9th Cir. B.A.P. 1988) (requiring credit bidding where confirmation was sought under subsection (i)). Rather, most cases addressing the right to credit bid have concluded, in keeping with the express language of the statute, that such right arises when confirmation is sought under subsection (ii). See, e.g., In re Kent Terminal, 166 B.R. 555, 566-67 (Bankr. S.D.N.Y. 1994) (holding that “the lienholder has the unconditional right to bid in its lien” under subsection (ii)).
On the other hand, the Fifth Circuit has specifically addressed whether a lender had a right to credit bid under subsection (iii) and concluded that it did not. See Pacific Lumber, 584 F.3d at 246. As discussed above, the court in Pacific Lumber confirmed a sale of assets at private auction by determining that the cash payout to the noteholders provided the “indubitable equivalent” of their secured interest in the assets, notwithstanding a provision barring secured lenders from credit bidding. 584 F.3d at 246. Though Pacific Lumber was a plan confirmation case, its holding on the threshold requirements of § 1129(b)(2)(A) speaks to our inquiry here – specifically, that a debtor may proceed with a sale under subsection (iii) without permitting secured lenders to credit bid. Accord CRIIMI MAE, 251 B.R. at 807 (reasoning that § 1129(b)(2)(A) permitted a debtor to proceed with a sale free and clear of liens under subsection (ii) or (iii), and that because only subsection (ii) required credit bidding, a sale that proceeded under subsection (iii) need only satisfy the “indubitable equivalent” requirement).
This rule, which proceeds from the plain language of the statute, is not akin to guaranteeing plan confirmation. We are asked here not to determine whether the “indubitable equivalent” would necessarily be satisfied by the sale; rather, we are asked to interpret the requirements of § 1129(b)(2)(A) as a matter of law. This distinction is critical. The auction of the Debtors’ assets has not yet occurred. Other public bidders may choose to submit a cash bid for the assets. The value of the real property that the Lenders will receive, in addition to cash, under the terms of the proposed plan has not yet been established. And the secured claim itself has not yet been judicially valued under § 506(a).10 We are simply not in a position at this stage
Section 506(a) bifurcates claims into secured and unsecured claims based on judicial valuation of the collateral securing the claim. The statute directs that “[s]uch value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.” 11 U.S.C. § 506(a)(1). Prior to plan confirmation the Lenders’ present loan value will be bifurcated into a secured claim – based on valuation of the collateral – and an unsecured claim for the deficiency. The “indubitable equivalent” standard is tied only to the value of the secured claim. Thus, any present comparison between the $295 million loan and the value of the Stalking Horse Bid is irrelevant; the Lenders are only entitled to recover the portion of the loan that is presently secured by the value of the collateral. For this reason, we decline to engage in the dissent’s attempt to assess the “value” of the proposed plan relative to the amount of the original loan. See Dissent op. Part IV. This comparison is
to conclude, as a matter of law, that this auction cannot generate the indubitable equivalent of the Lenders’ secured interest in the Debtors’ assets. We approve the proposed bid procedures with full confidence that such analysis will be carefully and thoroughly conducted by the Bankruptcy Court during plan confirmation, when the appropriate information is available.
Finally, in holding that § 1129(b)(2)(A) is not ambiguous, we are cognizant of our dissenting colleague’s strenuous admonition that two esteemed courts below have reached opposite, and presumably “reasonable,” interpretations of this statutory language. Dissent op. Part II. However, as Justice Thomas has observed, “[a] mere disagreement among litigants over the meaning of a statute does not itself prove ambiguity; it usually means that one of the litigants is simply wrong.” Bank of A. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 461 (1991) (Thomas, J., concurring). The same is true of disagreements among courts. See, e.g., In re Ford, 574 F.3d 1279, 1293 (10th Cir. 2009) (“Case law (including this very opinion) shows that courts can reasonably disagree on the meaning of the term under various state laws. But the plain language of [this provision] is clear, making resort to its legislative history unnecessary and potentially misleading.”). We decline to hold that a statutory provision is ambiguous as a matter of law merely because two admittedly well-reasoned opinions below reached opposite conclusions. Were this the case, this Court would never be permitted to reverse on plain language grounds a district court’s holding that a provision is ambiguous because the district court’s reasonable
both premature and misleading.
disagreement would itself create an ambiguity. Clearly this is not the case. See, e.g., First Merchants Acceptance Corp. v. J.C. Bradford & Co., 198 F.3d 394, 398 (3d Cir. 1999) (reversing district court holding, following California Bankruptcy Court opinion, that 11 U.S.C. § 503(b)(4) was ambiguous, holding instead that statutory language was subject to only one reasonable interpretation).
Because the language of § 1129(b)(2)(A) is unambiguous – both as to the non-exclusive enumeration of permissible treatments of secured claims, and the inclusion of a broad but not meaningless option to provide the “indubitable equivalent” of secured interests – we will affirm the District Court.
C. The Plain Meaning of § 1129(b)(2)(A) is Not Inconsistent with Congressional Intent
Our opinion could stop with a plain language analysis, however, we are cognizant that the Supreme Court has recognized a narrow exception to the plain meaning rule in the “rare cases [where] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989); see also Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571 (1982) (permitting a “restricted rather than a literal or usual meaning of [statutory] words where acceptance of that meaning . . . would thwart the obvious purpose of the statute”); Morgan v. Gay, 466 F.3d 276, 277-78 (3d Cir. 2006) (noting “in that rare instance where it is uncontested that legislative intent is at odds with the literal terms of the statute, then a court’s primary role is to effectuate the intent of Congress
even if a word in the statute instructs otherwise”).11 Generally, where the text of a statute is unambiguous, the statute should be enforced as written and “[o]nly the most extraordinary showing of contrary intentions in the legislative history will justify a departure from that language.” United States v. Albertini, 472 U.S. 675, 680 (1985) (internal quotation omitted). We find no extraordinary showing of contrary intent that warrants deviation from the plain text of the statute.
The bulk of the Lenders’ arguments, as well as the weight of the Bankruptcy Court’s reasoning, rely on the way in which §§ 1111(b) and 363(k) inform a lender’s right to credit bid at the sale of the debtor’s assets. The Lenders argue that the Code guarantees a secured lender one of two rights – either the right to elect to treat their deficiency claims as secured under § 1111(b) or the right to bid their credit under § 363(k). Because the Lenders are statutorily precluded from making a § 1111(b) election,12 they contend that they must be afforded the right to credit bid at the auction.
In addition, we believe it is necessary to at least answer the points raised by the Lenders and relied upon by our colleague in his well-written dissent. Recourse lenders are exempted from making a § 1111(b) election. See 11 U.S.C. § 1111(b)(1)(B)(ii) (exempting secured lenders from exemption if “the holder of a [secured claim] has recourse against the debtor on account of such claim and such property is sold under section 363 of this title or is to be sold under the plan”).
A summary of the relevant statutory provisions informs our analysis. Section 363 establishes certain rights and procedures in connection with, inter alia, the sale of debtor assets. Section 363(b) provides that the trustee “after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11 U.S.C. § 363(b). Such a sale is subject to the secured lender protections of § 363(k), which provide that:
At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property.
11 U.S.C. § 363(k). As discussed above, this is commonly referred to as the right to “credit bid” and is incorporated by reference into § 1129(b)(2)(A)(ii).
Section 1111(b) covers the treatment of certain claims and interests of bankruptcy creditors, and provides unique protections to undersecured lenders.13 Specifically
The full text of § 1111(b) reads:
(b)(1)(A) A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder
of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse, unless–
(i) the class of which such claim is a part elects, by at least two-thirds in amount and more than half in number of allowed claims of such class, application of paragraph (2) of this subsection; or
(ii) such holder does not have such recourse and such property is sold under section 363 of this title or is to be sold under the plan.
(B) A class of claims may not elect application of paragraph (2) of this subsection if–
(i) the interest on account of such claims of the holders of such claims in such property is of inconsequential value; or
(ii) the holder of a claim of such class has recourse against the debtor on account of such claim and such property is sold under section 363 of this title or is to be sold under the plan.
(2) If such an election is made, then notwithstanding section 506(a) of this title, such
§ 1111(b)(1)(A) is an exception to the general rule that creditors who do not have recourse to the debtor are entitled to nothing more than the realization of their collateral. Under § 1111(b), Congress provided the option for nonrecourse creditors to have their deficiency claims treated as secured debt. This is a deviation from the process provided for in § 506(a), under which the claim of an undersecured creditor is divided into: (1) a secured claim equal to the court-determined value of the collateral securing the claim, and (2) an unsecured claim for the deficiency. 11 U.S.C. § 506(a)(1). A nonrecourse creditor who makes a § 1111(b) election would be permitted to treat its deficiency claim as secured. 11 U.S.C. § 1111(b)(2).
The § 1111(b) election is not available to recourse creditors when the property is sold under § 363 or under a plan of reorganization. 11 U.S.C. § 1111(b)(1)(B)(ii). As recourse creditors whose collateral is being sold under a plan, the Lenders are not eligible to make a § 1111(b) election. They argue that the exemption of secured recourse creditors from the § 1111(b) election is limited to situations in which they have the opportunity to credit bid: specifically, a § 363 sale, under which their right to credit bid is preserved by § 363(k), and a plan of reorganization, under which their right to credit bid is incorporated into § 1129(b)(2)(A)(ii). The import of these two exceptions, according to the Lenders, is that Congress clearly intended that any sale of collateral – whether under § 363 or a plan of reorganization – would permit credit bidding by secured lenders.
claim is a secured claim to the extent that such claim is allowed.
This argument fails in light of the plain language and operation of the Code. As an initial matter, the Code plainly contemplates situations in which estate assets encumbered by liens are sold without affording secured lenders the right to credit bid. The most obvious example arises in the text of § 363(k), under which the right to credit bid is not absolute. A secured lender has the right to credit bid “unless the court for cause orders otherwise.” 11 U.S.C. § 363(k). In a variety of cases where a debtor seeks to sell assets pursuant to § 363(b), courts have denied secured lenders the right to bid their credit. See In re Aloha Airlines, No. 08-00337, 2009 WL 1371950, at *8 (Bankr. D. Haw. May 14, 2009) (determining that “cause exists to deny the credit bid” under § 363(k)); Greenblatt v. Steinberg, 339 B.R. 458, 463 (N.D. Ill. 2006) (holding the “bankruptcy court did not err in refusing to allow [a secured creditor] to credit bid”); In re Antaeus Technical Servs., Inc., 345 B.R. 556, 565 (W.D. Va. 2005) (denying right to credit bid to facilitate “fully competitive” cash auction); In re Theroux, 169 B.R. 498, 499 n.3 (Bankr. D.R.I. 1994) (noting that “there is no absolute entitlement to credit bid”).14
The Lenders argue that the “for cause” exemption under § 363(k) is limited to situations in which a secured creditor has engaged in inequitable conduct. That argument has no basis in the statute. A court may deny a lender the right to credit bid in the interest of any policy advanced by the Code, such as to ensure the success of the reorganization or to foster a competitive bidding environment. See, e.g., 3 Collier on Bankruptcy 363.09[1] (“The Court might [deny credit bidding] if permitting the lienholder to bid would chill the bidding process.”).
At the heart of the Lenders’ argument is the notion that the combined import of § 1111(b) and § 363(k) is a special protection afforded to secured lenders to recognize some value greater than their allowed secured claim – either by treating their unsecured claim as a secured deficiency claim under § 1111(b), or bidding their credit under § 363(k) in hopes of realizing a potential upside in the collateral. Asserting an absolute right to such preferential treatment is plainly contrary to other provisions of the Code, which limit a secured lender’s recovery to the value of its secured interest even when it is not permitted to make a § 1111(b) election.15 For instance, if a debtor proceeds with a sale of encumbered assets under subsection (i), there is no § 1111(b) election because the assets are “sold under the plan.” 11 U.S.C. § 1111(b)(1)(a)(ii). However, § 1129(b)(2)(A)(i)(I) still caps the transferred lien at the value of the lender’s allowed secured claim, as established by judicial
It is perhaps this point upon which our opinion and the dissent most fundamentally diverge. The dissent notes a variety of rights enjoyed by secured creditors under “longstanding nonbankruptcy law” – most notably the right to foreclose in the event of default – and then argues that “Congress extended this protection within bankruptcy.” Dissent op. Part III.B. While we agree that Congress set out certain specific protections for secured lenders, we view these protections as more evenly balanced with the overarching purpose of the Chapter 11 – to preserve the Debtor as a viable economic entity post- reorganization. Tellingly in this regard, among the immediate effects of the filing of a bankruptcy petition is a stay of all creditors’ rights to foreclose on property of the debtor. See 11 U.S.C. § 362(a).
valuation under § 506(a). The deferred cash payments under § 1129(b)(2)(A)(i)(II), are also limited to the present value of the deferred payments. Thus when a debtor proceeds under subsection (i), a lender who is ineligible to make a § 1111(b) election is still limited in its recovery to the judicial valuation of its secured interest in the collateral.
As the court noted in Pacific Lumber, a secured lender’s expectation of benefitting from the eventual appreciation of collateral (the so-called “upside” of the collateral) is not an entitlement when the property is part of a bankruptcy estate:
The Bankruptcy Code . . . does not protect a secured creditor’s upside potential; it protects the “allowed secured claim.” If a creditor were over-secured, it could not demand to keep its collateral rather than be paid in full simply to protect the “upside potential.”
Pacific Lumber, 584 F.3d at 247. Rather, the Code provides for a variety of treatments of secured claims, all of which are calculated to balance the interests of the secured lender and the protection of the reorganized entity, and none of which ensure an advantageous return on a secured investment. These powers are necessary to allow the debtor to “emerge from bankruptcy with property cleansed of all hidden liens, ensuring that future businesses will transact with the reorganized entity without fear that an unanticipated creditor will emerge with a superior interest in purchased property.” In re Airadigm Comms., Inc., 519 F.3d 640, 649 (7th Cir. 2008).
Because our plain reading of § 1129(b)(2)(A) is not at odds with the operation of §§ 1111(b) and 363(k), we may only consider the legislative history advanced by the Lenders if it evidences an “extraordinary showing of contrary intentions” by Congress. Albertini, 472 U.S. at 680; see also Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 406 (3d Cir. 2004) (“The Supreme Court has repeatedly explained that recourse to legislative history or underlying legislative intent is unnecessary when a statute’s text is clear and does not lead to an absurd result.” (internal citation omitted)). There is no such “extraordinary showing” here.
The specific history on which the Lenders rely is a congressional statement made in connection with the enactment of § 1111(b). In that statement, Representative Edwards noted:
Sale of property under section 363 or under a plan is excluded from treatment under section 1111(b) because of the secured party’s right to credit bid in the full amount of its allowed claim at any sale of collateral under section 363(k) of the House Amendment.
124 Cong. Rec. 31795, 32407 (Sept. 28, 1978); 124 Cong. Rec. 33130, 34007 (identical remarks of Senator DeConcini). The Lenders contend that this statement reflects Congressional intent to ensure that secured lenders who could not make a § 1111(b) election had the ability to credit bid under § 363(k).
The present dispute aside, this statement ignores at least two uncontroverted circumstances, explained above, where a
secured creditor has neither a right to make a § 1111(b) election, nor a right to credit bid under § 363(k): a transfer of encumbered assets under § 1129(b)(2)(A)(i)(I) and a for-cause exception to credit bidding under § 363(k). Given that this legislative history ignores these vital functions of the Code, we cannot credit it over the plain language of the statute to confer an absolute right to credit bid on all asset sales under § 1129(b)(2)(A).
Ultimately, we are left where we began – where the statutory directive is clear we are bound to enforce that directive. To the extent this holding permits a course of conduct not contemplated or not desirable under the Code, as the Lenders argue it does, it is the sole province of Congress to amend a statute that carries out by its plain language an undesirable end. See Lamie v. U.S. Trustee, 540 U.S. 526, 538 (2004) (“Our unwillingness to soften the import of Congress’ chosen words even if we believe the words lead to a harsh outcome is longstanding.”).
Finally, our holding here only precludes a lender from asserting that it has an absolute right to credit bid when its collateral is being sold pursuant to a plan of reorganization. Both the District Court below and the Fifth Circuit in Pacific Lumber contemplated that, in some instances, credit bidding may be required. See 584 F.3d at 247. In addition, a lender can still object to plan confirmation on a variety of bases, including
that the absence of a credit bid did not provide it with the “indubitable equivalent” of its collateral.16
IV.
Accordingly, we agree with the District Court and the Fifth Circuit that § 1129(b)(2)(A) is unambiguous and that a plain reading of its provisions permits the Debtors to proceed under subsection (iii) without allowing the Lenders to credit bid. Because we are directed to cease our inquiry when we are satisfied that the applicable statutory language is unambiguous, we will affirm the District Court on those grounds.
For instance, the Lenders argue here that the Bankruptcy Court made a factual finding that the exclusion of credit bidding was not a legitimate exercise of the Debtors’ business judgment. Because the question before us is a purely legal one, and because we find no basis in the record for concluding that the Bankruptcy Court’s observation was a finding of fact, we decline to address that argument here.
In re Philadelphia Newspapers, LLC No. 09-4266
SMITH, Circuit Judge, concurring.
Judge Fisher has written well, and convincingly, and I join his opinion without reservation—save for section III(C). I write separately because recourse to legislative history, as occurs in section III(C), is unnecessary as the statutory language of § 1129(b)(2)(A) is unambiguous. “[R]ecourse to legislative history or underlying legislative intent is unnecessary when a statute’s text is clear and does not lead to an absurd result.” Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 406 (3d Cir. 2004) (internal quotation marks omitted); Lamie v. United States Tr., 540 U.S. 526, 534 (2004); AT&T Inc. v. Fed. Commc’ns Comm’n, 582 F.3d 490, 496-98 (3d Cir. 2009); Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548, 559 (3d Cir. 2003) (en banc); United States ex rel. Mistick PBT v. Housing Auth. of the City of Pittsburgh, 186 F.3d 376, 395 (3d Cir. 1999); see United States v. Terlingo, 327 F.3d 216, 221 n.1 (3d Cir. 2003) (Becker, J.) (“[W]e may only look to legislative history if [the] plain meaning produces a result that is not just unwise but is clearly absurd.”) (internal quotation marks omitted); see also Mitchell v. Horn, 318 F.3d 523, 535 (3d Cir. 2003) (Ambro, J.) (“We do not look past the plain meaning unless it produces a result demonstrably at odds with the intentions of its drafters . . . or an outcome so bizarre that Congress could not have intended it[.]”) (internal quotation marks and citations omitted). This approach to statutory interpretation
“respects the words of Congress” and “avoid[s] the pitfalls that plague too quick a turn to the more controversial realm of legislative history.” Lamie, 540 U.S. at 536.
I sympathize with the dissent’s desire to honor what it believes was Congress’s intent in codifying § 1129(b)(2)(A).1 But the near-gymnastics required to reach its conclusion reveal the tenuous nature of this approach. As sensible as the dissent’s approach to credit bidding may be, I simply cannot look past the statutory text, which plainly supports the conclusion that § 1129(b)(2)(A) does not require credit
That being said, I fear that the dissent’s interest in the policy underlying § 1129(b)(2)(A), as evidenced by its reliance on an unpublished manuscript, Dissenting Op. Section I(A), and a trade publication article, id. at Section II(B), both of which prescribe a disposition for the very appeal we are tasked with deciding, has led it astray. There may be sound policy reasons for the dissent’s approach, but such reasons cannot overcome the plain meaning of § 1129(b)(2)(A). See DiGiacomo v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, 420 F.3d 220, 228 (3d Cir. 2005). “We do not sit here as a policy-making or legislative body.” Id.; Cybergenics Corp., 330 F.3d at 587 (Fuentes, J., dissenting) (joined by Sloviter, Alito, Smith, JJ.) (“[T]he Supreme Court has rejected the notion that the federal courts have any policy-making role in construing clear statutory language.”); see Lamie, 540 U.S. at 538 (“Our unwillingness to soften the import of Congress’ chosen words even if we believe the words lead to a harsh outcome is longstanding.”).
bidding in plan sales of collateral free of liens. Section 1129(b)(2)(A) uses the word “or” to separate its subsections. “‘[O]r’ is not exclusive[.]” 11 U.S.C. § 102(5). Thus, satisfaction of any of the three subsections is sufficient to meet the fair and equitable test of § 1129(b)(2)(A). “Congress, of course, remains free to change [our] conclusion [regarding § 1129(b)(2)(A)] through statutory amendment.” Small v. United States, 544 U.S. 385, 394 (2005); Lamie, 540 U.S. at 542 (“If Congress enacted into law something different from what it intended, then it should amend the statute to conform it to its intent.”). For now, we are required to apply the statute as written, and I am satisfied that its plain text amply supports the result reached by the majority.
In Re: Philadelphia Newspapers, LLC, et al. Nos. 09-4266 & 09-4349
AMBRO, Circuit Judge, dissenting
Although few in the first 30 years of Bankruptcy Code jurisprudence read it that way, the majority today holds that 11 U.S.C. § 1129(b)(2)(A)(ii) is not the exclusive method through which a debtor can cram down a plan calling for the sale of collateral free of liens. I am convinced this is not what Congress intended when it drafted the Bankruptcy Code.
Though I do not impugn as implausible my colleagues’ reasoning otherwise, I cannot agree that the plain language of § 1129(b)(2)(A) is unambiguous and compels the sole interpretive conclusion they see as the plain meaning of the words. There is more than one reasonable reading of the statute, and thus we cannot simply look to its text alone in determining what Congress meant in enacting it. When we apply long- established canons of statutory interpretation to § 1129(b)(2)(A), examine it in the context of the entire Bankruptcy Code, and look at the section’s legislative history and the comments of Code drafters, they all point to the conclusion that the Code requires cramdown plan sales free of liens to fall under the specific requirements of § 1129(b)(2)(A)(ii) and not to the general requirement of subsection (iii). Thus I would reverse the judgment of the District Court and restore the presumptive right to “credit bid” provided in subsection (ii). I. Background Matters
A. Factual Background
The debtors seek to sell their assets free of liens and to stop their secured lenders from bidding at sale up to the full credit they have extended. To understand why, we need to know the backstory. While the majority summarizes many of the relevant facts, I highlight a few that were omitted with respect to the apparent motivations behind the attempt to deny credit bidding here.
As part of a high-stakes game of chicken, the debtors have engaged in an extensive advertising campaign related to the proposed auction that promotes the message “Keep it Local.” This is apparently a reference that the Stalking Horse Bidder—largely composed of and controlled by the debtors’ current and former management and equityholders—is the favored suitor.1 Perhaps the most striking example of the type
Judge Raslavich of the Bankruptcy Court picked up on this in noting of the “Keep it Local” campaign that
there’s a lot of personal pronouns in those ads that refer[] to “our plan” and “our retention of ownership,” and arguably a reasonable reader of that does come away with the notion that it’s slanted not towards even another local bidder[,] but to the [Stalking Horse Bidder]. That’s the of game the debtors are playing is the two-years of free rent on the building to be leased to the Stalking Horse Bidder, while ostensibly “surrendering” the building to the secured lenders.
This did not go unnoticed by the Bankruptcy Court. It observed that, on the facts of the case, credit bidding appeared necessary to ensure fairness in light of the insider nature of the Stalking Horse Bidder, the extensive “Keep it Local” campaign, and its perception that the debtors’ strategies were designed “not to produce the highest and best offer. . . .”2 In re Philadelphia Newspapers, LLC, No. 09-11204, slip op. at 21 (Bankr. E.D. Pa.
fairest impression of those ads that it is endorsing the retention of the newspaper by the stalking horse bidder.
App. 1500a–01a (Hr’g Tr. 17:22–18:4, Sept. 9, 2009). See also Vincent S.J. Buccola & Ashley C. Keller, Credit Bidding and the Design of Bankruptcy Auctions at 18 (unpublished manuscript), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1545423 (last accessed Mar. 5, 2010) (“Because corporations and the people who manage them often have misaligned interests, it is hardly implausible that a debtor’s officers would seek to sell the bankrupt’s business to a low-value bidder in exchange for some personal remuneration that does not redound to the benefit of the enterprise as a whole. . . . [K]eeping willing buyers from casting bids is the most effective means for management to steer the debtor’s assets to a favored, low-value purchaser.”). Oct. 8, 2009). Indeed, the Bankruptcy Court noted that there was “little that points to a different conclusion.” Id. The Court gave the debtors “the benefit of the doubt as to their motives,” yet still could “discern no plausible business justification for the restriction [on credit bidding] which Debtors [sought] to include in the Bid Procedures.” Id. at 22.
The Stalking Horse Bidder is seeking to pay as little as possible to obtain the assets “on the cheap” in a Circuit where secured lenders are allowed to bid up to the full amount of their debt owed despite Bankruptcy Code § 506(a) (which when applicable “split[s] . . . partially secured claims into their secured claim and unsecured claim components”). See Cohen v. KB Mezzanine Fund II, LP (In re SubMicron Sys. Corp.), 432 F.3d 448, 461 (3d Cir. 2006). What typically occurs is that, if there are no other bidders, the secured lenders get the assets rather than the Stalking Horse Bidder (unless, of course, the Stalking Horse Bidder increases its bid to a number that is the secured lenders’ “reservation price,” i.e., the price they are willing to have the Stalking Horse pay cash that will essentially be transferred to them). If credit bidding is denied, however, the debtors’ insiders stand to benefit by having more leverage to steer the sale to a favored purchaser (here, the Stalking Horse Bidder). This is explained below.
B. Credit Bidding
Though the majority does not discuss it at length, an understanding of credit bidding is helpful. A credit bid allows a secured lender to bid the debt owed it in lieu of other currency at a sale of its collateral. In SubMicron, we discussed the rationale behind credit bidding in the context of a sale of debtors’ property outside the ordinary course of business under § 363 of the Bankruptcy Code. 432 F.3d at 459–61. We held that a secured creditor can “credit bid” the entire face value of its secured claim, including the unsecured deficiency portion. The reason behind this was that a credit bid “by definition . . . becomes the value of [the] [l]ender’s security interest in [the collateral].” Id. at 460 (emphasis in original).
The practical rationale for credit bidding is that a secured lender would “not outbid [a] [b]idder unless [the] [l]ender believe[d] it could generate a greater return on [the collateral] than the return for [the] [l]ender represented by [the] [b]idder’s offer.” Id. Conversely, if a bidder believed that a secured lender was attempting to swoop in and take the collateral below market value and keep the upside for itself, that bidder presumably would make a bid exceeding the credit bid. In this manner, credit bidding is a method of ensuring to a secured lender proper valuation of its collateral at sale.3
Like the majority’s reading of SubMicron, my reading of that opinion (which I authored) also “does not equate to a holding that a credit bid must be the successful bid at a public auction.” Maj. Op. at 30. SubMicron’s logic presumes that the credit bidder will not be the buyer if another bidder values the assets more highly. It is curious why the majority even brings up this point, for no doubt the credit bid need not be the winning Although some may argue that credit bidding chills cash bidding, that argument underwhelms; credit bidding chills cash bidding no more than a deep-pocketed cash bidder would chill less-well-capitalized cash bidders.4 Having the ability to pay a certain price does not necessarily mean there is a willingness to pay that price.
C. Cramdown
An understanding of cramdown is also helpful. Section 1129 of the Bankruptcy Code addresses the confirmation of Chapter 11 plans, including plans that involve the sale of property of the estate. Subsection 1129(a) provides the
bid; rather, the presumptive right to credit bid must be afforded the secured creditor. See also Buccola & Keller, supra, at 20–21 (“For instance, if a would-be bidder knows that Warren Buffett plans to attend an auction, she is also surely aware that Buffett can top her reservation price for any or all of the assets on the block. Yet nobody proposes to ban wealthy cash bidders from participating in a bankruptcy auction. . . . Would-be bidders understand that a deep-pocketed player’s ability to top their reservation price does not imply a willingness to do so. Warren Buffett did not become wealthy by overpaying for things, so it is possible, indeed, probable, that his reservation price for an asset at auction will be beneath that of another buyer. And buyers know this in advance. The same logic holds for secured creditors.”) (emphasis in original). requirements that a plan must meet in order to gain confirmation from the Bankruptcy Court. 11 U.S.C. § 1129(a) (“The court shall confirm a plan only if all of the following requirements are met . . . .”). Included is the requirement in § 1129(a)(8) that each class of claims or interests either accept the plan or not be impaired under it. Id. § 1129(a)(8). However, the debtor can “cram down” the plan over the objections of an impaired class by satisfying the requirements of § 1129(b).
The principal touchstone of cramdown under § 1129 is that “the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” Id. § 1129(b)(1). The requirements for what is “fair and equitable” for secured claims are stated in subsection (b)(2)(A):
(2) For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements . . . (A) With respect to a class of secured claims, the plan provides—
(i)
(I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed
amount of such claims; and
(II) that each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder’s interest in the estate’s interest in such property;
(ii) for the sale, subject to section 363(k)5 of this title, of any property that is subject to the liens securing such claims, free and clear of such liens, with such liens to
Section 363(k) of the Bankruptcy Code provides the right to credit bid, and it reads as follows:
(k) At a sale under subsection (b) of this section [a sale other than in the ordinary course of business] of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property.
11 U.S.C. § 363(k). attach to the proceeds of such sale, and the treatment of such liens on proceeds under clause (i) or (iii) of this subparagraph; or
(iii) for the realization by such holders of the indubitable equivalent of such claims.
Id. § 1129(b)(2)(A). At issue for us is whether, when a plan provides for a sale of secured property free of liens, subsection (ii) is the sole point of reference for what is required to cram down a plan on the secured creditor.
II. Section 1129(b)(2)(A) Has More Than One Plausible Interpretation.
Though the majority attempts to use literal text in isolation to support its conclusion, that reading cannot be the only plausible reading of § 1129(b)(2)(A). Indeed, both the District Court and the Bankruptcy Court read the statute in a plausible fashion, yet came to opposite conclusions. Reasonable minds can differ on the interpretation of § 1129(b)(2)(A) as it applies to plan sales free of liens. This indicates that the provision is ambiguous when read in isolation and does not have a single plain meaning.6
In no way am I suggesting that disagreement between the District Court and the Bankruptcy Court is dispositive of ambiguity. Nor do I suggest that, when disagreement among courts exists, we “would never be permitted to reverse [a A. The more-recent interpretation of § 1129(b)(2)(A) adopted by the majority
To recap my colleagues’ reasoning, § 1129(b)(2)(A)(iii) can be used to cram down a plan sale free of liens, without credit bidding, over the objections of creditors because they read the plain text as unambiguous. In support of their position, they cite to a recent decision by the Fifth Circuit Court of Appeals, authored by its Chief Judge, a highly respected former bankruptcy lawyer. See Bank of N.Y. Trust Co., NA v. Official Unsecured Creditors’ Comm. (In re Pacific Lumber Co.), 584 F.3d 229 (5th Cir. 2009) (Jones, C.J.).7 That case reasons that
District Court] on plain language grounds.” Maj Op. at 33–34. I merely point out that each reasonable interpretation has been adopted during the course of this litigation. The ambiguity is tied to the susceptibility of the statutory text to two reasonable interpretations and not that two courts have seen the issue differently. This is the only appellate decision to my knowledge holding that plan sales free of liens may be accomplished through clause (iii). My colleagues and the debtors also refer to a Bankruptcy Court decision of recent vintage, In re CRIIMI MAE, Inc., 251 B.R. 796 (Bankr. D. Md. 2000), but the plan in that case is easily distinguishable. Although it involved a plan sale of collateral free of liens and without credit bidding, there was also substitute collateral provided to help make up for any shortfall from the proceeds of sale. Indeed, the CRIIMI MAE Court made note of the distinction between a plan without substitute because “or” is disjunctive, the three clauses of § 1129(b)(2)(A) are “alternatives” that “are not even exhaustive.” Id. at 245. (The latter is because the word “includes” in § 1129(b)(2) “is not limiting.” Id. (citing 11 U.S.C. § 102(3)).) It thereby concluded that the clauses were not compartmentalized alternatives. Id. at 245–46. As a result, clause (iii) could be analyzed in isolation and could provide a means of confirmation without regard to clauses (i) and (ii). Id. at 246–47.
The Court next determined that clause (iii) did not render clause (ii) superfluous facially or as applied to the plan before it. Although it recognized that “a credit bid option might render Clause (ii) imperative in some cases,” id. at 246, it determined that a payment of sale proceeds to the secured lenders was an “indubitable equivalent” because “paying off secured creditors in cash can hardly be improper if the plan accurately reflected the value of the . . . collateral,” id. at 247. Thus, the Court rejected the secured lenders’ right to credit bid because the plan accomplished its sale through clause (iii) (which does not mention credit bidding), not clause (ii) (which does).
With Pacific Lumber as authority, my colleagues reason that § 1129(b)(2)(A) provides three distinct alternatives for a
collateral under clauses (i) or (ii), and a plan with substitute collateral under clause (iii). 251 B.R. at 807. plan sale.8 Finding Congress’s use of “or” in § 1129(b)(2)(A)
The majority also relies heavily on a case interpreting ERISA § 502(a), Varity Corporation v. Howe, 516 U.S. 489 (1996), to support its textual analysis of the Bankruptcy Code. Varity held that ERISA § 502(a)(3) (allowing actions to remedy violations of the terms of the benefit plan or subchapter I of ERISA) could be used to redress some breaches of fiduciary duty to plan participants because, even though § 502(a)(2) already addressed fiduciary duties, it merely “reflect[ed] a special congressional concern about plan asset management.” 516 U.S. at 511. That holding does not apply to our case, and in any event does not lead inexorably to the majority’s conclusion. Unlike the majority, I see no way to read clause (ii) of Bankruptcy Code § 1129(b)(2)(A) as a “special congressional concern” without also concluding that Congress intended clause (ii) to be exclusively applicable to plan sales free of liens. Clause (ii) is a broad statement that any time a plan proposes a sale free of liens, regardless of the precise method (judicial sale, auction, etc.), it must conform to the prescriptions of that provision. While the majority is correct that “Congress’ inclusion of the indubitable equivalence prong intentionally left open the potential for yet other methods of conducting asset sales,” Maj. Op. at 22, the Bankruptcy Code does not make clear that a debtor has options “other than, and in addition to,” 516 U.S. at 511, clause (ii) for a plan sale free of liens. Certainly a debtor has the option to use other methods of plan sales (such as a sale subject to lien or with a replacement lien), but a plan sale free of liens goes to the heart of clause (ii). As discussed below, it is illogical to think that Congress had a “special concern” only with respect to plan sales free of liens and subject “not without purpose,” the majority reads the statute to
to credit bidding, and not all plan sales free of liens. The majority is missing a step in the logical progression when it glosses over this fact without offering a compelling reason why the provision should be read in a manner that effectively reads out clause (ii). Although the majority ostensibly uses Varity to hew to the plain text, I believe the reason why the dissenting view in Varity was rejected is instructive. Justice Thomas found that the Varity majority’s holding “cannot be squared with the text or structure of ERISA.” 516 U.S. at 516 (Thomas, J., dissenting). Applying the same two canons of statutory interpretation I apply below (the specific governs the general and anti- superfluousness), Justice Thomas reached the textual conclusion that the specific provision of § 502(a)(2) provided the “exclusive mechanism for bringing claims of breach of fiduciary duty.” Id. at 520, 521. The Varity Court reached its unique interpretive result over Justice Thomas’s dissent because of particular idiosyncracies in the text of ERISA § 502(a), none of which exists here (such as the narrow construction of § 502(a)(2) by the Supreme Court in Massachusetts Mutual Life Insurance Company v. Russell, 473 U.S. 134, 142 (1985)). Clause (ii) of § 1129(b)(2)(A) embodies a congressional concern about all plan sales free of liens, and clause (iii) is the general provision enacted by Congress for plan sales not otherwise accounted for. Unlike ERISA § 502(a)(2), there is no “remainder” in the universe of plan sales free of liens. As such, there is no need to take the extra step the Varity Court did and provide a statutory hook through clause (iii). “elevate[] fair return to the lenders over the methodology the debtor selects to achieve that return.” Maj. Op. at 26. Even though clause (ii) specifically refers to a sale free of liens and incorporates a general credit bid right, the majority permits plans proposing a free and clear asset sale to fall under clause (iii) because a contrary outcome would be “at odds with the fundamental function of the asset sale, to permit debtors to ‘provide adequate means for the plan’s implementation.’” Id. at 11 (citing 11 U.S.C. § 1123(a)(5)(D)).
B. The longer-lived interpretation of § 1129(b)(2)(A)
The majority presents one reading. Another (the one I subscribe to and, as noted below, the longer-lived reading) exists. It restricts plan sales free of liens to clause (ii).
While the Code states that “‘or’ is not exclusive” in § 102(5) (and that is true as a general proposition), it is not always the case in practice. Numerous sections of the Bankruptcy Code employ the disjunctive “or” in a context where the alternative options render the “or” exclusive. See, e.g., 11 U.S.C. § 365(g)(2)(B)(i)–(ii) (assumption of executory contrary before or after conversion), 506(d)(1)–(2) (voiding liens for disallowed claims for one of two reasons), 1112(b)(1) (conversion or dismissal of a Chapter 11 case), 1325(a)(5)(B)–(C) (requirements for confirmation of a Chapter 13 plan), 1325(b)(3)(A)–(C) (means test categories), 1325(b)(4)(A)(i)–(ii) (same); see also Williams v. Tower Loan of Miss., Inc. (In re Williams), 168 F.3d 845, 847–48 (5th Cir. 1999) (holding that § 1325(a)(5)(B) & (C) required an exclusive-or construction to avoid creating an option that Congress did not intend to create); 2 Collier on Bankruptcy ¶ 102.06 & n.1, at 102-13 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2009) (noting that a non-exclusive reading is permissible only “if context and practicality allow” and citing to § 1112(b) as an example where “[i]t would be impossible for the court to do both.”). Nor is an exclusive-or in our particular context inconsistent with the cases cited by the majority, Maj. Op. at 16–17, for those cases hold only that the word is the disjunctive “or,” not the conjunctive “and.” The lesson is that we “do not read [the Bankruptcy Code] with the ease of a computer.” Kelly v. Robinson, 479 U.S. 36, 49 (1986) (citing Bank of Marin v. England, 385 U.S. 99, 103 (1966) (interpreting its predecessor, the Bankruptcy Act)).
Turning to the statutory text, the operative verb in § 1129(b)(2)(A) is not “includes,” as the Pacific Lumber panel believed, but “provides” (that is, “[w]ith respect to a class of secured claims, the plan provides . . .”). Cf. In re Pacific Lumber Co., 584 F.3d at 245–46. The majority relies on this section of Pacific Lumber to support its view of clauses (i)–(iii) as non-exhaustive alternatives when applied to plan sales free of liens. Maj. Op. at 24–25. Pacific Lumber looked to the verb “includes,” but that verb attaches to § 1129(b)(2), not (b)(2)(A). “Includes” is the verb that applies in (b)(2) because it covers not only secured claims in subsection (A), but also unsecured claims in subsection (B) and classes of interests in subsection (C). In contrast, once we delve into (b)(2)(A), we are solely concerned with the treatment of a class of secured claims, and the relevant verb is “provides,” whereby Congress prescribes specific treatments for specific scenarios of secured-claim treatment. By way of example, this is similar to “provided,” the verb used in § 1325(a)(5) and construed to require an exclusive-or construction in In re Williams, 168 F.3d at 846–47.
The language employed by Congress in clauses (i), (ii), and (iii) of subsection (A) thus is susceptible to another plausible reading: Congress did not list the three alternatives as routes to cramdown confirmation that were universally applicable to any plan, but instead as distinct routes that apply specific requirements9 depending on how a given plan proposes to treat the claims of secured creditors. In contrast, the majority, in effect, “assume[s] that the plan proponent can simply choose which of these three disjunctive specifications of the requirement it wishes to satisfy.” Ralph Brubaker, Cramdown of an Undersecured Creditor Through Sale of the Creditor’s Collateral: Herein of Indubitable Equivalence, the § 1111(b)(2) Election, Sub Rosa Sales, Credit Bidding, and Disposition of Sale Proceeds, 29 No. 12 Bankruptcy Law Letter 1, 7–8 (Dec. 2009). But
I note that § 1129(b)(2) states “the condition that a plan be fair and equitable with respect to a class includes the following requirements . . . .” 11 U.S.C. § 1129(b)(2). These are not mere examples, but specific requirements to be applied to distinct scenarios. [a] perfectly (and perhaps even more) plausible alternative reading of the disjunctive specification of three means of satisfying the requirement . . . is that the plan’s proposed treatment of the secured claim determines which of the three alternative specifications of the requirement must be satisfied ....
Id. at 8. While “or” may be non-exclusive in the ordinary course, the latter interpretation supports a reading of exclusivity as applied to plan sales, with the applicable clause tied to what a particular plan proposes.
That reading plays out as follows. Clause (i) applies to a situation where the secured creditor retains the lien securing its claim in a given class.10 11 U.S.C. § 1129(b)(2)(A)(i).
Clause (ii) applies to a situation where the plan “provides . . . for the sale . . . of any property that is subject to the liens securing such claims, free and clear of such liens.”11 Id.
By the very terms of clause (i), it applies “whether the property subject to liens is retained by the debtor or transferred to another entity.” 11 U.S.C. § 1129(b)(2)(A)(i)(I). This includes sales of property where the secured creditor retains the lien securing its claim because “transferred” encompasses sales. I wonder if my colleagues’ conclusion is driven in part by a misreading of clause (ii). They consider it as an “example” § 1129(b)(2)(A)(ii). It requires that the sale be “subject to section 363(k) of [the Bankruptcy Code],” the provision that gives a secured creditor the presumptive right to credit bid at the sale. Id. (I say “presumptive” because the “court [can] for cause order[] otherwise.” Id. § 363(k).) Furthermore, the provision requires that the stripped liens move from the sold property and “attach to the proceeds of such sale.” Id. § 1129(b)(2)(A)(ii). Finally, it directs that the liens transferred to the proceeds be given “treatment . . . under either clause (i) or clause (iii) of [§ 1129(b)(2)(A)].”12 Id.
provided by Congress and characterize it as “a free and clear sale of assets subject to credit bidding.” Maj. Op. at 26. The words “free and clear of such liens” in the clause modify the noun “sale” and lead me to believe that clause (ii) is not merely an example, but an entire category of sales that is prescribed a specific treatment. Treating “sale . . . free and clear of such liens” as an example as opposed to a prescription may explain why my colleagues decline to apply the canons of statutory interpretation I apply below. See 11 U.S.C. § 1129(b)(2)(A)(ii) (“for the sale, subject to section 363(k) of this title, of any property that is subject to the liens securing such claims, free and clear of such liens”) (emphases added). This provision also helps to understand in context the hypothetical posed by the debtors’ counsel at oral argument. See Oral Arg. Tr. at 39:23–40:22, 49:24–50:10. In this hypothetical, a debtor has only two assets: a truck worth $100, and a truck worth $500. The $500 truck is unencumbered, while the $100 truck is encumbered by a $200 lien. Counsel argued Clause (iii) applies whenever the plan “provides . . . for the realization . . . of the indubitable equivalent” of a secured creditor’s claim. Id. § 1129(b)(2)(A)(iii). Examples of these situations include abandonment of property and providing substitute collateral (also known as a replacement lien).13 See 7
that the only way to confirm a plan that sells the $100 truck free and clear of liens, and instead gives the secured creditor a $100 lien on the $500 truck, is to proceed directly through clause (iii) to confirm the plan sale. This is incorrect. The correct analysis is that the $100 truck is sold under clause (ii), and the $100 lien attaches to the proceeds. The lien on the proceeds is then treated under clause (iii), and substitute collateral is provided in the form of a $100 lien on the $500 truck. Thus, clause (ii) ably handles this hypothetical, and further obviates plan sales through clause (iii). Alternatively, if the debtor wanted to avoid credit bidding in that scenario, it could change the order of operations. The debtor would first give the secured creditor for the $100 truck the indubitable equivalent under clause (iii) by providing a replacement lien in the unencumbered $500 truck. It would then sell the now-unencumbered $100 truck, and because there is no longer a lien on that truck securing a claim, the debtor need not worry about the credit bid provision of § 1129(b)(2)(A)(ii). Even a more complicated scheme such as the CoreStates plan discussed by the debtors’ counsel at oral argument, Oral Arg. Tr. 34:14–35:5, fits under this paradigm because it can be classified as a plan providing for a replacement lien or some combination of the clauses on a collateral-by-collateral basis. CoreStates Bank, N.A. v. United Chem. Techs., Inc., 202 B.R. Collier ¶ 1129.04[2][c] & nn. 38, 52 at 1129-127, -129. “Indubitable equivalent” is not defined in the Code, but there can be no doubt that the secured creditor receives consideration equal to its claim in value or amount. See Webster’s Third New Int’l Dictionary 1154 (1971) (indubitable means “not open to question or doubt” or “too evident to be doubted”); id. at 769 (equivalent means one that is “equal in force or amount” or “equal in value”). Although the language of clause (iii) is broad, as discussed below it is a “catch-all” not designed to supplant clauses (i) and (ii) where they plainly apply.
The reading of § 1129(b)(2)(A) just noted prescribes a specific treatment that a plan must afford to secured creditors if it allows them to retain the liens securing property. This is clause (i). Likewise, this reading of the statute prescribes a specific treatment if a plan sells property free and clear of a secured creditor’s lien. This is clause (ii). And clause (iii) prescribes a specific treatment for situations not addressed by either clause (i) or clause (ii).
Proponents of this view believe Congress has prescribed the full range of possible treatments of secured claims under a plan in a compartmentalized fashion. See, e.g., In re SunCruz
33, 49–51 (E.D. Pa. 1996) (leaving open the possibility of confirmation under clause (iii) even though clause (i) requirements were not met in a plan that did not call for the sale of collateral, but instead provided for a combination of reduced collateral and partial immediate payment). Casinos, LLC, 298 B.R. 833, 838 (Bankr. S.D. Fla. 2003); In re Kent Terminal Corp., 166 B.R. 555, 566–67 (Bankr. S.D.N.Y. 1994). Moreover, this interpretation is supported by academic discourse. See, e.g., Brubaker, supra, at 8 (“The obvious disjunctive specification of alternative requirements, therefore, does not unambiguously permit the plan proponent to simply choose the requirement that it wishes to satisfy and bypass a requirement that specifically addresses, on its face, the treatment that the plan proposes.”).
III. Principles of Statutory Interpretation Decide Which of Two Reasonable Readings Is the More Plausible.
My colleagues’ reading of § 1129(b)(2)(A) is not a trip to the twilight zone. Neither is mine. We must choose between two plausible readings of § 1129(b)(2)(A): one that allows sales of collateral free of liens under clause (iii) without credit bidding, and another that only allows such sales under clause (ii) with credit bidding generally available. With these competing maps, we need a compass pointing to the right interpretive result. In this context, I review the protocols for how courts interpret statutes. This includes applying canons of statutory interpretation, examining the context of related statutory provisions, and, when appropriate, looking to legislative history and comments of Code drafters to help understand a statute’s literal words.
To know as best we can what a law means is to know as best we can what those who wrote it meant when they did so. Meaning equals intent, and intent paves the path for our interpretation.
Our search for knowledge of intent begins with the law’s language. In re Armstrong World Indus., Inc., 432 F.3d 507, 512 (3d Cir. 2005) (citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)). “[W]e begin with the understanding that Congress says in a statute what it means and means in a statute what it says there.” Official Comm. of Unsecured Creditors of Cybergenics Corp ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548, 559 (3d Cir. 2003) (en banc) (citing Hartford Underwriters Ins. Co. v. Union Planters Bank, 530 U.S. 1, 6 (2000)). “When ‘the statute’s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.’” Id. (citing Hartford Underwriters, 530 U.S. at 6); see also Ron Pair, 489 U.S. at 241. “We should prefer the plain meaning since that approach respects the words of Congress. In this manner we avoid the pitfalls that plague too quick a turn to the more controversial realm of legislative history.” Lamie v. U.S. Tr., 540 U.S. 526, 536 (2004).
Yet words that may seem plain often are not. See United Parcel Serv., Inc. v. U.S. Postal Serv., 455 F. Supp. 857, 865 (E.D. Pa. 1978) (Becker, J.) (“Although it is received wisdom that when a statute’s plain meaning is clear ‘the duty of interpretation does not arise and the rules which are to aid doubtful meanings need no discussion,’ it is also an endorsed caveat to this rule that ‘[w]hether . . . the words of a statute are
clear is itself not always clear.’”) (citations omitted); see also Tex. State Comm’n for the Blind v. United States, 796 F.2d 400, 406 (Fed. Cir. 1986) (en banc) (same).
Canons of statutory interpretation counsel courts to read the statutory scheme in a manner that gives effect to every provision Congress enacted and avoids general provisions swallowing specific provisions, especially when to do so makes the specific superfluous. See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001); D. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 (1932). In addition, any search for the meaning of words needs context for understanding intent, particularly when dealing with the Bankruptcy Code. Cybergenics, 330 F.3d at 559 (“[S]tatutory construction is a holistic endeavor . . . .” (citing United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988))). A court “must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law and to its object and policy.” Id. (citing Kelly v. Robinson, 479 U.S. 36, 43 (1986)). Indeed, “[a] provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme . . . because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.” Timbers, 484 U.S. at 371. If ambiguity in statutory text remains, a court may inquire beyond the plain language into the legislative history. See Blum v. Stenson, 465 U.S. 886, 896 (1984).
Congress worked on drafting the Bankruptcy Code for nearly a decade, and it “intended ‘significant changes from
[prior] law in . . . the treatment of secured creditors and secured claims.’” Ron Pair, 489 U.S. at 240 (citations omitted). “[A]s long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of a statute.” Id. at 240–41. This plain meaning “should be conclusive, except in the ‘rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.’” Id. at 242 (citation omitted). A result may be demonstrably at odds with the intentions of the Code’s drafters if it “conflict[s] with any other section of the Code, or with any important state or federal interest . . . [or] a contrary view suggested by the legislative history.” Id. at 243.
With this in mind, applying well-established principles of statutory interpretation leads me to conclude that § 1129(b)(2)(A)(ii) is the sole provision applicable to plan sales free of liens.
A. Canons of Statutory Construction
1. Specific provisions prevail over general provisions.
Statutory Construction 101 contains the canon that a specific provision will prevail over a general one. See Norman J. Singer & J.D. Shambie Singer, 2A Sutherland Statutes and Statutory Construction § 46:5 (“Where there is inescapable conflict between general and specific terms or provisions of a statute, the specific will prevail.”). This canon long predates both the Bankruptcy Code and the prior Bankruptcy Act, and Congress no doubt was well aware of it when crafting the Code. “General language of a statutory provision, although broad enough to include it, will not be held to apply to a matter specifically dealt with in another part of the same enactment. Specific terms prevail over the general in the same or another statute which otherwise might be controlling.” Popkin, 285 U.S. at 208 (construing sections of the Bankruptcy Act of 1898) (citations omitted); see also Nat’l Cable & Telecomms. Ass’n, Inc. v. Gulf Power Co., 534 U.S. 327, 335–36 (2002) (“It is true that specific statutory language should control more general language when there is a conflict between the two . . . [, unless] there is no conflict [and] [t]he specific controls . . . only within its self-described scope.”); Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 228–29 (1957) (“However inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment.”) (citations omitted); Clifford F. MacEvoy Co. v. United States ex rel. Calvin Tomkins Co., 322 U.S. 102, 107 (1944) (same) (citing Popkin, 285 U.S. at 208).
There are two specific clauses in the context of the “fair and equitable” requirements of a plan and one general clause. To repeat, clause (i) applies to all situations, including plan sales, where the lien on the sold collateral is retained. Clause (ii) applies to all plan sales that sell the collateral lien-free. It provides specific requirements to apply when a plan proposes such a sale. Clause (iii) is a general provision often regarded as a residual “catch-all”14 that applies to the balance of situations not addressed by clauses (i) and (ii).
To use clause (iii) to accomplish a sale free of liens, but without following the specific procedures prescribed by clause (ii), undoubtedly places the two clauses in conflict. It seems Pickwickian to believe that Congress would expend the ink and energy detailing procedures in clause (ii) that specifically deal with plan sales of property free of liens, only to leave general language in clause (iii) that could sidestep entirely those very procedures. Unlike the majority, I do not read the language to signal such a result; I read the text to show congressional intent to limit clause (iii) to those situations not already addressed in prior, specifically worded clauses.15
In the similar context of adequate protection under § 361, we have held that the phrase “indubitable equivalent” in the third of § 361’s three subclauses is “regarded as a catch all, allowing courts discretion in fashioning the protection provided to a secured party.” Resolution Trust Corp. v. Swedeland Dev. Group, Inc. (In re Swedeland Dev. Group, Inc.), 16 F.3d 552, 564 (3d Cir. 1994) (en banc) (emphasis added). Nor is clause (ii) so specific so as to render itself inconsequential even though it includes a proviso set off by commas from the rest of the clause—“subject to section 363(k) of this title.” 11 U.S.C. § 1129(b)(2)(A)(ii). The grammatical structure of a statute, including the positioning of commas, should be considered in statutory interpretation, and indeed, it can “mandate” a particular reading of a statute. Ron Pair, 489 Inasmuch as the majority argues that clause (ii) does not operate as a limitation on clause (iii) because they are not in conflict, Maj. Op. at 22–23 & n.8, I do not understand how that can be the case here. Clause (ii) requires a presumptive right to credit bid at a plan sale free of liens; as construed by the majority, clause (iii) can be used in a plan sale free of liens without a right to credit bid. When one clause makes the right presumptive, and the other makes that right nonexistent, and both are believed to govern an otherwise identical sale scenario,
U.S. at 241–42. Mirroring Ron Pair, which concerned the construction of another provision in the Bankruptcy Code (§ 506(b)), we are confronted by a “phrase . . . set aside by commas” from the balance of the sentence. Id. at 241. Without the commas here, the object of the sentence is no longer a “sale,” but is instead a “sale subject to section 363(k).” Such a grammatical structure would mean that clause (ii) only applies to the narrow class of sales that are subject to § 363(k). This makes no sense, inasmuch as § 363(k) on its own swims only in the lane of non-plan sales outside the ordinary course of business. It expands its coverage to plan sales by virtue of § 1129(b)(2)(A)(ii). Thus, I believe we cannot ignore the punctuation and the “natural reading” that Congress has provided us and limit the scope of clause (ii). “[S]ubject to section 363(k)” is a non- restrictive clause specifying the requirements to be followed under clause (ii), not the scope of the clause’s applicability. With this understanding, clause (ii) is applicable to all sales free and clear of liens securing claims, and all sales under clause (ii) must comply with the requirements outlined in § 363(k). there is undisputably a conflict between the construction of the provisions. Indeed, the majority later contradicts itself when it states that “the scope of the ‘indubitable equivalent’ prong is circumscribed by the same principles that underlie subsections (i) and (ii).” Id. at 28. As I understand it, to circumscribe the scope is to limit that scope. See Webster’s Third New Int’l Dictionary 410 (defining circumscribe as “to surround by or as if by a boundary . . . [or] to set limits or bounds to . . . [or] to constrict the range or activity of . . . [or] to define, mark off, or demarcate carefully”).
Although it may be facile to conclude that the general language of clause (iii) is applicable to plan sales free of liens, such a result ignores the specific language Congress enacted in clause (ii).
2. The majority’s reading violates the anti- superfluousness canon.
A “cardinal principle of statutory interpretation” is that no provision “shall be superfluous, void, or insignificant.” TRW, 534 U.S. at 31; see Gustafson v. Alloyd Co., 513 U.S. 561, 574 (1995) (“[T]he Court will avoid a reading which renders some words altogether redundant.”); Mountain States Tel. & Tel. Co. v. Pueblo of Santa Ana, 472 U.S. 237, 249 (1985) (applying the “elementary canon of construction that a statute should be interpreted so as not to render one part inoperative” (citations omitted)).
As noted above, § 1129(b)(2)(A) has two specific clauses and one general clause in the context of the “fair and equitable” requirements of a plan. Clause (iii) cannot apply where clause (i) or clause (ii) apply, as otherwise those clauses become no more than measures seen only as overmuch. The Bankruptcy Code would not need the “intricate phraseology,” Timbers, 484 U.S. at 373, of the three clauses under § 1129(b)(2)(A), but instead would simply have said that, “[w]ith respect to a class of secured claims, the plan provides for the realization by such holders of the indubitable equivalent of such claims.” A presumptive right to credit bid would not need to be specifically mentioned if, as the majority believes, it was not a requirement of a plan sale free of liens.
Because “[i]t is our duty ‘to give effect, if possible, to every clause . . . of the [s]tatute,’” I do not read clause (iii) in a fashion that renders clauses (i) and (ii) unnecessary. Duncan v. Walker, 533 U.S. 167, 174 (2001) (citations omitted); Gustafson, 513 U.S. at 574. To do so would render clause (ii) “a practical nullity.” Timbers, 484 U.S. at 375. I know no reason why Congress would want to allow the more general language of clause (iii) to reach an outcome contrary to the express terms of a provision in the same subsection of § 1129(b)(2)(A)—clause (ii). Thus, the anti-superfluous canon supports a reading that restricts to clause (ii) plan sales free of liens.
B. Context can give clarity to statutes.
Disputed laws set in context may “clarif[y] . . . the remainder of the statutory scheme.” Timbers, 484 U.S. at 371. As context colors content, we look beyond the individual provision and consider § 1129(b)(2)(A) as a part of a coherent whole—the Bankruptcy Code. The Code recognizes that secured lenders have bargained for a property interest in the collateral. Under longstanding nonbankruptcy law they are entitled to foreclose on the collateral by selling it and keeping the proceeds up to the amount of the debt secured by the collateral. See, e.g., Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 594–95 (1935) (Brandeis, J.) (“[T]he [secured lender] [has] the following property rights recognized by [state law]: . . . The right to protect its interest in the property by bidding at such sale whenever held, and thus to assure having the mortgaged property devoted primarily to the satisfaction of the debt, either through receipt of the proceeds of a fair competitive sale or by taking the property itself.”).
Congress extended this protection within bankruptcy and, in keeping with the Butner principle, intended to preserve the presumptive right of a secured creditor under applicable state law to take the property to satisfy the debt. See Butner v. United States, 440 U.S. 48, 55 (1979) (holding that, “[u]nless some federal interest requires a different result,” bankruptcy law requires “[u]niform treatment of property interests by both state and federal courts”). In circumstances where this was not possible, Congress provided other protections in the Bankruptcy Code for the secured creditor. These other provisions explain the object and policy of the Bankruptcy Code when addressing the “cramdown” of a plan over a secured creditor’s objection.
Other sections of the Code related to plan sales of encumbered property free of its liens, as well as sections concerning the protection afforded to secured creditors, support a reading of § 1129(b)(2)(A) that clause (ii) is the exclusive way to confirm cramdown plan sales of property free of liens. Of particular note are three related provisions in the Code—§§ 1123(a)(5)(D), 363(k), and 1111(b). Those sections, in conjunction with § 1129(b)(2)(A), are integrated parts of congressional policy pertaining to secured creditors’ rights when their collateral is sold, as recognized in bankruptcy’s leading treatise and in academic literature. See 7 Collier ¶¶ 1129.04[2][b][i], [ii] & n.33, at 1129-125 to -126; Kenneth N. Klee, All You Ever Wanted to Know About Cram Down Under the New Bankruptcy Code, 53 Am. Bankr. L.J. 133, 155 (1979).16
1. Section 1123(a)(5)(D)
Bankruptcy Code § 1123 governs the contents of a Chapter 11 plan, and it allows plans to provide adequate means
Professor Klee served as associate counsel to the Committee on the Judiciary, U.S. House of Representatives, and was one of the principal drafters of the Bankruptcy Code. for implementation, including the “sale of all or any part of the property of the estate, either subject to or free of any lien.” 11 U.S.C. § 1123(a)(5)(D). Plans can provide for sales of collateral in one of two fashions: (1) subject to lien, or (2) free of any lien. As to the liens themselves, there are two types: (a) the original lien securing a claim, or (b) a replacement lien securing a claim. Accordingly, we have three ways in which a plan can provide for the sale of collateral: (i) subject to the initial lien retained by the secured creditor, (ii) free of any lien, or (iii) after providing a replacement lien on different collateral (such that the previously liened collateral is sold unencumbered). These three possibilities correspond to clauses (i), (ii), and (iii), and help to clarify the three alternatives in § 1129(b)(2)(A).17 Section 1123(a)(5)(D) thus appears to place all plan sales of property securing debt, which are sold clear of liens, within the purview of § 1129(b)(2)(A).
I disagree with the majority that § 1123(a)(5)(D), in permitting debtors to “provide adequate means for the plan’s implementation,” allows them to craft a means (a cramdown plan sale free of liens without credit bidding) that is contrary to the express text of the Bankruptcy Code. The majority argues that to “read the statute in [a limiting] manner significantly
Clause (iii) also applies to abandonment of property, but that application is not implicated when the collateral is sold. See In re Sandy Ridge Dev. Corp., 881 F.2d 1346, 1350 (5th Cir. 1989). Likewise, clause (i)’s applicability to non-sale transfers is not implicated when the collateral is sold. curtails the ways in which a debtor can fund its reorganization” and thereby is at odds with § 1123(a)(5)(D). Maj. Op. at 24. Taken to its logical conclusion, this argument would allow debtors to disregard the statutory requirements of the plan approval process so long as the motivation was to ensure “adequate means” to implement a plan. This is a road too far. In contrast, the reading of § 1123(a)(5)(D) I propose with respect to plan sales is consistent with the text and the principles of the Bankruptcy Code.
2. Section 363(k)
Section § 363 (and thus § 363(k)) applies to sales of property outside the ordinary course of business, but § 363(k) has been imported into § 1129(b)(2)(A)(ii). Notably, § 363 does not specify a particular method of sale, but it does specify in subsection (k) that a secured creditor has the right to credit bid its debt, subject to the power of the court for cause to order otherwise. Congress deems the ability of secured creditors to credit bid so important that it applies as well to sales of collateral via plans of reorganization that strip those liens.
To avoid undervaluation at a sale free of liens under either § 363 or § 1129, a secured creditor has the option of bidding its debt. See 7 Collier ¶ 1129.04[2][b][ii], at 1129-125. Indeed, while many of the valuation mechanisms (such as judicial valuation or market auction) may theoretically result in a perfect valuation, Congress has provided the credit bid mechanism as insurance for secured creditors to protect against an undervaluation of assets sold.18 Secured creditors who believe their collateral is being sold for too low a price may bid it higher and use as credit the dollars they have already extended (together with interest and other secured costs) to debtors. The
To support its interpretation, the majority notes that § 363(k) is the “most obvious example . . . under which the right to credit bid is not absolute.” Maj. Op. at 39–40. My colleagues argue that because “[a] court may deny a lender the right to credit bid in the interest of any policy advanced in the Code” through § 363(k)’s “for cause” exception, id. at 40 n.14, clause (iii) must be available as well to circumvent the credit bid requirements of clause (ii). This thought-track is twisted. Whereas the default rule under clause (ii), as the majority must concede, is presumptively to allow credit bidding “unless the court for cause orders otherwise,” 11 U.S.C. § 363(k), the majority’s approach allows the debtor to decide unilaterally to deny credit bidding, with only a belated court inquiry at confirmation to determine whether the denial of credit bidding was “fair and equitable” to the secured lenders. The burden to show cause that Congress carefully placed on the debtor through clause (ii) has been shifted to the creditors through my colleagues’ interpretation of clause (iii). See Maj. Op. at 41 (“[A] lender can still object to plan confirmation on a variety of bases, including that the absence of a credit bid did not provide it with the ‘indubitable equivalent’ of its collateral.”). To be sure, the “fair and equitable” test at confirmation will be formidable, but the majority implicitly presumes the propriety of denying credit bidding instead of presuming the right to credit bid. benefit to debtors is that every additional dollar of value realized by sale of the collateral is one less dollar that needs to come out of the rest of the bankruptcy estate. This effect is evidence of Congress’s intent to protect secured creditors and maximize recovery at any sale free of liens, under the plan or under § 363, through § 363(k)’s credit bidding requirement. It also supports the reading of exclusivity for clause (ii).
3. Section 1111(b)
Section 1111(b)19 is another path by which secured
Section 1111(b) reads as follows:
(1)
(A) A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse, unless—
(i) the class of which such claim is a part elects, by at least two-thirds in amount and more than half in number of allowed claims of such class, application of paragraph (2) of this subsection; or creditors may protect themselves, this time from undervaluation of the collateral securing their claims when the collateral is not sold. Its protections have two facets. First, it allows a non-
(ii) such holder does not have such recourse and such property is sold under section 363 of this title or is to be sold under the plan.
(B) A class of claims may not elect application of paragraph (2) of this subsection if—
(i) the interest on account of such claims of the holders of such claims in such property is of inconsequential value; or
(ii) the holder of a claim of such class has recourse against the debtor on account of such claim and such property is sold under section 363 of this title or is to be sold under the plan.
(2) If such an election is made, then notwithstanding section 506 (a) of this title, such claim is a secured claim to the extent that such claim is allowed.
11 U.S.C. § 1111(b). recourse secured creditor to be treated as a creditor with recourse against the debtor for any debt deficiency that exists because the collateral is worth less than the debt it secures. 11 U.S.C. § 1111(b)(1)(A); see also 7 Collier ¶ 1111.03[1][a][ii][B] at 1111-16 to -17. Second, it allows a secured creditor to forgo that deficiency claim and instead elect to have its claim treated as if it were fully secured. 11 U.S.C. § 1111(b)(2); see also 7 Collier ¶ 1111.03[2][a] at 1111-22. Like the credit bidding provided for in § 363(k), this election provision helps to minimize the deficiency claims that can be asserted against the rest of the bankruptcy estate and other unencumbered assets, maximizing recovery for all creditors.
A § 1111(b) election is not available to a secured creditor, however, if it is a recourse creditor and the property securing the lien is to be sold “under section 363 of [the Code] or . . . under the plan,” 11 U.S.C. § 1111(b)(1)(B)(ii). Thus, while not directly referencing § 1129(b)(2)(A) in the text of the former provision, it does make direct reference to the sale of property under a plan, an act specifically contemplated by § 1129(b)(2)(A). Sections § 1129(b)(2)(A)(ii) and 1111(b) are thus best understood as alternative protections for the secured creditor: one to apply when its collateral is sold free and clear of liens, and the other to apply when its collateral is treated other than as a sale.20
This is not to say that the two clauses cover all scenarios. Though not in play here, when collateral is sold subject to the As the two protections are opposite sides of the same coin, both focused on protecting the secured creditor’s interest in property ordinarily protected under nonbankruptcy law from being undervalued, this suggests that Congress intended to channel all plan sales free of liens through § 1129(b)(2)(A)(ii). See Klee, supra, at 153 n.127 (“The collateral will be sold under . . . § 363(k) or under the plan. In either event the recourse lender has a right to bid at the sale [free of liens] and to offset his full allowed claim against the purchase price.”); see also Brubaker, supra, at 11 (“Thus the protection against being cashed out at an unfairly low valuation that the § 1111(b)(2) election provides is, in the event of a sale of the collateral [free of liens], provided instead by the right to credit bid at the sale.”). If plan sales free of liens were permitted outside of clause (ii), the secured creditor would not only lose the undervaluation protection afforded in non-plan-sale situations, but it would lose the only undervaluation protection Congress provided and considered in the sale-free-of-liens scenario.
original lien, § 1129(b)(2)(A)(ii) does not apply because the sale is not free and clear of all liens, while § 1111(b) does not apply because the collateral nonetheless is sold. Because this scenario falls squarely under § 1129(b)(2)(A)(i), a clause not implicated in this case, and its associated protections, I do not address it here. Likewise, when collateral is sold subject to a replacement lien, § 1129(b)(2)(A)(ii) does not apply, but that scenario falls under § 1129(b)(2)(A)(iii) and the “indubitable equivalent” language. * * * * *
Considering § 1129(b)(2)(A) in conjunction with §§ 363(k), 1111(b), and 1123(a)(5)(D), their text expresses the overall policy of Congress with respect to secured creditors whose collateral is to be sold free of liens. They are part of a comprehensive arrangement enacted by Congress to avoid the pitfalls of undervaluation, regardless of the mechanism chosen, and thereby ensure that the rights of secured creditors are protected while maximizing the value of the collateral to the estate and minimizing deficiency claims against other unencumbered assets. Taken as a whole, the Code supports the reading that funnels all plan sales free of liens into clause (ii). See Klee, supra, at 155 n.136 (“If the collateral is sold free and clear of the lien, then . . . § 1129(b)(2)(A)(ii) is the controlling provision.”). This is the only reading that “produces a substantive effect . . . compatible with the rest of the law.” Timbers, 484 U.S. at 371.
C. Legislative history, at the right time, gives keys to comprehension of statutes.
Some may think that seeking to know laws by their legislative history is simply shading their shadows, resulting in ever more confusion. But when there is no consensus about what a law means, we ignore at our peril statements of intent put out by the branch of government that drafted that law. See Blum, 465 U.S. at 896 (“Where, as here, resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear.”); In re Mehta, 310 F.3d 308, 311 (3d Cir. 2002) (same). I thus turn to legislative history.
Section 1129(b) was new to bankruptcy law when the Bankruptcy Code was enacted in 1978. See 124 Cong. Rec. 31,795, 32,406 (1978) (statement of Rep. Edwards)21 reprinted in 1978 U.S.C.C.A.N. 6436, 6474; see also Klee, supra, at 143 & n.82 (“[T]he test for secured claims [under § 1129(b)(2)(A)] is completely novel, affording protection for classes of secured claims that is not provided under present law.”); see also Ron Pair, 489 U.S. at 240 (“[Congress] intended ‘significant changes from current law in . . . the treatment of secured creditors and secured claims.’”) (citations omitted). This new section was not enacted in isolation, but was instead enacted in conjunction with section 1111(b):
Together with section 1111(b) . . . , this section
In the specific case of the Bankruptcy Code, the Supreme Court “ha[s] treated [Rep. Edwards’s] floor statements on the Bankruptcy Reform Act of 1978 as persuasive evidence of congressional intent,” Begier v. IRS, 496 U.S. 53, 64 n.5 (1990), and most cases interpreting § 1129(b)(2)(A) have referred to those statements, as has Collier. See, e.g., In re SunCruz Casinos, LLC, 298 B.R. at 839; In re Kent Terminal Corp., 166 B.R. at 565; In re 222 Liberty Assocs., 108 B.R. 971, 977–78 (Bankr. E.D. Pa. 1990); 7 Collier ¶ 1129.04[1] n.1, at 1129-119. [1129(b)] provides when a plan may be confirmed notwithstanding the failure of an impaired class to accept the plan under section 1129(a)(8). Before discussing section 1129(b)[,] an understanding of section 1111(b) is necessary.
124 Cong. Rec. at 32,406. Accordingly, it is necessary to read § 1129(b)(2)(A) not in isolation, but (as noted above) as a complement to § 1111(b). The latter was drafted with § 1129(b)’s operation in mind: “Sale of property under section 363 or under the plan is excluded from treatment under section 1111(b) because of the secured party’s right to bid in the full amount of his allowed claim at any sale of the collateral under section 363(k) . . . .” Id. at 32,407 (emphases added). Those who drafted the Bankruptcy Code tell us straight out that subsection 1129(b)’s operation contemplates credit bidding for sales “under the plan.”
Not only was § 1129(b) a new provision, it signaled a change from prior practice. The prior Bankruptcy Act only required “adequate protection”—such as court determination of fair market value of collateral after its appraisal and payment in cash of the appraised amount—to confirm a plan over the dissent of a secured creditor. See Klee, supra, at 143 & n.83 (citing to numerous provisions of the Bankruptcy Act). Instead of the court-determined standard of the prior Bankruptcy Act, the Bankruptcy Code created stronger creditor safeguards and protections in § 1129(b)(2)(A). Part of this protection was the ability of secured creditors to credit bid at any sale of collateral
free of liens.
In this context, it would be anomalous for Congress to draft a specific provision, clause (ii), providing protections above and beyond those given to secured creditors under the prior Bankruptcy Act, only to allow clause (iii) to be used to circumvent those protections and return to the precise mechanism used prior to the Code. We have “been admonished not to ‘read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure,’” In re Montgomery Ward Holding Corp., 268 F.3d 205, 211 (3d Cir. 2001) (citation omitted). I thus also do not presume that Congress enacted a nullity when it changed prior practice by enacting a statutory provision.
The legislative history provides examples of the types of situations in which clauses (ii) and (iii) would apply. Notably, clause (ii) was termed “self-explanatory.” 124 Cong. Rec. at 32,407 (emphasis added). It allows confirmation of a plan when the “plan proposes to sell the property free and clear of the secured party’s lien.” Id. (emphasis added).
The legislative history also provides two examples where a court could confirm under clause (iii)—“[a]bandonment of the collateral to the creditor” and “a lien on similar collateral.” Id. While it notes that an immediate cash payment less than the secured claim would not satisfy the requirement, id., presumably an immediate cash payment equal to the secured claim would. What it does not say is that a sale of collateral free and clear of liens can be accomplished through clause (iii); indeed, the only example mentioned of sales free and clear of liens is through clause (ii).
In enacting the Code to provide enhanced protections to secured creditors, Congress only contemplated sales through the “self-explanatory” procedures of clause (ii), not clause (iii), as the latter was intended for situations of abandonment or substitute collateral. Thus, I believe it is inconsistent with the entirety of § 1129(b)(2)(A) to allow plan sales free of liens through clause (iii).
IV. The Consequences of Applying Clause (iii) to Plan Sales Free of Liens Are Contrary to the Settled Expectations of Debtors and Lenders Bargaining in the Shadow of the Bankruptcy Code.
If the debtors here prevail, a direct consequence is that debtors generally would pursue confirmation under clause (ii) only if they somehow concluded that providing a right to credit bid as required by that clause would be more advantageous to them than denying that right. This is illogical when one considers that credit bidding is a form of protection for the secured creditor, not the debtor. In our case, the secured lenders are owed over $300 million secured by substantially all of the debtors’ assets. Instead of allowing the lenders their presumptive right to credit bid, debtors wish to confirm a plan that sells the collateral without the procedural safeguard against undervaluation contemplated by the Code’s drafters. Any undervaluation of the collateral does not benefit the secured lenders here, as they only receive the sale proceeds plus a building encumbered by a two-year, rent-free lease (chutzpah to the core). It does not even benefit the unsecured creditors, as their recovery is independent of the sale price. The only party that stands to benefit from any undervaluation is the purchaser of the assets, ostensibly the Stalking Horse Bidder with substantial insider and equity ties.
Moreover, this is not the “loan-to-own” scenario that was mentioned by debtors’ counsel at oral argument. See Oral Arg. Tr. 42:10–19. In that situation, the “lender’s primary incentive is acquiring the debtor’s assets as cheaply as possible rather than maximizing the recovery on its secured loan.” Brubaker, supra, at 12. By contrast, in our case the secured lenders have already loaned hundreds of millions of dollars in an arms-length transaction, and there is no plausible assertion that this was an attempt to “acquir[e] the debtor’s assets as cheaply as possible.” Id. The Stalking Horse Bidder’s bid is only expected to yield gross proceeds to the estate of approximately $41 million. In re Philadelphia Newspapers, LLC, 418 B.R. 548, 554 (E.D. Pa. 2009) (“The Plan contemplates that the Stalking Horse Bidder will pay a cash purchase price of $30 million, plus a combination of payment of certain expenses and assumption of liabilities that will yield gross proceeds to the Debtors’ estates of approximately $41 million.”). This is small fraction of the secured lenders’ implied loan-to-own purchase price ($295 million initial loan plus interest and costs). A winning credit bid is hardly an acquisition “on the cheap.” If anything, this presents the opposite situation: the Stalking Horse Bidder appears to be attempting to acquire the debtor’s assets as cheaply as possible by “seizing upon coordination difficulties inherent in the administration of a large syndicated loan that might actually prevent the multiple secured lenders from writing a check to themselves, in which case someone else is trying to acquire the debtor’s assets on the cheap by preventing the secured lenders from credit bidding.” Brubaker, supra, at 12. Such a result would undermine the Bankruptcy Code by skewing the incentives of the debtor to maximize benefits for insiders, not creditors.
Secured creditors “have lawfully bargained prepetition for unequal treatment” by obtaining a property interest in debtors’ property. In re Owens Corning, 419 F.3d 195, 216 (3d Cir. 2005). However unfair the debtors believe the credit bid right to be, it is an important consequence of this lawful bargaining under the Bankruptcy Code.
The secured lenders relied on their ability to credit bid in extending credit to the debtors, reducing their costs and pricing in accordance with their bargain. “[S]ecured credit lowers the costs of lending transactions not only by increasing the strength of the lender’s legal right to force the borrower to pay, but also . . . by limiting the borrower’s ability to engage in conduct that lessens the likelihood of repayment.” Ronald J. Mann, Explaining the Pattern of Secured Credit, 110 Harv. L. Rev. 625, 683 (1997). As discussed above, Congress has determined that credit bidding is necessary to ensure proper valuation of the collateral at a sale free of liens. Denying secured creditors the right to credit bid in those cases allows debtors to lessen the likelihood of repayment of the full value of the collateral.
Instead of giving secured creditors the benefit of the bargain struck with debtors, the debtors’ proposed reading uproots settled expectations of secured lending. Whereas a secured creditor ordinarily would be assured of (1) retaining its lien on collateral and a payment stream, (2) a sale of collateral free of its liens with a corresponding right to credit bid, or (3) equivalent substitute collateral or the ability to take abandoned collateral, there is now a new possibility: a sale free of its liens without a right to credit bid. Allowing this possibility (outside of the bargained-for loan) forces future secured creditors to adjust their pricing accordingly, potentially raising interest rates or reducing credit availability to account for the possibility of a sale without credit bidding. As noted, secured creditors are deprived of some of the presumed benefits associated with secured lending. The Bankruptcy Code does not intend this; it preserves the bargains for treatment made under state law unless a federal interest directs a different result. Butner, 440 U.S. at 55. I see no such interest here, and debtors have not advanced any federal interest supporting the consequences of their interpretation.
V. Conclusion
Section 1129(b)(2)(A) permits the cramdown of objections by secured creditors to plans of reorganization when to do so is “fair and equitable.” To be fair and equitable, the Bankruptcy Code sets markers that must be met. One (clause (ii)) is that sales of collateral free of secured creditors’ liens come with a condition: those creditors have the right at the sale to bid up to the full amount of the credit they extended (absent cause to take away this right). The text gives this specific right when collateral is sold free of liens, and the question for us is whether it can be disregarded by a general provision, nowhere mentioning sales of collateral, that allows secured creditors’ plan objections to be overcome when the plan provides those creditors the “indubitable equivalent” of their claims. I believe the answer is “No.”
Allowing a plan sale free of liens under the general provision (clause (iii)) is not implausible were we to make the “or” between clause (ii) and clause (iii) a textual show-stopper. But that would make us the standard-bearers of a purism that here would ignore an equally, I suggest more, plausible reading that plan sales of collateral are confined specifically either to clause (i) (sales subject to liens) or clause (ii) (sales free of liens).
Two plausible readings point me to those signposts a court can fix on to wend its way to what Congress intended. Each signpost—be it a canon of construction, the design and function of the Bankruptcy Code, every signal of intent contained in the legislative record, and commentary made by those with the power of the pencil who were present at the Code’s creation—steers me to a reading that clause (ii) covers exclusively plan sales of assets free of liens. (In effect, a single “or” becomes the bell, book, and candle that excommunicates congressional intent from the Bankruptcy Code.) Moreover, the consequences of a contrary reading include upsetting three decades of secured creditors’ expectations, thus increasing the cost of credit.
I conclude that Congress intended to protect secured creditors at a plan sale of collateral free of liens by providing them a means to control undervaluations of secured assets. Accordingly, I would hold that § 1129(b)(2)(A)(ii) is exclusively applicable to the proposed plan sale in this case, and with it comes a presumptive right to credit bid by the secured lenders. The debtors of course would remain free to argue in the Bankruptcy Court that there is cause to preclude credit bidding under § 363(k) or propose an alternative plan under clause (i) or (iii) of § 1129(b)(2)(A) that does not involve the sale of property free of liens.22
In any event, I do not take the majority opinion to preclude the Bankruptcy Court from finding, as a factual matter, that the debtors’ plan is a thinly veiled way for insiders to retain control of an insolvent company minus the debt burden the insiders incurred in the first place. Nor do I take the majority opinion to preclude the Bankruptcy Court from concluding, at the confirmation hearing, that the plan (and resulting proposed sale of assets free of liens and without credit bidding) does not meet the overarching “fair and equitable” requirement. Because I believe the Bankruptcy Code requires all cramdown plan sales free of liens to be channeled through § 1129(b)(2)(A)(ii), I respectfully dissent. |
PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________
No. 09-2029 _____________
GREGG C. REVELL; ASSOCIATION OF NEW JERSEY RIFLE & PISTOL CLUBS INC.
v.
PORT AUTHORITY OF NEW YORK AND NEW JERSEY; SCOTT ERICKSON
v.
PORT AUTHORITY OF NEW YORK AND NEW JERSEY,
Third Party Plaintiff
v.
CONTINENTAL AIRLINES; COUNTY OF ESSEX; ESSEX COUNTY JAIL; ESSEX COUNTY PROSECUTOR; JOHN DOES 1-10,
Third Party Defendants Gregg C. Revell,
Appellant. ______________
On Appeal from the United States District Court for the District of New Jersey (D.C. No. 06-cv-402) District Judge: Honorable Katharine S. Hayden _______________
Argued January 26, 2010
Before: RENDELL and JORDAN, Circuit Judges, and PADOVA * , District Court Senior Judge
(Filed: March 22, 2010) _______________
Richard E. Gardiner [ARGUED] 3925 Chain Bridge Rd. - #403 Fairfax, VA 22030
* Honorable John R. Padova, United States District Court Senior Judge, for the Eastern District of Pennsylvania, sitting by designation.
Richard V. Gilbert Evan F. Nappen 21 Throckmorton Ave. Eatontown, NJ 07724 Counsel for Appellant
Donald F. Burke, Sr. [ARGUED] Port Authority of New York & New Jersey One PATH Plaza Jersey City, NJ 07306
Shirley J. Spira Sharon K. McGahee Port Authority of New York & New Jersey Law Dept., Opinions & Appeals Div. 225 Park Avenue South 13 th Floor, Room 1324 New York, NY 10003 Counsel for Appellees _______________
OPINION OF THE COURT _______________
JORDAN, Circuit Judge.
Gregg C. Revell appeals from the dismissal of his claims, brought pursuant to 42 U.S.C. § 1983, seeking to impose liability upon the Port Authority of New York and New Jersey (“Port Authority”) and Port Authority Police Officer Scott Erickson for arresting him under New Jersey’s gun laws and
seizing his firearm and ammunition. According to Revell, his arrest was unlawful because he was in compliance with a provision of the Firearm Owners’ Protection Act (“FOPA”), 18 U.S.C. § 926A, which allows gun owners licensed in one state to carry firearms through another state under certain circumstances. Because we conclude that, at the time of his arrest, Revell's conduct did not bring him within the protection of that statute, we will affirm both the dismissal of his § 926A- based claim and the grant of summary judgment to the Port Authority and Erickson on Revell’s closely related Fourth Amendment claim. We will likewise affirm the grant of summary judgment against Revell on his due process claim under the Fourteenth Amendment.
I. Background
A. Revell’s Arrest
On March 31, 2005, Revell, a resident of Utah, embarked on a flight from Salt Lake City to Allentown, Pennsylvania, via Minneapolis/St. Paul and Newark, New Jersey. When he arrived at the Northwest Airlines counter 1 in the Salt Lake City Airport, he checked his luggage through to his final destination and declared that, in the luggage, he was carrying an unloaded firearm contained in a locked hard case and ammunition in a separate locked hard case. He signed an orange firearm
While the record is not entirely clear, it appears that Northwest and Continental Airlines had some shared responsibility for transporting Revell to Allentown.
declaration tag, which was placed inside the locked hard case containing the firearm. That was apparently the last thing on the trip that went as expected. The several mishaps that followed ultimately relate to the accessibility of the firearm and ammunition and are thus key to this dispute.
Because his flight into Newark was late, Revell missed his connection from Newark to Allentown. He booked the next flight to Allentown, which was scheduled to leave Newark at 8 p.m. that evening, but, after the airline changed arrangements, the passengers scheduled for that flight were asked to board a bus, instead of a plane, headed for Allentown. Revell got on the bus; however, when he learned that his luggage was not on board, he got off to locate it.2 By the time he retrieved his luggage, he had missed the bus, and no other connections to Allentown were available. He then went directly to the Newark Airport Sheraton Hotel in a hotel shuttle, taking his luggage with him. The driver of the shuttle van placed Revell’s luggage, which contained the locked hard case containers, in the rear storage area of the van, which was not immediately accessible from the passenger compartment where Revell was seated. Revell stayed at the hotel overnight but did not open either of the locked containers during his stay.
In a triple-whammy for Revell, not only had the airline made him miss his connection and then put him on a bus instead of a plane, a Northwest employee had mistakenly checked his luggage to Newark, instead of Allentown, as his final destination.
The next morning, he took the hotel’s airport shuttle back to the Newark Airport and, again, his luggage was placed out of his reach in the rear of the shuttle. Upon arriving at the airport around 8:30 a.m., he proceeded to the ticket counter to check his luggage and declared that he was carrying an unloaded firearm in a locked hard case and ammunition in a separate locked hard case. Revell was told to take his luggage to the Transportation Security Administration (“TSA”) area so that it could be x- rayed. After the luggage went through the x-ray machine, the TSA agent at the other end of the machine took the hard cases out and asked Revell for the key to them, which Revell provided. The TSA agent opened the cases using Revell’s key and removed the firearm and ammunition. The orange declaration sheet from Salt Lake City was still in the case with the firearm.
About twenty minutes later, several Port Authority officers, including Officer Erickson, escorted Revell to an area away from other passengers where they questioned him about the firearm and ammunition. Revell explained that he had declared his weapon and ammunition, and that he was merely passing through New Jersey en route to Allentown, Pennsylvania. He also showed the officers his Utah concealed firearm permit and his driver’s license. When Erickson questioned Revell about why he had the firearm, Revell explained that he was traveling to Pennsylvania to pick up a car to bring back to Utah and that “he was going to need the weapon for protection” as he drove the car home. (App. at 33.) Revell also informed Erickson that, upon missing his flight the day before, he had taken possession of his bag with the firearm in it and had gone to a hotel in Newark to stay for the night.
Erickson asked Revell whether he had authority to carry the firearm in Pennsylvania, but Revell did not respond.3
Erickson arrested Revell for possession of a handgun without a permit in violation of N.J. Stat. Ann. § 2C:39-5(b) and for possession of hollow-point ammunition in violation of N.J. Stat. Ann. § 2C:39-3(f).4 Revell was handcuffed, held overnight at the Port Authority jail, and then transferred to the Essex County, New Jersey, Jail, where he was incarcerated for three days until he was released on bond. Four months later, on August 2, 2005, the Essex County prosecutor administratively dismissed all of the charges against him. However, Revell’s firearm, ammunition, holster, locks, and hard cases, which were seized at the time of his arrest, were not returned until July 24, 2008, more than two years after the ill-fated trip and
At his deposition, Revell stated that he did not check to make sure that he could carry his firearm in Pennsylvania prior to traveling there, but believed that it was legal for him to carry a weapon there because the instructor for his concealed firearm permit class did not mention that he could not do so. Section 2C:39-5(b) provides that “[a]ny person who knowingly has in his possession any handgun, ... without first having obtained a permit to carry the same as provided in N.J.S.2C:58-4, is guilty of a crime” of the second or third degree depending on the nature of the handgun. Section 2C:39-3(f) provides that “[a]ny person, ... who knowingly has in his possession any hollow nose or dum-dum bullet, ... is guilty of a crime of the fourth degree.”
approximately a year after he filed his amended complaint in this action.
B. Revell’s Complaint
Understandably troubled about his and his property’s treatment, Revell brought the present § 1983 case, alleging that the Port Authority and Erickson had violated his rights under § 926A of FOPA.5 In essence, § 926A allows a person to transport a firearm and ammunition from one state through a second state to a third state, without regard to the second state’s gun laws, provided that the traveler is licensed to carry a firearm in both the state of origin and the state of destination and that the firearm is not readily accessible during the transportation.6 18 U.S.C. § 926A. Revell also alleged that the appellees violated his Fourteenth Amendment rights by retaining his
Additionally, the Association of New Jersey Rifle & Pistol Clubs, Inc. brought a § 1983 claim based on 18 U.S.C. § 926A, seeking to enjoin the Port Authority from enforcing against the Association’s non-resident members the New Jersey statutes under which Revell was arrested. The District Court found that the Association lacked standing and dismissed its claim. The Association appealed that ruling to our Court and we reversed, holding that the Association did, in fact, have standing to pursue its claim on behalf of its members. Revell v. Port Auth. of N.Y. & N.J., 321 F. App’x 113, 117 (3d Cir. 2009). The Association’s lawsuit is not at issue in this appeal. The text of § 926A is set forth in section III.A, infra.
firearm, holster, locks, containers and ammunition, thereby depriving him of his property without due process. He sought damages and an injunction requiring the Port Authority to return his property.
C. The District Court’s Dismissal of Revell’s Complaint
Erickson moved to dismiss Revell’s claims and the Port Authority moved for judgment on the pleadings.7 They argued, among other things, that probable cause existed for the arrest because § 926A was inapplicable, given Revell’s overnight stay in New Jersey. They also argued that Erickson was entitled to qualified immunity.
The District Court noted that its first task was to “determine whether 18 U.S.C. § 926A created an enforceable personal right,” an issue of first impression. (App. at 44.) The Court answered that question by holding that, pursuant to the Supreme Court’s decision in Graham v. Connor, 490 U.S. 386 (1989), Revell was required to frame his § 1983 claim in terms of the Fourth Amendment, as opposed to § 926A, because he sought damages for an allegedly improper arrest. In other words, the Court concluded that, “[b]ecause individuals already
Since the Port Authority had already answered Revell’s complaint, it moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), while Erickson, who had not answered the complaint, moved to dismiss for failure to state a claim under Rule 12(b)(6).
have a method of recovering damages pursuant to § 1983 if they are arrested or charged without probable cause, [i.e., a claim under the Fourth Amendment,] it is unnecessary and, indeed, improper ... to conclude that § 1983 provides a separate or alternative remedy for a violation of § 926A.” (App. at 49.) The Court thus dismissed Revell’s § 1983 claim for the alleged violation of § 926A, but it granted him leave to file an amended complaint stating a Fourth Amendment claim.
The Court also dismissed Revell’s procedural due process claims for damages and injunctive relief.8 The Court, relying on Parratt v. Taylor, 451 U.S. 527 (1981), explained that, if constitutionally adequate state procedures were available to remedy the deprivation of Revell’s property, he could not succeed on his due process claim. Since Revell neither availed himself of state law remedies nor explained why those remedies would be futile or constitutionally inadequate, the Court dismissed that claim. However, it granted Revell leave to amend his complaint to allege that “the Port Authority’s postdeprivation remedies for the return of seized property are constitutionally inadequate.” (App. at 53.)
On June 29, 2007, the District Court entered an order dismissing Revell’s complaint and allowing him leave to amend pursuant to the memorandum opinion.
The District Court analyzed Revell’s due process claims to determine whether he had also pled a substantive due process violation and concluded that he had not. That issue is not on appeal.
D. Revell’s Amended Complaint
Not long after, on July 13, 2007, Revell filed an amended complaint against the Port Authority and Erickson. In the first count, he asserted that his arrest and the seizure of his property violated his Fourth Amendment rights because, pursuant to § 926A, he was legally entitled to carry the firearm and ammunition in his luggage, notwithstanding New Jersey law. Revell also asserted two procedural due process claims – one for damages and one for injunctive relief requiring the return of his property – based on allegations that the Port Authority “has no post-deprivation procedure for Revell to recover the [property] seized from him” and that the defendants “did not provide him notice of the basis for the retention of the property and of an opportunity for a post-deprivation hearing.” (App. at 64.) He later voluntarily dismissed his due process claim for injunctive relief, after his property was returned to him.
E. The District Court Grants Summary Judgment on Revell’s Claims
Following discovery, the Port Authority and Erickson moved for summary judgment, arguing that probable cause supported Revell’s arrest and that Erickson is protected by qualified immunity. They asserted that § 926A did not immunize Revell from arrest for violating New Jersey’s gun laws because, contrary to an express requirement of § 926A, Revell’s weapon was readily accessible to him during his stay in New Jersey. They also moved for summary judgment on Revell’s due process claim, arguing that New Jersey has in place adequate post-deprivation procedures for those who seek the
return of property seized upon arrest, including state tort remedies, and that Revell failed to avail himself of any of those procedures.
The District Court held that the Port Authority and Erickson were entitled to summary judgment on the Fourth Amendment claim, “because probable cause [for the arrest and property seizure] developed during ... [Erickson’s] questioning concerning Revell’s transportation of a handgun and ammunition through New Jersey.” (App. at 78.) The Court found persuasive the defense argument that Revell’s conduct fell outside § 926A since it is undisputed that Revell left the airport with his luggage for an overnight stay at a hotel in New Jersey, thus giving him ready access to the gun during that period. The Court also explained that “§ 926A does not address anything but vehicular travel; it does not encompass keeping the weapon – locked in a case or not – in an airport hotel overnight.” (App. at 77.) Alternatively, the Court held that Erickson was entitled to qualified immunity because probable cause existed for Revell’s arrest and, therefore, no constitutional right was violated. The District Court also concluded that summary judgment against Revell on his due process claim was proper because he had failed to take advantage of available state remedies for the return of his property, namely, a state court lawsuit.9
The Court noted that Revell’s property was apparently returned to him after he made “a simple request to Essex County.” (App. at 81.)
In a March 31, 2009 order, the District Court granted the summary judgment motion in accordance with its memorandum opinion. Revell timely appealed both the summary judgment order and the order dismissing his original complaint.
II. Standard of Review 10
Our review of the District Court’s decision to grant the Port Authority’s motion for judgment on the pleadings and Erickson’s motion to dismiss is plenary. See E.I. DuPont de Nemours & Co. v. United States, 508 F.3d 126, 131 (3d Cir. 2007); DeHart v. Horn, 390 F.3d 262, 272 (3d Cir. 2004). A court confronted with a Rule 12(b)(6) motion must accept the truth of all factual allegations in the complaint and must draw all reasonable inferences in favor of the non-movant. Gross v. German Found. Indus. Initiative, 549 F.3d 605, 610 (3d Cir. 2008). A motion for judgment on the pleadings based on the defense that the plaintiff has failed to state a claim is analyzed under the same standards that apply to a Rule 12(b)(6) motion. Turbe v. Gov’t of the V.I., 938 F.2d 427, 428 (3d Cir. 1991).
We also exercise plenary review over an appeal from a grant of summary judgment. Jacobs Constructors, Inc. v. NPS Energy Servs., Inc., 264 F.3d 365, 369 (3d Cir. 2001). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of
The District Court had jurisdiction over Revell’s claims pursuant to 28 U.S.C. §§ 1331 and 1343. Our jurisdiction is based upon 28 U.S.C. § 1291.
law. Id. (citing F ED. R. C IV. P. 56(c)). “In making this determination, we must consider the evidence in the record in the light most favorable to the nonmoving party.” Id.
III. Discussion
“To state a claim under § 1983, a plaintiff must allege the violation of a right secured by the Constitution and laws of the United States, and must show that the alleged deprivation was committed by a person acting under color of state law.” West v. Atkins, 487 U.S. 42, 48 (1988). There is no question that the defendants in Revell’s suit were acting under color of state law when effecting his arrest. The issue is whether Revell has alleged a violation of any right under federal law. Revell’s § 1983 claims seek to remedy perceived violations of his alleged statutory right under § 926A, his Fourth Amendment rights, and his Fourteenth Amendment due process rights.11 We will first address the § 926A claim and the Fourth Amendment claim, before turning to the due process claim.
A. Section 926A and the Fourth Amendment
Revell challenges both the District Court’s dismissal of his § 926A claim and the Court’s grant of summary judgment on his Fourth Amendment claim. He asserts that he never should have been required to re-frame his § 926A claim in terms of the
For ease of reference, we will refer to those § 1983 claims as Revell’s § 926A claim, his Fourth Amendment claim, and his due process claim.
Fourth Amendment, since, as he sees it, § 926A provides a federal right that may be remedied by way of § 1983, independent of the Fourth Amendment. As to his Fourth Amendment claim, Revell asserts that the District Court erred in concluding that probable cause existed for his arrest. More specifically, and returning to the same § 926A theme, he says that the District Court incorrectly determined that he did not fall within the protection provided by that statute. Revell does not dispute that his conduct violated New Jersey law but instead claims that he was not subject to arrest because he complied with § 926A and that § 926A preempts New Jersey’s gun laws under the circumstances presented here.12 He also challenges the District Court’s conclusion that Erickson was entitled to qualified immunity against the Fourth Amendment claim.
In order for Revell to prevail either on the theory that he had a right under § 926A that can be remedied through § 1983 or on the theory that the Fourth Amendment should have
Section 927 of Title 18, captioned “Effect on State law,” provides:
No provision of this chapter shall be construed as indicating an intent on the part of the Congress to occupy the field in which such provision operates to the exclusion of the law of any State on the same subject matter, unless there is a direct and positive conflict between such provision and the law of the State so that the two cannot be reconciled or consistently stand together.
protected him from arrest because § 926A gave him a right to transport his gun, he must first establish that he complied with the conditions set forth in § 926A so as to be entitled to its protection. Accordingly, we begin our analysis with the question of whether Revell was in compliance with § 926A when he was arrested in New Jersey.
Section 926A of FOPA, entitled “Interstate transportation of firearms,” provides:
Notwithstanding any other provision of any law or any rule or regulation of a State or any political subdivision thereof, any person who is not otherwise prohibited by this chapter from transporting, shipping, or receiving a firearm shall be entitled to transport a firearm for any lawful purpose from any place where he may lawfully possess and carry such firearm to any other place where he may lawfully possess and carry such firearm if, during such transportation the firearm is unloaded, and neither the firearm nor any ammunition being transported is readily accessible or is directly accessible from the passenger compartment of such transporting vehicle: Provided, That in the case of a vehicle without a compartment separate from the driver’s compartment the firearm or ammunition shall be contained in a locked container other than the glove compartment or console.
18 U.S.C. § 926A. It is clear from the statute that a person transporting a firearm across state lines must ensure that the firearm and any ammunition being transported is not “readily accessible or ... directly accessible from the passenger compartment of [the] transporting vehicle.” Id. Looking solely at the allegations of Revell’s original complaint, it is also clear that what happened here does not fall within § 926A’s scope because his firearm and ammunition were readily accessible to him during his overnight stay in New Jersey.
Revell attempts to invoke the protection of the statute by alleging that “[d]uring the transportation of the firearm, neither the firearm nor the ammunition were readily accessible or directly accessible from the passenger compartment of the aircraft or the bus [that he took to the hotel].” (App. at 25.) But only the most strained reading of the statute could lead to the conclusion that having the firearm and ammunition inaccessible while in a vehicle means that, during the owner’s travels, they can be freely accessible for hours at a time as long as they are not in a vehicle. The complaint reveals that Revell’s luggage containing the firearm was, in fact, available to him while he was at the hotel. He alleged that, “[a]fter retrieving his bag, because there were no more connections to Allentown until 9:45 a.m. the following morning ... , [he] went directly to, and stayed the night at, the Airport Sheraton Hotel.” (App. at 23.) He further alleged that he returned with his luggage directly to the airport the next day and that a TSA agent, after x-raying the luggage, opened it with a key that Revell gave him. Taking those facts as true, it is clear that the gun and ammunition were readily accessible to Revell during his stay in New Jersey and, thus, by the allegations of his own complaint, he was not within
the scope of § 926A. Dismissal of the § 926A claim was therefore proper.13
Turning to the summary judgment motion on Revell’s Fourth Amendment claim, the depositions filed in support of that motion serve to confirm the conclusion that Revell had access to his gun and ammunition, contrary to § 926A’s requirement.14 Erickson testified that, under questioning, Revell said he had been forced to stay overnight at a hotel in Newark
The District Court dismissed Revell’s § 926A claim based upon its conclusion that Revell was required to bring that claim pursuant to the Fourth Amendment. But, we “may affirm a result reached by the district court on reasons that differ so long as the record supports the judgment.” Johnson v. Orr, 776 F.2d 75, 83 n.7 (3d Cir. 1985). Based solely on the allegations of the complaint, it is clear that Revell did not comply with § 926A, so we can affirm the District Court’s dismissal on that basis alone. Given our disposition, we do not address the more difficult question of whether, if he had complied with § 926A, Revell would have been able to pursue a § 1983 claim based upon § 926A. Revell’s amended complaint, which contains his Fourth Amendment claim, alleges the same facts as his original complaint, with the addition of one new allegation – that Revell did not open either of the locked hard cases while he was in New Jersey. The amended complaint also described in greater detail the inaccessibility of the luggage during the shuttle ride to and from the airport to the hotel.
because he had missed his flight. Erickson also testified that Revell acknowledged he “had the firearm with him when he left for Newark, that he had picked up the bag and taken it with him.” (App. at 33.) Specifically, Erickson testified as follows:
Q: He told you that he picked up the bag at Newark because he missed his flight, and went out of the airport, correct?
A: Yes.
Q: And did he tell you that he went to a hotel that night?
A: Yes.
(Id.) Revell’s own deposition further confirms that, upon missing his flight to Allentown, he retrieved his luggage, took a shuttle to a nearby hotel, and then returned to the airport the following morning with his bags.
Revell thus had access to his firearm and ammunition during his stay at the New Jersey hotel, whether or not he in fact accessed them and regardless of whether they were accessible while he was traveling by plane or van. That crucial fact takes Revell outside the scope of § 926A’s protection, as the District Court correctly noted.15 (App. at 77 (“[N]othing in the
With regard to whether probable cause existed for his arrest, Revell attempts to raise factual disputes concerning what
pleadings or the record indicates that Revell’s handgun and ammunition were anything but readily accessible to him during
Erickson knew at the time he arrested Revell, arguing that Erickson did not know what Revell did with his bag when he went to the hotel and that Erickson did not know whether he stayed overnight. First, Revell mischaracterizes the record, as Revell himself testified that he told the officers that he “had been forced to stay in the hotel.” (App. at 37.) Second, even if Erickson were required to consider § 926A’s impact in his probable cause analysis, an issue on which we express no holding, Revell told Erickson that he had picked up his luggage from the airport and went to a hotel for the night. A reasonable officer would be entitled to infer from Revell’s statements that he had access to his firearm and ammunition while at the New Jersey hotel. Whether Revell in fact accessed them is irrelevant. Given our conclusion that Revell was not protected by § 926A when he was arrested in New Jersey, we need not address the interrelation between § 926A and probable cause. We do, however, note our concern with the implications of Revell’s argument that § 926A requires an officer to “investigate the laws of the jurisdiction from which the traveler was traveling and the laws of the jurisdiction to which the traveler was going” prior to making an arrest. (Appellant’s Reply Br. at 13.) It seems doubtful that, in passing § 926A, Congress intended to impose upon police officers such a potentially burdensome requirement. See Torraco v. Port Auth. of N.Y. & N.J., 539 F. Supp. 2d 632, 644 (E.D.N.Y. 2008) (“[I]t is simply too much to read into § 926A a Congressional intent to require local police to have on-the-spot knowledge of the firearms laws of all 50 States.”).
his overnight stay in New Jersey.”).) Accordingly, Revell was subject to arrest for violating New Jersey’s gun laws.16 We will therefore affirm the District Court’s grant of summary judgment on his Fourth Amendment claim.17
Although we conclude that Revell fell outside of § 926A’s protection during his stay in New Jersey, we recognize that he had been placed in a difficult predicament through no fault of his own. However, Section 926 clearly requires the traveler to part ways with his weapon and ammunition during travel; it does not address this type of interrupted journey or what the traveler is to do in this situation. Stranded gun owners like Revell have the option of going to law enforcement representatives at an airport or to airport personnel before they retrieve their luggage. The careful owner will do so and explain
To satisfy the Fourth Amendment, a warrantless arrest must be based on probable cause that a crime has been or is being committed. Devenpeck v. Alford, 543 U.S. 146, 152 (2004); see also United States v. Stubbs, 281 F.3d 109, 122 (3d Cir. 2002). There is no question that Erickson observed Revell in possession of a firearm and hollow-point bullets in violation of New Jersey law. Because we conclude that Revell’s weapon and ammunition were readily accessible to him, we need not address Revell’s argument that § 926A should be broadly construed to “immunize[] non-vehicular transportation if the firearm is not readily accessible.” (Appellant’s Op. Br. at 32.) Nor do we reach the issue of qualified immunity.
his situation, requesting that his firearm and ammunition be held for him overnight.18 While this no doubt adds to the inconvenience imposed upon the unfortunate traveler when his transportation plans go awry, it offers a reasonable means for a responsible gun owner to maintain the protection of Section 926 and prevent unexpected exposure to state and local gun regulations.
B. Due Process
Revell also asserts that the District Court erroneously granted summary judgment on his due process claim. In order to determine whether an individual has been deprived of his property without due process “it is necessary to ask what process the State provided, and whether it was constitutionally adequate.” Zinermon v. Burch, 494 U.S. 113, 126 (1990). “This inquiry ... examine[s] the procedural safeguards built into the statutory or administrative procedure of effecting the deprivation, and any remedies for erroneous deprivations provided by statute or tort law.” Id. Although a pre-deprivation hearing is generally required before a state seizes a person’s property, “[i]n some circumstances ... the Court has held that a statutory provision for a postdeprivation hearing, or a common-law tort remedy for erroneous deprivation, satisfies due process.” Id. at 128.
Of course, this suggestion leaves unanswered the question of what the gun owner should do if the law enforcement officers decline to assist him. It may be hoped, however, that officers will not compound a blameless owner’s problems in that way.
For example, in Parratt v. Taylor, and thereafter in Hudson v. Palmer, the Supreme Court held that, when a state officer randomly and without authorization departs from established state procedures, the state need only provide post- deprivation procedures. Hudson, 468 U.S. 517, 533 (1984); Parratt, 451 U.S. 527, 543 (1981), overruled in part on other grounds, Daniels v. Williams, 474 U.S. 327 (1986) (overruling Parratt to the extent it suggested that a constitutional injury could be established based on negligence). The Supreme Court held in Parratt that a state tort claim was an adequate remedy for a prisoner aggrieved by prison officials’ negligent loss of his property, and in Hudson the Court held the same with respect to a prisoner whose property was intentionally destroyed by a prison guard.
The District Court relied on Parratt in deciding that Revell’s failure to take advantage of available remedies, namely a state court lawsuit, warranted summary judgment on his due process claim. Revell argues that, because his deprivation was made pursuant to Port Authority policy as opposed to an unauthorized act, a state tort remedy is insufficient and that, instead, “there must be a statutory provision for a post- deprivation hearing to satisfy due process.” (Appellant’s Op. Br. at 25.) But, Revell’s due process claim is not based on defendants’ initial seizure of the property. Instead, in his opening brief, Revell clarified that his claim rests on the defendants’ retention of his property after the charges against him had been dismissed and on their failure to provide him notice and an opportunity for a post-deprivation hearing. (Appellant’s Op. Br. at 26 (“Revell should not have been deprived of the property after August 2, 2005 without being
provided constitutionally adequate notice and an opportunity for a post-deprivation hearing.”).) Revell has identified no policy requiring officers of the Port Authority to retain property that is no longer needed for a prosecution, and it is highly unlikely that any such policy exists. Accordingly, the rationale of Parratt and Hudson does apply. See Case v. Eslinger, 555 F.3d 1317, 1331 (11th Cir. 2009) (“We have recognized that a civil cause of action for wrongful conversion of personal property under state law is a sufficient postdeprivation remedy when it extends to unauthorized seizures of personal property by state officers.” (internal quotations omitted)).
Revell cannot prevail on his due process claim if the state’s post-deprivation procedures, including state tort remedies, are adequate. He has failed to explain why New Jersey’s state procedures to recover wrongfully seized property, such as the ability to move in the criminal action for return of his property or the ability to file a separate action for a writ of replevin, are insufficient. See State v. One 1986 Subaru, 576 A.2d 859, 318 (N.J. 1990) (explaining that owner of seized property can file a replevin action or move to retrieve improperly seized property and “[b]ecause of the availability of [such] procedures ... , a claimant’s inaction may weigh against a claim that his or her due-process rights have been violated”); see also N.J. Rule 3:5-7 (motion for return of property)19 and
Although Rule 3:5-7 directly speaks to the ability of a defendant to move for the return of property that was unlawfully seized, which Revell could have done in light of his claim that his arrest and the seizure of his property were unlawful, Revell
4:61-1 (replevin). Nor has Revell shown any entitlement to special notice of those procedures. See City of W. Covina v. Perkins, 525 U.S. 234, 236 (1999) (holding that due process clause does not “require[] a State or its local entities to give detailed and specific instructions or advice to owners who seek return of property lawfully seized but no longer needed for police investigation or criminal prosecution”). Thus, his due process claim fails and summary judgment was warranted. Cf. Mora v. City of Gaithersburg, 519 F.3d 216, 230 (4th Cir. 2008) (rejecting plaintiff’s procedural due process claim, when police retained plaintiff’s weapons after seizing them because “[plaintiff] has had, and continues to have, notice and an opportunity to be heard in Maryland, and he cannot plausibly claim that Maryland’s procedures are unfair when he has not tried to avail himself of them.”).
IV. Conclusion
Section 926A does not apply to Revell because his firearm and ammunition were readily accessible to him during his stay in New Jersey. That conclusion is fatal to his § 926A claim and the associated Fourth Amendment claim. We accordingly affirm the District Court’s dismissal and grant of summary judgment, respectively, on those claims. We also affirm the District Court’s grant of summary judgment on
may well have found a New Jersey court sympathetic to a motion under that Rule for the return of his property once the charges against him were dropped.
Revell’s due process claim because he did not take advantage of state procedures available to him for the return of his property. |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-5028
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
DONALD TAYLOR,
Defendant - Appellant.
No. 08-5039
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
CEDRIC TAYLOR,
Defendant - Appellant.
Appeals from the United States District Court for the Eastern District of North Carolina, at Wilmington. James C. Fox, Senior District Judge. (5:07-cr-00102-F-1; 5:07-cr-00102-F-2)
Argued: January 29, 2010 Decided: March 22, 2010
Before MOTZ, GREGORY, and DAVIS, Circuit Judges. Affirmed in part, vacated in part, modified in part, and remanded by unpublished opinion. Judge Davis wrote the opinion, in which Judge Motz and Judge Gregory joined.
ARGUED: Wayne Buchanan Eads, Raleigh, North Carolina; Marilyn G. Ozer, MASSENGALE & OZER, Chapel Hill, North Carolina, for Appellants. Jennifer P. May-Parker, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina, for Appellee. ON BRIEF: George E. B. Holding, United States Attorney, Anne M. Hayes, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
DAVIS, Circuit Judge:
Appellants Donald and Cedric Taylor were convicted on drug
trafficking and witness tampering charges and were sentenced
accordingly in the United States District Court for the Eastern
District of North Carolina. They now appeal their convictions
and sentences. Together, they assert that the district court
erred in (1) denying their motions for judgment of acquittal on
the witness tampering charge; (2) sentencing them to 240 months
on the witness tampering charge; and (3) failing to provide an
adequate explanation for their sentences. In addition, Cedric
Taylor alleges error in the district court’s admission of
laboratory reports without the testimony of the lab technician,
and Donald Taylor alleges error in the district court’s refusal
to apply a sentencing guidelines adjustment for acceptance of
responsibility pursuant to U.S.S.G. § 3E1.1(a). We conclude that
the district court provided an inadequate explanation of the
sentence imposed on Cedric Taylor. Accordingly, we vacate the
sentence and remand for further proceedings as to him.
Furthermore, we find, as the government concedes, that the lower
court erred when it imposed 240-month sentences on the witness
tampering charge. In all other respects, for the reasons
explained within, we affirm.
I.
The Appellants were charged in a six-count superseding
indictment for conspiracy to distribute and possess with intent
to distribute more than 50 grams of crack cocaine, in violation
of 21 U.S.C. § 846 (Count One); distribution of more than 50
grams of crack cocaine, in violation of 21 U.S.C. § 841(a)(1)
(Counts Two and Three) (Donald Taylor only); tampering with a
witness through threats of physical force, in violation of 18
U.S.C. § 1512(a)(2)(C) (Count Four); attempting to kill a
witness, in violation of 18 U.S.C. § 1512(a)(1)(C) (Count Five);
and attempting to kill a witness in retaliation, in violation of
18 U.S.C. § 1513(a)(1)(B) (Count Six). Donald Taylor pleaded
guilty to the drug counts (Counts One through Three) and not
guilty to the tampering counts (Counts Four through Six); Cedric
Taylor pleaded not guilty to all counts. The jury convicted
Donald Taylor on Count Four (witness tampering through threats)
and found Cedric Taylor guilty of Counts One (drug conspiracy)
and Four. The jury found both Appellants not guilty of Counts
Five and Six.
The district court sentenced Donald Taylor to 360-months of
imprisonment on the drug counts and 240-months imprisonment on
witness tampering, the sentences to run concurrently. The
district court sentenced Cedric Taylor to concurrent 240-month
terms of imprisonment on the drug and tampering counts. The
defendants filed timely notices of appeal and we have
consolidated the appeals. We have jurisdiction pursuant to 28
U.S.C. §§ 1291 and 3742.
II.
In 2006, the Cumberland County Bureau of Narcotics and the
United States Drug Enforcement Administration launched a drug
distribution investigation in Fayetteville, North Carolina. The
investigation revealed that, along with others, Donald Taylor
ran a drug distribution ring in Cumberland County.
A.
The Appellants do not challenge the sufficiency of the
evidence as to their narcotics convictions; accordingly, we
briefly summarize that portion of the government’s proof. The
government’s principal trial witness was Bobby Bunnells, a drug
dealer and police informant. 1 He testified that in 2000, he began
Several other drug dealers and drug users testified at trial. According to Thomas Hanson, between October 2003 and March 2004, he sold cocaine or crack to Donald Taylor between 13 to 16 times and he always saw drug traffic at the Taylors’s residence. Torrey Robinson testified that, between 2002 and 2005, he sold Donald Taylor cocaine and crack more than 20 times. He sold Donald Taylor drugs in front of Cedric Taylor’s residence while Cedric was present. He also witnessed Cedric Taylor sell drugs. Ronnie Bowman testified that he bought crack from Donald Taylor several times, and sold Cedric Taylor marijuana. Bowman also witnessed Cedric Taylor selling drugs. Camilo Garza purchased crack from Donald and Cedric Taylor in 2005. Garza testified that lots of drug users stayed at the Taylors’s residence and used drugs there. to sell 300 to 500 pounds of marijuana per month. In 2001, he
met Donald Taylor, who had purchased a trailer home from
Bunnells’s father. That same year, Donald Taylor began to
purchase marijuana, and eventually (in 2003), cocaine and crack
cocaine from Bunnells. Bunnells supplied Donald Taylor with
crack cocaine on a weekly basis until the middle of 2004. During
drug deals at Donald Taylor’s trailer, Bunnells observed
significant traffic going to the Taylor residence to purchase
drugs. He saw buyers knock on the trailer door and request
crack, and he saw Donald Taylor’s girlfriend sell them crack.
Bunnells also witnessed Cedric Taylor assisting Donald Taylor in
his drug enterprise. He saw Cedric Taylor work the door at the
trailer, weigh the crack, and hand the crack to customers.
Bunnells stopped selling drugs to Donald Taylor in mid-2004
after he repeatedly saw police in the vicinity. When law
enforcement officers arrested Bunnells in 2006, Bunnells began
to cooperate in drug investigations as a confidential informant.
In this capacity, he sought to buy drugs from Donald Taylor.
Having been out of the drug trade for some time, Bunnells
employed his niece, Crystal Powell, to reconnect him with Donald
Taylor. Powell was an admitted crack addict; she spent time at
the Taylor residence in 2006 and early 2007, sometimes staying
with them and sometimes prostituting herself to them for drugs.
Powell facilitated contact between Donald Taylor and her uncle,
and Donald Taylor agreed to meet Bunnells and sell him crack.
Bunnells and Donald Taylor met on September 14, 2006, whereupon
Donald Taylor (who had no drugs readily available) took Bunnells
to another drug dealer’s residence, purchased two and a quarter
ounces of crack with $1400.00 supplied to Bunnells by
investigators, and gave the crack to Bunnells when they arrived
back at Taylor’s residence. On October 23, 2006, Bunnells made a
second purchase, this time of four and a half ounces of crack (a
so-called “Big 8”) from Donald Taylor for $4000.00 in government
funds. Cedric Taylor was present during the second transaction. 2
B.
The witness tampering and attempted murder charges arose
from events occurring several months after the above-described
drug purchases by Bunnells from Donald Taylor. Based on the
following evidence, the government theorized that the Appellants
learned that Bunnells was cooperating with investigators and
undertook to kill him.
During the investigation, agents executed at least two search warrants at properties controlled by the Appellants. On August 4, 2006, they executed a search warrant at a trailer used as a dope house, seizing an armored vest, a loaded gun, digital scales, and fliers advertising the sale and distribution of crack by Donald Taylor. On January 23, 2007, they executed a search warrant at Donald Taylor’s residence. Both Donald and Cedric were present when the warrant was executed. Agents found the residence littered with drug paraphernalia. They also seized firearms and ammunition.
Crystal Powell, Bunnells’s niece, spent significant time
with Donald and Cedric Taylor, staying overnight at their
trailer on many occasions, sharing meals with them, and doing
drugs with them. Of relevance to the witness tampering charges
against the Appellants, her testimony focused on one particular
night when she accompanied Cedric Taylor to meet a drug dealer
named Bobby Faircloth. She testified that during the meeting,
Faircloth repeatedly winked at Cedric Taylor and stated that the
trailer park was “hotter than a firecracker,” but that “as long
as you’re selling to the police, they can’t fuck with you.” J.A.
309. 3
Powell testified as follows:
We pulled up there and Buddy Faircloth was sitting there in a van and looked at Cedric and he winked his eye and he said three times in a row, he said Velton’s Trailer Park is hotter than a firecracker, he said, then he goes, but as long as you’re selling to the police they can’t fuck with you, and he winked his eye, and he said it three times in a row, as long as you’re selling with the police they can’t fuck with you and winked his eye. He done that three times. And then we left and got back to the trailer and I think they started putting two and two equals four, you know what I’m saying? [Donald Taylor] started showing me some text messages from my uncle and I think he realized what my uncle was doing. And I’m not going to sit here and say, it looked like I was doing it with my uncle because there was times – there was money being borrowed and the whole while my uncle was not allowed out of his yard at eight o’clock, and even I didn’t even know that, but I was being the middle person. They were coming back to After speaking with Faircloth, Cedric Taylor returned with
Powell to the Taylors’s trailer. Soon after their arrival,
Donald Taylor showed Powell text messages from Bunnells —
messages that caused her to believe that he knew that Bunnells
was working with investigators. One text message concerned
Bunnells asking Donald Taylor to do another drug sale.
At approximately the same time that the Taylors showed
Powell the text messages, the Taylor brothers, their cousin “Big
G,” and a man named Harold Clark, each of whom was also at the
trailer, were saying things like, “all you have to do is pull
the trigger, pull the trigger.” J.A. 310. Powell also testified
that Donald Taylor indicated that he was willing to do “whatever
it took” to avoid jail, and that Harold Clark was walking around
the trailer with a gun, plastic handcuffs, and duct tape.
In due course, Donald Taylor instructed one of the men
present to take Crystal Powell from the trailer, noting that he
did not care what the man did with Powell, and requiring only
that he be informed of where he took her. The man dropped Powell
off near a friend’s residence, at her direction, and she called
Bunnells immediately and told him that his cooperation had been
exposed.
me, I was going to meet, and then bringing the money back to them.
J.A. 309 (brackets added). Bunnells testified that on the very next day, January 20,
2007, after a chance encounter near a car wash, Cedric Taylor
and another man engaged in a vehicle chase with Bunnells, firing
shots at Bunnells’s truck. Bunnells escaped by driving his truck
into a field, abandoning his vehicle, and fleeing into a wooded
area. Thereafter, Bunnells contacted the case agent and told him
about the incident, but did not identify Cedric Taylor as the
shooter until, a day or so later, he had sent his mother and
father out of town.
Bunnells took Powell to meet with investigators two days
later, and Powell advised them of what had transpired on the
night that she went with Cedric Taylor to visit Bobby Faircloth. 4
C.
The claim of trial error raised by Cedric Taylor relates to
evidence elicited from Agent Gary Owens of the Cumberland County
Bureau of Narcotics. Owens testified about Bunnells’s
cooperation and, specifically, his purchase of crack cocaine
from Donald Taylor in September and October 2006. During Owens’s
The defense argued at trial that Bunnells had concocted the story of the shooting. In support of that contention, Donald Taylor presented the testimony of Christopher Crocker, a drug dealer who had been incarcerated with Bunnells. Crocker testified that Bunnells told him that he had lied to the authorities about who shot-up his truck. According to Crocker, Bunnells stated that he had told the authorities that Donald Taylor was responsible, but in fact, Bunnells admitted to Crocker, he had shot-up the truck himself. On cross-examination, the government sought to impeach Crocker through evidence of his own aborted plea agreement and his prior silence about Bunnells. testimony, the prosecutor offered into evidence the laboratory
reports generated as a result of the tests performed on those
drugs. Neither counsel objected, and the district court admitted
the reports.
III.
As mentioned, prior to trial, Donald Taylor pled guilty to
the drug conspiracy and drug distribution counts and not guilty
to the three witness tampering, retaliation, and attempted
murder counts. At trial, the jury convicted him on the charge of
witness tampering by threat of force, but it found him not
guilty on the retaliation and attempted murder counts. The jury
found Cedric Taylor guilty of drug conspiracy and witness
tampering by threat of force and not guilty on the retaliation
and attempted murder counts.
The Appellants timely filed and renewed motions for
judgments of acquittal as to the witness tampering charge. The
district court denied the motions, finding specifically that the
evidence presented at trial was sufficient to support the jury’s
verdict that the Appellants’ intent in threatening and
intimidating Powell was to intimidate and deter Bunnells from
communicating with the authorities about the Appellants’ drug
trafficking activities.
IV.
We first address the Appellants’ assertions of error in
connection with the denial of the motion for judgment of
acquittal as to the witness tampering charge and the admission
of the lab reports. We then address the sentencing issues they
raise.
A.
The first issue is whether the district court erred in
denying the Appellants’ motion for judgment of acquittal under
Fed. R. Crim. P. 29 as to the witness tampering charge. The
Appellants argue that the government failed to present
sufficient evidence for a jury to find beyond a reasonable doubt
that their threatening and intimidating behavior toward Powell
was intended to intimidate or threaten Bunnells and to deter him
from communicating with law enforcement. The Appellants contend
that any inference of such an intent is too attenuated and
speculative to support their convictions. They contend that the
only reasonable inference from the evidence is that they were
attempting to gain information about and/or confirmation of
Bunnells’s police connections. The government responds that
sufficient evidence supported the jury’s finding that
Appellants’ threatening and intimidating actions directly toward
Powell was intended to deter Bunnells and to cease his
cooperation and communication with investigators.
We review this claim de novo. See United States v. Ryan-
Webster, 353 F.3d 353, 359 (4th Cir. 2003). We must sustain a
guilty verdict that, viewing the evidence in the light most
favorable to the prosecution, is supported by “substantial
evidence.” United States v. Burgos, 94 F.3d 849, 862 (4th Cir.
1996) (en banc) (quoting Glasser v. United States, 315 U.S. 60,
80 (1942)). “Substantial evidence” is “evidence that a
reasonable finder of fact could accept as adequate and
sufficient to support a conclusion of a defendant's guilt beyond
a reasonable doubt.” Id. To that end, we “must consider
circumstantial as well as direct evidence, and allow the
government the benefit of all reasonable inferences from the
facts proven to those sought to be established.” United States
v. Cameron, 573 F.3d 179, 183 (4th Cir. 2009) (citation
omitted).
The statute under which the Appellants were convicted
prohibits, in relevant part, “us[ing or attempting to use]
physical force or the threat of physical force against any
person . . . with intent to . . . hinder, delay, or prevent the
communication by any person to a law enforcement officer . . .
of information relating to the commission or possible commission
of a Federal offense. . . .” 18 U.S.C. §
1512(a)(2)(C)(alterations and emphases added). See generally
United States v. Harris, 498 F.3d 278, 283 (4th Cir. 2007).
Here, the Appellants do not argue that they did not threaten the
use of physical force against Powell, the “any person” referred
to initially in the statute. Instead, they argue that the
evidence failed as a matter of law to prove that they harbored
the requisite intent, i.e., that the evidence failed to
establish that they intended to “hinder, delay, or prevent”
Bunnells, the second “any person” referred to in the statute,
from communicating with law enforcement. We reject this
contention.
Intent is most often proved through inferences from
circumstantial and indirect evidence. This court has explained
that, “as a general proposition, circumstantial evidence may be
sufficient to support a guilty verdict even though it does not
exclude every reasonable hypothesis consistent with innocence.”
United States v. Osborne, 514 F.3d 377, 387 (4th Cir. 2008)
(alteration and quotation marks omitted). “Indeed, ‘[t]he
question of one’s intent is not measured by a psychic reading of
[the defendant’s] mind but by the surrounding facts and
circumstances; i.e., circumstantial evidence.’” United States v.
Bolden, 325 F.3d 471, 494 (4th Cir. 2003) (quoting United States
v. Larson, 581 F.2d 664, 667 (7th Cir. 1978)). In light of these
well established principles, the Appellants’ argument lacks
merit. The jury finding that the Appellants intended to “hinder,
delay, or prevent the communication by any person to a law
enforcement officer . . . of information relating to the
commission or possible commission of a Federal offense[,]” 18
U.S.C. § 1512(a)(2)(C), is properly supported by circumstantial
evidence and reasonable inferences drawn from that evidence.
Here, the Appellants learned (or strongly suspected) that
Bunnells was cooperating with investigators. The evidence showed
that up until that time, there was no indication that they had
acted in an intimidating or threatening manner toward Powell.
She was a frequent and welcome visitor, purchased and used drugs
in their presence, and often spent the night at their residence.
The sudden and immediate change in their behavior and attitude
toward Powell after the somewhat cryptic eye-winking and veiled
oral warnings by Bobby Faircloth during his meeting with Cedric
Taylor reasonably sheds light on the Appellants’ intent. During
the ensuing encounter back at the trailer, Donald Taylor stated
emphatically within Powell’s hearing that he was willing to do
“whatever it took” to avoid jail time. And, one man walked
around the trailer with a gun, handcuff ties, and duct tape, all
the while stating, “all you have to do is pull the trigger, pull
the trigger.” J.A. 310.
In sum, the circumstantial evidence reasonably supports the
inference that the Appellants’ actions and statements during the
encounter with Powell were intended to motivate Powell to advise
her uncle that his continued cooperation and communication with
law enforcement about the Appellants’ drug trafficking activity
would be dealt with violently. 5 Contrary to the Appellants’
contention, the inference of their intent was not speculative or
irrational. We hold therefore that the government presented
sufficient evidence to prove beyond a reasonable doubt that the
Appellants acted “with intent to . . . hinder, delay, or prevent
the communication by [Bunnells] to a law enforcement officer . .
. of information relating to the commission or possible
commission of a Federal offense.” See 18 U.S.C. § 1512(a)(2)(C).
The district court did not err in denying the motions for
judgment of acquittal.
B.
Cedric Taylor contends that the district court erred when
it admitted in evidence laboratory reports describing the
results of drug analyses without the sponsoring testimony of the
lab technician. He argues that admission of the lab reports
violated his rights under the Confrontation Clause as
interpreted by the Supreme Court in Melendez-Diaz v.
Massachusetts, 129 S. Ct. 2527 (2009). The government argues
that this claim has been waived by the failure of Cedric
Taylor’s counsel to lodge a contemporaneous objection to the
admission of the reports at trial and that this court should not
The indictment charged the Appellants with aiding and abetting each other in the witness tampering counts. notice “plain error” in the circumstances presented. We agree
with the government.
As there was no objection to the admission of the lab
reports, we review this claim for plain error. See Fed.R.Crim.P.
52(b); United States v. Olano, 507 U.S. 725, 732-35 (1993). As
we have explained:
Under plain error review, [Appellant] must show that (1) the district court committed an error; (2) the error was plain; and (3) the error affected his substantial rights, i.e., that the error affected the outcome of the district court's proceedings. United States v. Olano, 507 U.S. 725, 732-34, 113 S.Ct. 1770, 123 L.Ed.2d 508 (1993); United States v. Hughes, 401 F.3d 540, 547-48 (4th Cir. 2005). Even if [Appellant] makes this showing, we should only notice the error if the error “seriously affects the fairness, integrity or public reputation of judicial proceedings.” Hughes, 401 F.3d at 555 (internal quotation marks and citation omitted).
United States v. Perkins, 470 F.3d 150, 155 n.7 (4th Cir. 2006).
In this case, we have no hesitation in concluding that any
error in the district court’s admission of the lab reports did
not affect the outcome of the proceedings below. Cedric Taylor
has neither argued nor ever raised any issue at trial or in the
current appeal that the substances purchased by Bunnells from
Donald Taylor in September and October 2006 were anything other
than crack cocaine. Of course, Cedric Taylor was not charged
with substantive drug violations in connection with those
transactions. He was charged with knowing membership in a drug
trafficking conspiracy involving more than 50 grams of crack
cocaine. Consequently, Cedric Taylor’s sole claim on appeal is
that the admission of the lab reports prejudiced his right to a
fair trial by “documenting” that the weight of the crack cocaine
in those transactions totaled 168.8 grams (approximately six
ounces). See Appellants’ Br. 35 (Asserting that “admission of
the lab reports documenting 168.8 grams of cocaine base was
extremely prejudicial, as this was the only evidence of quantity
which appeared to be unquestionably reliable.”); id. at 36
(“Compared to the testimony of the assorted drug users and
dealers, the lab report must have seemed to the jurors to be
unimpeachable.”).
But this contention borders on the specious. The evidence
that the multi-year drug trafficking conspiracy charged in Count
One of the indictment involved more than a mere 50 grams of
crack cocaine was simply overwhelming. See supra note 1.
Furthermore, Bunnells fully described for the jury his purchases
of crack cocaine mentioned in the lab reports using government
funds, a total of $5,400.00 paid for approximately six and three
quarter ounces. Bunnells testified that at the second of the two
purchases, that of the “Big 8,” Cedric Taylor was present. In
short, the testimonial evidence shows conclusively that Cedric
Taylor was not prejudiced by the admission of the lab reports of
drug analyses admitted without objection during the testimony of
Agent Owens.
V.
The Appellants have raised three issues related to
sentencing. First, each argues that the district court committed
procedural error when it failed to explain adequately the bases
for the sentences it imposed. Second, Donald Taylor contends
that the court erred in failing to apply the acceptance of
responsibility adjustment at his sentencing. Finally, both
contend that the court erred in imposing a sentence of 240
months on the witness tampering conviction. We address these
assertions in turn.
A.
The Appellants argue that their sentences must be vacated
because the district court failed to explain, consonant with our
precedents, the bases for the sentences it imposed. The
government counters that the district court conducted an
individual assessment of Appellants’ cases and, in context,
adequately set forth its reasons for its sentences.
As we recently explained:
We have addressed claims of procedural sentencing error in several recent cases. Relying on Supreme Court guidance, we have held that for every sentence- whether above, below, or within the Guidelines range-a sentencing court must “place on the record an ‘individualized assessment’ based on the particular facts of the case before it.” United States v. Carter, 564 F.3d 325, 330 (4th Cir. 2009) (quoting Gall, 552 U.S. at 50, 128 S.Ct. 586). But we have also held that in explaining a sentencing decision, a court need not “robotically tick through § 3553(a)'s every
subsection,” particularly when imposing a within- Guidelines sentence. United States v. Johnson, 445 F.3d 339, 345 (4th Cir. 2006). “[A] major departure [from the Guidelines] should be supported by a more significant justification than a minor one,” Gall, 552 U.S. at 50, 128 S.Ct. 586, but an individualized explanation must accompany every sentence. See United States v. Johnson, 587 F.3d 625, 639 (4th Cir. 2009); Carter, 564 F.3d at 330.
United States v. Lynn, 592 F.3d 572, 576 (4th Cir. 2010).
Importantly, “in determining whether there has been an adequate
explanation, we do not evaluate a court’s sentencing statements
in a vacuum;” rather, “[t]he context surrounding a district
court’s explanation may imbue it with enough content for us to
evaluate both whether the court considered the § 3553(a) factors
and whether it did so properly.” United States v. Montes-Pineda,
445 F.3d 375, 381 (4th Cir. 2007).
1.
As to Donald Taylor, the district court fully heard defense
counsel’s arguments and allocution, and then it actually imposed
the exact sentence that defense counsel requested: a sentence at
the very bottom of the applicable guidelines range. Here is what
counsel stated to the court:
I’ve talked to Mr. Taylor about this, your Honor, and I’m sure the court’s aware that when you start out with a base offense level of 38, you’re automatically dealing with an enormous sentence. You add some of the offense characteristics we’re at in this case, and, of course, it just goes up. I don’t know that really anything else kind of matters. Any sentence that the court would give Mr. Taylor is a phenomenal amount of time in jail. I would submit to the court that a
sentence at the bottom of that range, still being a phenomenal number, would be sufficient in this case to address the purposes of sentencing.
J.A. 974 (emphasis added). We have reviewed the record and find
that counsel’s request was reasonable under the circumstances.
Although the district court said little to explain its own
reasons for agreeing with counsel’s assessment, under the
circumstances, that is, “in context,” not much needed saying.
Lynn, 592 F.3d at 580 (“[Appellant’s] attorney's arguments
before the district court urged that court only to impose a
sentence within the Guidelines range, which it did. Accordingly,
we must affirm.”). We discern no procedural error in the
sentencing of Donald Taylor.
2.
We reach a contrary conclusion with regard to the
sentencing of Cedric Taylor. During Cedric Taylor’s sentencing
hearing, the district court listened to defense counsel’s
arguments regarding Cedric Taylor’s age, education, lack of
criminal convictions, and his relationship with his co-defendant
brother. Defense counsel also argued that the evidence against,
and the apparent involvement of, Cedric Taylor, was slight in
comparison to that of his brother. Counsel urged the district
court to impose a ten year sentence, stating:
I would submit, your honor, that an appropriate sentence as to Cedric Taylor would be the mandatory minimum of 120 months; that the sentencing guidelines
is advisory, and you're not required to give him a guideline sentence if the court is so inclined; that based on the circumstances of his life, the facts that were going on with his brother and his involvement in these offenses that he's been accountable for, that the mandatory minimum is the appropriate sentence and ask that you give him 120 months.
J.A. 956-57. At the court’s invitation, the Assistant United
States Attorney responded to the above argument in this fashion:
[We] request, your Honor, a sentence within that guideline range as found applicable by the court. Of course, to vary downward the court must be able to articulate reasons for such a variance. In this case, the circumstances of the case rather than crying out for a downward departure for this defendant I think would do the opposite. It was a vicious case. It was a violent case. Under the influence of his brother or not, an appropriate sentence in this case would be that found in that advisory guideline range.
J.A. 957. Then, again at the court’s invitation, counsel for
Cedric Taylor was given the final word, as follows:
If it was so bad, Mr. Donald Taylor was indicted one year before his brother Cedric was. And if the court can look at the file, only about a month before Donald Taylor comes to trial is his brother indicted for all of these heinous offenses that everyone had known about. Basically the government inserted Cedric Taylor's name into three or four counts of the indictment. If they had all this knowledge--you've heard the testimony of these witnesses: "I've been debriefed half a dozen times and I never once mentioned the name Cedric Taylor. "When was the first time you mentioned his name? "A week before when we were getting ready for trial." The discovery has three places where Cedric Taylor's name is mentioned. One is on the porch, one he gave a user amount of cocaine, and one from Crystal Powell that says Cedric delivered some undescript [sic] amount of cocaine. That's it. And now he's going to get 20 years based on these witnesses. One hundred and twenty (120) months is sufficient in Cedric Taylor's case.
J.A. 958. The court then offered Cedric Taylor an opportunity
to speak and thereafter, immediately imposed a twenty year
sentence (slightly above the very bottom of the applicable
guidelines range of 235-293 months) as follows:
The court finds the basis for the findings contained in the pre-sentence report credible and reliable and therefore the court adopts those findings. Based on those findings, the court has calculated the imprisonment range prescribed by the advisory sentencing guidelines and has considered that range, as well as other relevant factors set forth in the advisory guidelines, and those set forth in 18 United States Code, section 3553(a). Pursuant to the Sentencing Reform Act of 1984, it is the judgment of the court that Cedric Taylor is hereby committed to the custody of the bureau of prisons to be imprisoned for a term of 240 months on each count to be served concurrently. Upon release from imprisonment, the defendant shall be placed on supervised release for a term of five years. This term consists of a term of five years on count one and a term of three years on count four, all such terms to run concurrently.
* * * *
Inasmuch as the range exceeds 24 months, the court has imposed a sentence near the bottom of the range because there are no unaccounted for aggravating factors and because of the defendant's lack of criminal convictions.
J.A. 959-62 (emphasis added).
As the above excerpt from the Cedric Taylor sentencing
hearing shows, while the district court commendably allowed
counsel a full opportunity to make vigorous arguments to aid the
court in determining an appropriate sentence, the court never
explicated its reasons for imposing a twenty year sentence. The
court’s failure is especially striking in light of the non-
spurious bases identified in detail by counsel for a variance
sentence, to which the court never adverts. Certainly, the case
involved facts that might warrant a sentence within the
applicable guidelines range. Nevertheless, we are wholly unable
to assess the reasonableness of the sentence because the
district court failed to state the reasons for the sentence it
imposed.
The government’s reliance on the portion of the court’s
statement, which we have underscored, that “the court . . .
imposed a sentence near the bottom of the range because there
are no unaccounted for aggravating factors and because of the
defendant's lack of criminal convictions,” is unavailing. In
prefacing those remarks with the statement, “[i]nasmuch as the
range exceeds 24 months,” the court makes it clear that it is
complying with the statutory requirement that it state “the
reason for imposing a sentence at a particular point within the
[guidelines] range.” 18 U.S.C. § 3553(c)(1). 6 A district court’s
Section 3553(c)(1) provides as follows:
(c) Statement of reasons for imposing a sentence.—The court, at the time of sentencing, shall state in open court the reasons for its imposition of the particular sentence, and, if the sentence-- (1) is of the kind, and within the range, described in subsection (a)(4) and that range exceeds 24 months, the reason for imposing a sentence at a particular point within the range . . . . explanation of its selection of a sentence within a sentencing
guidelines range, as required by 18 U.S.C. § 3553(c)(1), may
well provide, in an appropriate case, the “‘individualized
assessment’ based on the particular facts of the case before
it,” as required by Gall, 552 U.S. at 50, and Carter, 564 F.3d
at 330. The explanation provided here, however, falls
considerably short of that standard.
Accordingly, for the reasons set forth, we vacate the
sentence imposed on Cedric Taylor and we remand for
resentencing.
B.
Donald Taylor contends that, because he entered guilty
pleas to the drug conspiracy and drug distribution counts, the
district court erred when it refused to apply the acceptance of
responsibility adjustment pursuant to U.S.S.G § 3E1.1(a). In his
brief on appeal, Donald Taylor argues, in part, that the
adjustment clearly would be warranted if this court vacates his
conviction on the witness tampering charge. As explained above,
we affirm that conviction. But he also contends that, even if
the witness tampering conviction is affirmed, a two-level
reduction in the adjusted offense level is appropriate because
he: (1) pled guilty to all drug counts brought against him; (2)
18 U.S.C. § 3553(c)(1). accepted responsibility for his “drug offense-related action;”
and (3) failed to challenge the presentence investigation
report, which included evidence of drug weights, admitted due to
“hearsay statements by potentially unreliable and non-credible
co-conspirators.”
The government argues that the district court did not err
in refusing to grant defendant an acceptance of responsibility
adjustment, in part because the drug counts and the witness
tampering counts were grouped in Donald Taylor’s guidelines
calculation. We agree. The grouping of the drug counts of the
indictment with the witness tampering count in the guidelines
computation dictates that, though Donald Taylor pled guilty to
the former counts, his conviction on the latter count precludes
application of U.S.S.G. §3E1.1. United States v. Hargrove, 478
F.3d 195, 200 (4th Cir. 2007) (“[U]nder the terms of U.S.S.G. §
3E1.1, the defendant must . . . accept responsibility for the
grouped guidelines counts in order to be eligible for the
reduction in offense level for that particular
offense.”)(internal quotations omitted); United States v.
Garrido, --- F.3d ---, 2010 WL 653439 at *5 (9th Cir. Feb. 25,
2010) (“We join our sister circuits in holding that, where a
defendant accepts responsibility for all counts that are grouped
under U.S.S.G. §§ 3D1.1-3D1.5, that defendant is eligible for
the § 3E1.1 reduction for those counts, even if the defendant
has not accepted responsibility for other counts which, under §
3D1.1(b), are excluded from grouping.”)(citing Hargrove). Thus,
the district court did not err in declining to apply the
acceptance of responsibility adjustment in calculating Donald
Taylor’s guidelines.
C.
Finally, the Appellants contend that the district court
committed plain error when it imposed twenty year sentences on
the witness tampering convictions under 18 U.S.C. §
1512(a)(2)(c). Although neither defense counsel objected at
sentencing, the government agrees that at the time the
Appellants committed that offense in January 2007, the statutory
maximum penalty was ten years. (Congress amended the statute in
2008 to increase the penalty to a maximum of twenty years.) It
is clear in the record that the district court’s imposition of a
twenty year sentence was inadvertent. Cf. Weaver v. Graham, 450
U.S. 24, 28 (1981) (discussing ex post facto clause); Lynce v.
Mathis, 519 U.S. 433, 441 (1997) (same). Although there was
extensive discussion (and agreement) among the parties and the
magistrate judge who arraigned the Appellants that the maximum
potential sentence was ten years on the witness tampering charge
under § 1512(a)(2)(c), the pre-sentence investigation report
failed to flag the change for the district judge.
In any event, we agree with the government that, under the
circumstances, the error is amenable to correction as to Donald
Taylor by a simple revision to and reissuance of the judgment
and commitment order because the district court clearly intended
to impose the applicable statutory maximum sentence and to run
that sentence concurrently with the sentences on the drug
counts. Of course, as to Cedric Taylor, we have ordered a new
sentencing hearing. The district court shall correct its error
as to the sentence under § 1512(a)(2)(c) in connection with the
resentencing.
VI.
In conclusion, in appeal no. 08-5039, we affirm the
convictions and vacate the sentence imposed on Cedric Taylor and
remand with directions that a new sentencing hearing be held in
accordance with the views stated herein. In appeal no. 08-5028,
we affirm the convictions and modify the sentence imposed on
Donald Taylor as to indictment count four and remand with
directions that a revised judgment and commitment order be
entered in accordance with the views stated herein. In all other
respects, the judgments are affirmed.
AFFIRMED IN PART, VACATED IN PART, MODIFIED IN PART, AND REMANDED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-4570
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
IMOUDU IZEGWIRE, a/k/a David, a/k/a Imoudu Igewire,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at Norfolk. Walter D. Kelley, Jr., District Judge. (2:05-cr-00153-WDK-JEB-3)
Submitted: January 14, 2010 Decided: March 22, 2010
Before TRAXLER, Chief Judge, and SHEDD and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Warren E. Gorman, Chevy Chase, Maryland, for Appellant. Dana J. Boente, Acting United States Attorney, Alexandria, Virginia, Darryl J. Mitchell, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Norfolk, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Imoudu Izegwire appeals from his jury convictions for
conspiracy to distribute and possess with intent to distribute
one kilogram or more of heroin, in violation of 21 U.S.C.A.
§§ 846 & 841(a)(1) (West 1999) (Count I), and conspiracy to
launder monetary instruments, in violation of 18 U.S.C.A.
§§ 1956(h) & 1956 (West Supp. 2009) (Count II), as well as from
the 120-month concurrent sentences imposed by the district court
for these convictions. We affirm.
I.
On November 18, 2005, a federal grand jury indicted
Izegwire and two of his co-conspirators, Tolulope John and
Fatoumata Toure, on one count of conspiracy to distribute and
possess with intent to distribute heroin, and one count of
conspiracy to launder monetary instruments. 1 Izegwire was
arrested and made his initial appearance on March 8, 2006.
John, who had left the United States in late 2000, was living in
the United Kingdom. He was arrested there on March 1, 2006, but
successfully fought extradition to the United States until March
8, 2007. He subsequently pled guilty prior to trial. Toure was
John and Toure were also charged with numerous substantive money laundering offenses.
arrested in the United States but also pled guilty prior to
trial.
Following a series of pretrial motions, including motions
to continue filed by both Izegwire and the government, trial
commenced on February 26, 2008. On February 29, 2008, the jury
convicted Izegwire of both counts. Using a special verdict
form, the jury found that the United States had established, by
a preponderance of the evidence, “that at least one act
committed in furtherance of the alleged conspirac[ies] occurred
in the Eastern District of Virginia.” S.J.A. 178, 179-80. The
jury also found that Izegwire “conspired to distribute and/or
conspired to possess with intent to distribute . . . [s]ome
amount less than ‘100 grams’ of a mixture or substance
containing a detectable amount of heroin.” S.J.A. 179. This
finding of drug quantity resulted in a statutory maximum
sentence of 20 years imprisonment for the drug conspiracy
charge. The statutory maximum for the money laundering charge
was 10 years imprisonment.
At sentencing, the district court attributed 500 grams of
heroin to Izegwire, resulting in an offense level of 28 for the
heroin conspiracy. See U.S.S.G. § 2D1.1(c)(6) (2007). 2 With a
The money laundering conspiracy conviction resulted in an offense level of 22.
three-level enhancement for his role in the offense, Izegwire’s
guideline range was 108 to 135 months imprisonment. The
district court sentenced Izegwire to concurrent 120-month
sentences on each count, followed by three years of supervised
release.
II.
A.
Izegwire first appeals the district court’s denial of his
motion to dismiss the indictment based upon the five-year
statute of limitations. We review de novo the trial court’s
denial of the motion. See United States v. Uribe-Rios, 558 F.3d
347, 351 (4th Cir. 2009).
Under 18 U.S.C.A. § 3282(a) (West Supp. 2009), “no person
shall be prosecuted, tried, or punished for any offense, not
capital, unless the indictment is found or the information is
instituted within five years next after such offense shall have
been committed.” In conspiracy offenses, the “statute of
limitations . . . runs from the last overt act during the
existence of the conspiracy.” Fiswick v. United States, 329
U.S. 211, 216 (1946); see also United States v. Brown, 332 F.3d
363, 373 (6th Cir. 2003). Furthermore, the conspiracy, once
established, “is presumed to continue unless or until the
defendant shows that it was terminated or he withdrew from it.”
United States v. Walker, 796 F.2d 43, 49 (4th Cir. 1986). The
“mere cessation of activity in furtherance of the conspiracy is
insufficient. The defendant must show affirmative acts
inconsistent with the object of the conspiracy and communicated
in a manner reasonably calculated to reach his co-conspirators.
The burden of proving withdrawal rests on the defendant.” Id
(citations omitted).
We find no error in the district court’s rejection of
Izegwire’s motion to dismiss the charges against him based upon
the statute of limitations. Izegwire and his co-conspirators
were indicted on November 18, 2005. Izegwire does not argue
that the indictment was not filed within five years of the
termination of the charged conspiracies. However, he contends
that he withdrew from the conspiracies more than five years
prior to the indictment, i.e., before November 18, 2000.
Izegwire, however, has failed to demonstrate that he withdrew
from the conspiracies prior to November 18, 2000, or that the
conspiracies ended before that date. On the contrary, the
government’s evidence indicates that neither occurred. There
was evidence that members of the conspiracies continued to
commit overt acts in furtherance of the conspiracy well after
November 18, 2000. In addition, there was evidence that between
December 1, 2000, and February 22, 2001, Izegwire directed
Helena Hollo, his girlfriend at the time, to conduct several
wire transfers of drug proceeds to John in the United Kingdom,
in furtherance of both the drug conspiracy and the money
laundering conspiracy. Accordingly, the district court did not
err in denying Izegwire’s motion to dismiss on this basis.
B.
Izegwire next appeals the district court’s denial of his
motion to dismiss the charges against him for improper venue and
its submission of the venue determination to the jury for its
consideration.
“[A]ny offense against the United States begun in one
district and completed in another, or committed in more than one
district, may be . . . prosecuted in any district in which such
offense was begun, continued, or completed.” 18 U.S.C.A.
§ 3237(a) (West 2000). “[A] conspiracy may be prosecuted in any
district in which the agreement was formed or in which an act in
furtherance of the conspiracy was committed.” United States v.
Gilliam, 975 F.2d 1050, 1057 (4th Cir. 1992). “To establish
venue, the government need only show that an act occurred in the
district by a preponderance of the evidence.” United States v.
Al-Talib, 55 F.3d 923, 928 (4th Cir. 1995).
While we normally review the issue of venue de novo, see
United States v. Wilson, 262 F.3d 305, 320 (4th Cir. 2001),
“[s]ubmitting the venue question to the jury is an appropriate
procedure for resolving a factual dispute relating to venue,”
United States v. Ebersole, 411 F.3d 517, 526 n.10 (4th Cir.
2005). Here, the jury found that the government had proven
“that at least one act committed in furtherance of [each]
alleged conspiracy occurred in the Eastern District of
Virginia.” S.J.A. 178, 179-80. This finding was supported by
the evidence. At a minimum, the government presented evidence
that a co-conspirator collected drug money from Izegwire and
another co-conspirator for John after John left the United
States, and that at least one wire transfer of drug proceeds was
sent by the co-conspirator from Alexandria, Virginia in the
Eastern District of Virginia to John in the United Kingdom.
Accordingly, the district court did not err in denying
Izegwire’s motion to dismiss the charges against him for lack of
venue or in submitting the issue to the jury for its
determination.
C.
Izegwire next appeals the district court’s denial of his
motion to dismiss the charges against him based upon an alleged
violation of the Speedy Trial Act. See 18 U.S.C.A. § 3161 (West
2000 & Supp. 2009). We review the district court’s legal
conclusions de novo and its factual findings for clear error.
See United States v. Stoudenmire, 74 F.3d 60, 63 (4th Cir.
1996).
The Speedy Trial Act provides that the trial of a defendant
charged in an indictment “shall commence within seventy days
from the filing date . . . of the . . . indictment, or from the
date the defendant has appeared before a judicial officer of the
court in which such charge is pending, whichever date last
occurs.” 18 U.S.C.A. § 3161(c)(1) (West Supp. 2009). Pertinent
to the case at hand, however, the Act provides for a number of
excludable delays, including delay resulting from the granting
of a continuance based on a finding that “the ends of justice
served by taking such action outweigh the best interest of the
public and the defendant in a speedy trial.” 18 U.S.C.A.
§ 3161(h)(7)(A) (West Supp. 2009). Factors to be considered in
deciding whether to grant such a continuance include the
defendant’s need for “reasonable time to obtain counsel,” for
“continuity of counsel,” and for “reasonable time necessary for
effective preparation” of counsel. 18 U.S.C.A.
§ 3161(h)(7)(B)(iv). Additional excludable periods of delay
include “delay resulting from any proceeding, including any
examinations, to determine the mental competency or physical
capacity of the defendant,” 18 U.S.C.A. § 3161(h)(1)(A), and
“delay resulting from any pretrial motion, from the filing of
the motion through the conclusion of the hearing on, or other
prompt disposition of, such motion,” 18 U.S.C.A.
§ § 3161(h)(1)(D). The time from the filing of a motion until
the conclusion of the hearing on the motion is excluded, even if
the delay in holding the hearing was not reasonably necessary.
See Henderson v. United States, 476 U.S. 321, 330 (1986). “In a
case involving several defendants, time excludable for one
defendant is excludable for all defendants.” United States v.
Jarrell, 147 F.3d 315, 316 (4th Cir. 1998). “There is a strong
preference for trying codefendants together as it promotes
judicial efficiency by avoiding successive trials involving the
same evidence.” United States v. Khoury, 901 F.2d 948, 972
(11th Cir. 1990). Thus, “reasonable delay attributable to the
fugitive status of a co-indictee is excludable as to those
defendants awaiting trial.” Id.
Having reviewed the record, including the numerous motions
filed by both sides that resulted in delays as well as the
extradition proceedings pursued against John, we find no
reversible error by the district court in denying Izegwire’s
motion to dismiss under the Speedy Trial Act. The district
court ordered six continuances of Izegwire’s trial, some at the
request of the defendant for various reasons, and some at the
request of the government while it was attempting the
extradition of John. In each case, the continuances and delays
were authorized by the Act as excludable periods of time and the
district court made the requisite finding that the ends of
justice served by the continuances outweighed the best interests
of the public and the defendant in a speedy trial, as required
by 18 U.S.C.A. § 3161(h)(7)(A). Accordingly, Izegwire is not
entitled to relief under the Speedy Trial Act.
III.
Izegwire also challenges his sentence, contending that the
district court erred in finding that he was responsible for 500
grams of heroin when the jury had made a finding that he was
responsible for less than 100 grams of heroin, and erred in
applying a three-level enhancement for his role as a manager or
supervisor.
As noted earlier, the jury returned a special verdict form
at the conclusion of the trial finding that Izegwire had
“conspired to distribute and/or conspired to possess with intent
to distribute . . . [s]ome amount less than ‘100 grams’ of a
mixture or substance containing a detectable amount of heroin.”
S.J.A. 179. This finding set the statutory maximum sentence for
the drug conspiracy at 20 years. The statutory maximum sentence
for the money laundering conspiracy was 10 years.
The district court subsequently found, based upon a
preponderance of the evidence, that Izegwire was supplied with a
total of 500 grams of heroin by his co-conspirator John and
applied a three-level enhancement for Izegwire’s role in the
offense. This resulted in a guideline sentencing range of 108
to 135 months imprisonment. The district court then imposed a
sentence of 120 months, which was within the guideline range and
statutory maximum for each conviction. On appeal, Izegwire
contends that the district court erred by attributing a drug
quantity to him for purposes of sentencing that exceeded the
jury’s findings on the special verdict form.
Since Apprendi v. New Jersey, drug quantities that increase
the statutory maximum sentence are elements of the offense and
thus must be charged in the indictment and submitted to the jury
for proof beyond a reasonable doubt. See 530 U.S. 466, 490
(2000). While Apprendi affects the calculation of the statutory
maximum sentence that may be imposed, it does not affect the
calculation of the applicable sentencing guideline range.
“Sentencing judges may find facts relevant to determining a
Guidelines range by a preponderance of the evidence, so long as
that Guidelines sentence is treated as advisory and falls within
the statutory maximum authorized by the jury’s verdict.” United
States v. Benkahla, 530 F.3d 300, 312 (4th Cir. 2008), cert.
denied 129 S. Ct. 950 (2009); see also United States v. Perry,
560 F.3d 246, 258 (4th Cir. 2009) (holding that, after United
States v. Booker, 543 U.S. 220 (2005), district courts may
“continue to make factual findings concerning sentencing factors
. . . by a preponderance of the evidence” and consider acquitted
conduct when applying the guidelines in an advisory fashion).
As long as the sentence imposed does not exceed the maximum
sentence authorized by the jury’s verdict, the district court
does not violate the Sixth Amendment by imposing a sentence
based on a higher drug quantity than was determined by the jury.
See United States v. Webb, 545 F.3d 673, 677 (8th Cir. 2008).
Here, the 120-month sentence imposed by the court was well
within the statutory maximum of 20 years authorized by the
jury’s findings on drug quantity. Accordingly, the sentence
does not violate the Sixth Amendment. To the extent Izegwire
contends that the district court’s factual finding was otherwise
in error, we are unpersuaded. Drug quantity determinations are
reviewed for clear error. See United States v. Fullilove, 388
F.3d 104, 106 (4th Cir. 2004). The district court found the
testimony of John, Izegwire’s co-conspirator, to be credible and
found that John had supplied Izegwire with a total of 500 grams
of heroin. Having reviewed the record as a whole, we cannot say
that these findings were clearly erroneous.
We likewise reject Izegwire’s contention that the district
court erred in finding that he was a manager or supervisor and
applying the three-level increase in Izegwire’s offense level
for his role in the offense. See U.S.S.G. § 3B1.1(b) (2007).
The enhancement was based upon evidence that Izegwire directed
Hollo to conduct wire transactions involving drug proceeds on
several occasions. Izegwire did not contest the evidence, but
argued that the enhancement should not apply in light of his
romantic relationship with Hollo and because Hollo had made
other, legitimate wire transfers for him during this same time
period.
The district court’s “ruling regarding a role adjustment is
a factual determination reviewed for clear error.” United
States v. Kellam, 568 F.3d 125, 147-48 (4th Cir. 2009). A
defendant qualifies for the three-level enhancement if he “was a
manager or supervisor (but not an organizer or leader) and the
criminal activity involved five or more participants or was
otherwise extensive.” U.S.S.G. § 3B1.1(b). 3 “Leadership over
only one other participant is sufficient as long as there is
some control exercised.” United States v. Rashwan, 328 F.3d
160, 166 (4th Cir. 2003); see also U.S.S.G. § 3B1.1, cmt. n.2
(“To qualify for an adjustment under this section, the defendant
must have been the organizer, leader, manager, or supervisor of
one or more other participants.”).
The district court found that Izegwire played a managerial
role because he directed Hollo to make the money wire transfers
to John in furtherance of the conspiracies. Izegwire provided
her with the money, along with the names and addresses of the
recipients, and instructed her to use an alias each time she
Izegwire does not argue that the criminal activity involved fewer than five participants.
made an illegitimate transfer. We therefore conclude that the
district court did not clearly err in finding that Izegwire
acted as a manager or supervisor with respect to Hollo and in
applying the three-level role enhancement on this basis.
IV.
For the foregoing reasons, we affirm Izegwire’s convictions
and sentences. We dispense with oral argument because the facts
and legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-5079
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JASON YOUNG,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Liam O’Grady, District Judge. (1:08-cr-00240-LO-6)
Submitted: January 7, 2010 Decided: March 22, 2010
No. 08-5111
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
FARES ABULABAN, a/k/a Sameh,
Defendant - Appellant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Liam O’Grady, District Judge. (1:08-cr-00101-JCC-1; 1:08-cr-00240-LO-1)
Argued: January 27, 2010 Decided: March 22, 2010
Before TRAXLER, Chief Judge, AGEE, Circuit Judge, and Catherine C. BLAKE, United States District Judge for the District of Maryland, sitting by designation.
Affirmed by unpublished opinion. Judge Blake wrote the opinion, in which Chief Judge Traxler and Judge Agee joined.
ARGUED: Marvin David Miller, Alexandria, Virginia, for Appellant Fares Abulaban. David Brian Goodhand, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee. ON BRIEF: Kevin M. Schad, SCHAD & SCHAD, Lebanon, Ohio; Heather Golias, LAW OFFICE OF MARVIN D. MILLER, Alexandria, Virginia, for Appellants. Dana Boente, United States Attorney, Lawrence J. Leiser, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
BLAKE, District Judge:
Fares Abulaban and Jason Young pled guilty to drug
conspiracy and related gun charges and were sentenced to total
terms of imprisonment of 232 months for Abulaban and 270 months
for Young. Both appeal aspects of their sentencing; Abulaban
also appeals the denial of his motion to suppress a firearm
seized during a warrantless search of the automobile in which he
drove to the site of the supposed cocaine transaction. In fact
it was a “reverse sting” operation. For the reasons that
follow, we affirm the rulings of the district court.
I.
A.
In February 2008, agents of the Immigration and Customs
Enforcement (“ICE”) Division of the Department of Homeland
Security planned a “reverse sting” operation in which ICE
undercover agent Tony Rodriguez played the role of a drug dealer
with cocaine connections in Columbia. Defendant Abulaban agreed
to find purchasers for 20 kilograms of cocaine which Agent
Rodriguez was to have available for sale on February 15, 2008 in
Morgantown, West Virginia. Defendant Young was to be one of the
buyers.
Several meetings took place among Abulaban, Rodriguez, and
other co-conspirators or undercover agents prior to February 15,
2008. On February 7, 2008, Abulaban met with Rodriguez and
others to discuss arrangements for buyers to purchase the 20
kilograms of cocaine. It was agreed that Abulaban would receive
some fee or percentage of the purchase price for his work, and
there was discussion about using vehicles, including his, to
pick up money or drugs. Abulaban left that meeting in a silver
BMW he had apparently recently purchased (“the BMW”). On
February 14, 2008, Abulaban met with Agent Rodriguez and others
again, driving them in his BMW to Club Envy, the site of the
next day’s planned transaction, where he gave the agents a tour
of the Club including its entrances and exits before driving the
agents back to the lot where their car was parked.
On February 15, 2008, Abulaban initially picked up the
agents in a different car to drive around and discuss the deal,
including Abulaban’s intention to take two of the kilos himself
to sell. In the course of the discussion, Abulaban asked Agent
Rodriguez if he had his gun with him or had a gun. After
parking in front of the Morgantown Hotel, Abulaban entered the
hotel and later exited carrying a paper bag, which he handed to
Agent Rodriguez. The bag contained approximately $40,000 in
banded cash. Abulaban then drove the agents, with the money, to
Club Envy in his silver BMW. Other conspirators arrived, also
with money, and eventually another undercover agent brought the
purported 20 kilograms of cocaine to the Club. Once the “drugs”
were placed in view, the conspirators were arrested. Abulaban
and defendant Jason Young, one of the buyers, were among those
arrested. While Abulaban did not have a gun on his person,
weapons were recovered from other persons arrested at the Club.
Following the arrests, agents searched Abulaban’s BMW and found
a loaded .380 caliber semi-automatic handgun in the driver’s
side map compartment.
B.
On March 13, 2008, a federal grand jury in Alexandria,
Virginia, returned an indictment (08-CR-101) charging Abulaban,
Young, and others with conspiracy to distribute and possess with
intent to distribute both cocaine and ecstasy in violation of 21
U.S.C. §§ 841(a)(1) and 846. A single-count superseding
indictment returned June 19, 2008, narrowed the scope of the
conspiracy and did not name Young. A separate indictment
returned June 12, 2008 (08-CR-240), charged Abulaban, Young, and
others with conspiracy to possess with intent to distribute five
kilograms or more of cocaine, in violation of 21 U.S.C. §§
841(a)(1), 846, and 860 (Count One); charged Abulaban with
possessing a firearm (the .380 caliber semi-automatic found in
his BMW) on February 15, 2008 in furtherance of a drug
trafficking offense, in violation of 18 U.S.C. § 924(c) (Count
Two); and charged Young with using and carrying a firearm (a .38
caliber Taurus revolver) on February 15, 2008 during and in
relation to a drug trafficking offense, also in violation of 18
U.S.C. § 924(c) (Count Three).
Prior to trial Abulaban moved to suppress the handgun
seized from his BMW, claiming that the warrantless search
violated the Fourth Amendment. After an evidentiary hearing,
the district court found the search lawful, concluding that “the
officers had probable cause to search the BMW, as it was an
instrumentality of the drug conspiracy and thereby falls within
the vehicle exception to the warrant requirement.” J.A. 300.
Secondarily, the court concluded that the officers had probable
cause to believe the BMW was subject to forfeiture and that it
could be seized without a warrant. Accordingly, the motion to
suppress was denied. 1
On July 12, 2008, Abulaban pled guilty to Counts One and
Two of the indictment in 08-CR-240 arising from the February 15,
2008 transaction (conspiracy to possess with intent to
distribute cocaine and possession of a firearm in furtherance of
a drug-trafficking offense); Young pled guilty to Counts One and
Three of the same indictment (the cocaine conspiracy and using
and carrying a firearm). Neither had a written plea agreement,
This ruling was made by Judge James C. Cacheris in connection with the 08-CR-101 indictment. The § 924(c) charge involving the handgun later became part of the 08-CR-240 indictment, assigned to Judge Liam O’Grady. Judge O’Grady adopted Judge Cacheris’s ruling. J.A. 353.
although Abulaban and the government agreed he had reserved the
right to appeal the denial of his suppression motion. Abulaban
also pled guilty, with a written agreement, to Count One of the
superseding indictment in 08-CR-101, which charged a conspiracy
to possess with intent to distribute ecstasy based on a meeting
with co-conspirator Mohammed Alazzam and an undercover agent in
March 2007 to plan the acquisition and sale to the agent of 2500
ecstasy pills at a price of $10 per tablet. Abulaban was to be
paid as a broker for this sale, but it was never carried out.
On October 10, 2008, the district court sentenced Young to 210
months’ incarceration on Count One and 60 months consecutive on
Count Three. On October 30, 2008, the court sentenced Abulaban
to 172 months’ incarceration on Count One of both 08-CR-101 and
08-CR-240, to run concurrently, and 60 months consecutive on
Count Two of 08-CR-240. This appeal followed. 2
II.
A.
We first consider whether the district court erred in
denying Abulaban’s motion to suppress the gun found in his BMW.
Both Abulaban and Young filed notices of appeal and briefed their respective issues. Their appeals were consolidated. Prior to oral argument, however, because of a change in counsel for Young, the appeals were deconsolidated. Young’s claims will be resolved on the briefs.
We review the court’s findings of fact for clear error and its
conclusions of law de novo. United States v. Kelly, 592 F.3d
586, 589 (4th Cir. 2010).
Abulaban argues that for the automobile exception to apply
the vehicle must be “readily mobile” and there must be “probable
cause to believe it contains contraband,” citing Maryland v.
Dyson, 527 U.S. 465, 467 (1999). This is of course consistent
with precedent. To the extent he suggests, however, that the
car was no longer “mobile” because the agents had seized the
keys and arrested Abulaban, and therefore the automobile
exception no longer applied, this suggestion has been rejected,
for reasons thoroughly and recently explained in Kelly, 592 F.3d
at 591. The inherent mobility of the car, combined with the
lesser expectation of privacy in an automobile as compared to a
home or office, justify application of the exception even if the
police have control over the automobile at the time of the
warrantless search. Id. at 590-91; see also United States v.
Brookins, 345 F.3d 231, 237-38 (4th Cir. 2003).
Abulaban also argues that the agents lacked probable cause
to believe the BMW contained contraband, relying on testimony
from agents that they were not aware of any contraband in the
BMW after the bag of money was removed, and that they had not
seen Abulaban with a pistol. There was ample evidence to
conclude, however, that Abulaban planned to receive a fee from
the transaction and to take a portion of the drugs; it is simple
logic to find, as the district court did, that Abulaban intended
to use the BMW to transport his share of the money and the
cocaine away from Club Envy. Nor is there any dispute that he
had used the car to transport drug purchase money to the Club.
As the district court concluded, this case falls well within the
parameters set forth in United States v. Dickey-Bey, 393 F.3d
449, 457 (4th Cir. 2004), permitting the search of the car as an
instrumentality of the crime. In addition, as the government
argues, examining the facts from the standpoint of an
objectively reasonable police officer, there was probable cause
to believe Abulaban was concealing a gun in the BMW and perhaps
other evidence of the conspiracy. His question about whether
the agent had a gun, combined with the value of the purported
drugs and the fact that other co-conspirators had weapons,
supported a fair probability that Abulaban, who had no weapon on
his person, had concealed a weapon in his BMW. See Brookins,
345 F.3d at 235 (internal citation omitted). Further, the BMW
admittedly had been used to transport both participants and
money before the transaction at the Club. Thus, to the extent
the question is distinct from whether the BMW was an
“instrumentality” of the drug conspiracy, we conclude the search
was also justified by probable cause to believe the BMW
contained evidence of the crime or contraband, including a
weapon. 3
B.
We now turn to Abulaban’s challenge to his within
Guidelines sentence. As recently explained, now that the
Guidelines are effectively advisory, district courts must first
correctly calculate the defendant’s Guidelines range and then
“allow the parties to argue for what they believe to be an
appropriate sentence and consider those arguments in light of
the factors set forth in 18 U.S.C.A. § 3553(a).” United States
v. Engle, 592 F.3d 495, 500 (4th Cir. 2010). The district court
must explain its reasons for the sentence it imposes; the
appellate court then reviews that sentence for reasonableness,
including both a procedural and a substantive component. First,
the appellate court must ensure that the district court
committed no significant procedural error, such as failing to calculate (or improperly calculating) the Guidelines range, treating the Guidelines as mandatory, failing to consider the § 3553(a) factors, selecting a sentence based on clearly erroneous facts, or failing to adequately explain the chosen sentence – including an explanation for any deviation from the Guidelines range.
In light of this conclusion, we need not reach the applicability of the forfeiture statute as a basis to seize the BMW.
Id., quoting Gall v. United States, 552 U.S. 38, 51 (2007).
The second step considers the substantive reasonableness of the
sentence, taking into account the totality of the circumstances
and applying an abuse of discretion standard. Id. The appellate
court, though not the district court, may accord a presumption
of reasonableness to a sentence that falls within a properly
calculated Guidelines range. United States v. Smith, 566 F.3d
410, 414 (4th Cir. 2009); United States v. Brewer, 520 F.3d
367, 372 (4th Cir. 2008).
Abulaban essentially raises a procedural challenge,
alleging the Guidelines were not correctly calculated because,
in his view, the court sentenced him on the basis of unrelated
conspiracies in North and South Carolina and on the basis of an
additional 1000-pill ecstasy sale in New York. He characterizes
this (1) as a violation of Fed. R. Crim. P. 32(i)(3)(B) based on
his objection to the fact that the presentence report (“PSR”)
included the names of other alleged coconspirators and (2) as a
Fifth and Sixth Amendment violation on the theory that he was
sentenced for offenses to which he did not plead guilty and in
which he was not involved. 4
Abulaban’s argument that he had not waived his right to appeal the sentence was mooted by the government’s response that it did not seek to enforce any such waiver.
Regardless of the underlying theory, a fair reading of the
sentencing transcript makes it clear that Abulaban was sentenced
only on the two drug conspiracies to which he pled guilty, and
on the related firearms charge. The conspiracy in 08-CR-240
involved 20 kilograms; Abulaban brokered the entire deal. The
ecstasy conspiracy in 08-CR-101 involved a planned distribution
of 2,500 tablets in March or April 2007 in Virginia. Abulaban
admitted to both these conspiracies on July 15, 2008 before
Judge O’Grady. J.A. 363-65, 368-71, 391-93. On October
30,2008, he was sentenced by Judge O’Grady, who added a 4-level
role enhancement to the PSR’s 34 levels, which was based on 20
kilograms of cocaine and 1,015 tablets of ecstasy. J.A. 496. 5
The judge declined to find obstruction of justice, deducted
three levels for acceptance of responsibility, and noted an
advisory Guidelines range of 168 to 210 months at level 35
Criminal History Category I. J.A. 486-87, 496. In listening to
arguments about the appropriate sentence, Judge O’Grady said “I
am going to sentence him based on what he did in two different
drug conspiracies and the possession of a firearm.” J.A. 503.
He later referred to Abulaban putting together the 20-kilogram
deal and being the leader of the drug organization for the deal
If anything, therefore, the quantity of ecstasy was understated.
at Club Envy. J.A. 515. While he misspoke by referring to
methamphetamine as one of the “multiple” conspiracies, he
quickly accepted counsel’s correction. J.A. 516. Considering
the seriousness of the offense, the need for deterrence and
punishment, as well as Abulaban’s age, medical condition, and
limited criminal record, he imposed a sentence close to the
bottom of the Guidelines range. To suggest that Judge O’Grady
relied on criminal conduct for which Abulaban’s guilt was not
firmly established borders on the frivolous. The sentence was
reasonable and did not violate any provision of the
Constitution.
C.
Defendant Young also challenges his sentence in several
respects: first, the court’s attribution of the entire 20
kilograms to him for purposes of sentencing; second, the four-
level enhancement for use of body armor; third, the alleged
reliance of the court on evidence from a proceeding where Young
was not present; and fourth, that the 270-month term of
incarceration was substantively unreasonable. These will be
addressed in turn.
First, the record before the trial court amply supports a
finding that the full 20 kilograms of cocaine not only were
foreseeable to Young but also were within the scope of his
particular agreement. Young knew that he was part of “a big, 20
kilogram, cocaine deal.” J.A. 576. As the PSR noted, there was
evidence that when it appeared the purchasers would fall short,
Young agreed to take his initial five kilos and quickly sell
enough to return to Club Envy later that evening to buy two more
kilos. J.A. 549, 574. 6 While the PSR attributed only seven
kilograms to Young, the government contended that Young should
be accountable for all 20 kilos. Reviewing the facts that
showed Young’s knowledge of and participation in a specific 20-
kilogram transaction, the trial court correctly concluded that
the entire 20 kilograms was reasonably foreseeable to Young
“within the scope of the criminal activity that he jointly
undertook.” J.A. 466-67. See U.S.S.G. § 1B1.3(a)(1)(A) & (B)
and app. Note 2.
Second and third, the district judge correctly enhanced
Young’s sentence for use of body armor based primarily on
Young’s own admission to law enforcement agents that he had a
gun and body armor that night, although he took off the body
armor when he ran to the back of the Club. J.A. 460-61, 467.
Reference to trial evidence as consistent with Young’s own
statements did not undercut the independent basis for the
Young admitted he had been asked to take more than his five kilos, but denied agreeing to do so. J.A. 577.
court’s finding at sentencing nor did it violate Young’s due
process rights.
Finally, Young has not persuaded us that the sentence, at
the low end of the advisory Guidelines range, was substantively
unreasonable. The district judge emphasized the seriousness of
the offense, as reflected by the quantity of cocaine and the
possession of both a weapon and body armor, 7 but he also
considered Young’s individual history, as noted by the court’s
downward departure from Criminal History Category III to
Category II when calculating the Guidelines. Considering the
totality of the circumstances, we cannot say that the district
judge abused his substantial discretion in sentencing Young to
the low end of the Guidelines on the cocaine conspiracy,
followed by the mandatory minimum consecutive 60 months on the
firearms charge.
III.
Accordingly, for the reasons explained above, the
suppression ruling and the Judgment and Commitment orders
entered by the district court as to Fares Abulaban and Jason
Young are AFFIRMED.
Possession of body armor also contributed to Young’s sentence being longer than other co-conspirators. |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-4587
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
STEVEN FION LYONS,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Terrence W. Boyle, District Judge. (5:08-cr-00206-BO-1)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Thomas P. McNamara, Federal Public Defender, Stephen C. Gordon, Assistant Federal Public Defender, Raleigh, North Carolina, for Appellant. George E.B. Holding, United States Attorney, Anne M. Hayes, Jennifer P. May-Parker, Assistant United States Attorneys, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Steven Fion Lyons pled guilty to access device fraud,
in violation of 18 U.S.C. §§ 1029(a)(5), (c) (2006) (Count One)
and aggravated identity theft, in violation of 18 U.S.C.
§ 1028A(a)(1) (2006) (Count Two). Under the properly calculated
advisory Sentencing Guidelines, his range of imprisonment was
twelve to eighteen months on Count One, and the district court
imposed a sentence of forty-eight months for that count. The
district court also imposed a consecutive twenty-four month term
of imprisonment on Count Two, as required by statute. Lyons
appeals only the district court’s variance on Count One,
claiming that the reasons given by the court were not legally
sufficient or procedurally reasonable.
We review a sentence for reasonableness under an abuse
of discretion standard. Gall v. United States, 552 U.S. 38, 51
(2007). This review requires appellate consideration of both
the procedural and substantive reasonableness of a sentence.
Id. Procedural reasonableness is determined by reviewing
whether the district court properly calculated the defendant’s
advisory Guidelines range and then considered the 18 U.S.C.
§ 3553(a) (2006) factors, analyzed any arguments presented by
the parties, and sufficiently explained the selected sentence.
Id. at 49-51. “Regardless of whether the district court imposes
an above, below, or within-Guidelines sentence, it must place on
the record an ‘individualized assessment’ based on the
particular facts of the case before it.” United States v.
Carter, 564 F.3d 325, 330 (4th Cir. 2009). Substantive
reasonableness of the sentence is determined by “taking into
account the ‘totality of the circumstances, including the extent
of any variance from the Guidelines range.’” United States v.
Pauley, 511 F.3d 468, 473 (4th Cir. 2007) (quoting Gall, 552
U.S. at 51).
We find the district court’s sentence was both
procedurally and substantively reasonable. The district court
stated a number of specific reasons supporting its decision to
vary upward on Count One, which reasons were fully supported by
Lyons’ criminal history and the record before the court. * Nor do
we find any reversible error in the fact that the district court
denied on the record the Government’s motion to depart after
announcing its variance decision, especially given that the
* Specifically, the district court stated that its variance was imposed: (1) because Lyons had multiple identity theft crimes over time and other crimes involving theft; (2) to provide Lyons sufficient time to obtain needed vocational training; (3) to afford adequate deterrence from further criminal conduct by removing Lyons from society for a period of time above that called for by the guidelines range; (4) to reflect the seriousness of the particular offense; and (5) to promote respect for the law. The record demonstrates that Lyons, whose work history was sporadic and unskilled, had been convicted of eleven felonies and ten misdemeanors, most of which involved identity theft; the longest time he had spent in prison was ten to twelve months.
court heard argument on the upward departure motion prior
imposing the variance sentence.
Accordingly, we affirm Lyons’ sentence. We dispense
with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and
argument would not aid the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7636
MICHAEL L. GREEN, JR.,
Petitioner – Appellant,
v.
STATE OF NORTH CAROLINA; DARLENE DREW, Warden,
Respondents – Appellees.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Terrence W. Boyle, District Judge. (5:08-hc-02085-BO)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Michael L. Green, Jr., Appellant Pro Se. Clarence Joe DelForge, III, Assistant Attorney General, Raleigh, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Michael L. Green, Jr. seeks to appeal the district
court’s order denying relief on his 28 U.S.C. § 2254 (2006)
petition. The order is not appealable unless a circuit justice
or judge issues a certificate of appealability. 28 U.S.C.
§ 2253(c)(1) (2006). A certificate of appealability will not
issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Green has
not made the requisite showing. Accordingly, we deny a
certificate of appealability, deny leave to proceed in forma
pauperis, and dismiss the appeal. We dispense with oral
argument because the facts and legal contentions are adequately
presented in the materials before the court and argument would
not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7720
MARION LEON BEA,
Petitioner - Appellant,
v.
GENE JOHNSON,
Respondent - Appellee.
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. T. S. Ellis, III, Senior District Judge. (1:09-cv-00907-TSE-TCB)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Marion Leon Bea, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Marion Leon Bea filed motions in the district court
challenging his Virginia state court convictions that he
characterized as seeking relief under Fed. R. Civ. P. 60(b). He
seeks to appeal the district court’s order treating his motions
collectively as a successive 28 U.S.C. § 2254 (2006) petition,
and denying relief on that basis. The order is not appealable
unless a circuit justice or judge issues a certificate of
appealability. 28 U.S.C. § 2253(c)(1) (2006); Reid v. Angelone,
369 F.3d 363, 369 (4th Cir. 2004). A certificate of
appealability will not issue absent “a substantial showing of
the denial of a constitutional right.” 28 U.S.C. § 2253(c)(2)
(2006). A prisoner satisfies this standard by demonstrating
that reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Bea has not
made the requisite showing. Accordingly, we deny a certificate
of appealability and dismiss the appeal.
Additionally, we construe Bea’s notice of appeal and
informal brief as an application to file a second or successive
petition under 28 U.S.C. § 2254. United States v. Winestock,
340 F.3d 200, 208 (4th Cir. 2003). In order to obtain
authorization to file a successive § 2254 petition, a prisoner
must assert claims based on either: (1) a new rule of
constitutional law, previously unavailable, made retroactive by
the Supreme Court to cases on collateral review; or (2) newly
discovered evidence, not previously discoverable by due
diligence, that would be sufficient to establish by clear and
convincing evidence that, but for constitutional error, no
reasonable factfinder would have found the petitioner guilty of
the offense. 28 U.S.C. § 2244(b)(2) (2006). Bea’s claims do
not satisfy either of these criteria. Therefore, we deny
authorization to file a successive § 2254 petition.
We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7755
CHRIS DARRYL DRYE,
Petitioner – Appellant,
v.
ALVIN KELLER, JR.,
Respondent – Appellee,
and
THEODIS BECK,
Respondent.
Appeal from the United States District Court for the Middle District of North Carolina, at Greensboro. William L. Osteen, Jr., District Judge. (1:09-cv-00118-WO-DPD)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Chris Darryl Drye, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Chris Darryl Drye seeks to appeal the district court’s
order adopting the recommendation of the magistrate judge and
dismissing as untimely his 28 U.S.C. § 2254 (2006) petition.
The order is not appealable unless a circuit justice or judge
issues a certificate of appealability. 28 U.S.C. § 2253(c)(1)
(2006). A certificate of appealability will not issue absent “a
substantial showing of the denial of a constitutional right.”
28 U.S.C. § 2253(c)(2). A prisoner satisfies this standard by
demonstrating that reasonable jurists would find that any
assessment of the constitutional claims by the district court is
debatable or wrong and that any dispositive procedural ruling by
the district court is likewise debatable. Miller-El v.
Cockrell, 537 U.S. 322, 336-38 (2003); Slack v. McDaniel,
529 U.S. 473, 484-85 (2000); Rose v. Lee, 252 F.3d 676, 683-84
(4th Cir. 2001). We have independently reviewed the record and
conclude that Drye has not made the requisite showing.
Accordingly, we deny a certificate of appealability, deny leave
to proceed in forma pauperis, deny Drye’s motions to appoint
counsel, for a transcript at government expense, and for
documentation of response, and dismiss the appeal. We dispense
with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and
argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7773
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
TIMOTHY LAFON MURPHY, a/k/a TJ,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Louise W. Flanagan, Chief District Judge. (5:04-cr-00241-FL-1; 5:08-cv-00534-FL)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Timothy Lafon Murphy, Appellant Pro Se. Rudolf A. Renfer, Jr., Assistant United States Attorney, Robert Jack Higdon, Jr., OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Timothy Lafon Murphy seeks to appeal the district
court’s order accepting the recommendation of the magistrate
judge and dismissing as untimely his 28 U.S.C.A. § 2255 (West
Supp. 2009) motion. The order is not appealable unless a
circuit justice or judge issues a certificate of appealability.
28 U.S.C. § 2253(c)(1) (2006). A certificate of appealability
will not issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Murphy has
not made the requisite showing. Accordingly, we deny Murphy’s
motion for a certificate of appealability and dismiss the
appeal. We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7782
DERON ANDRONE FLOOD,
Petitioner – Appellant,
v.
BUTCH JACKSON, Superintendent,
Respondent – Appellee.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Malcolm J. Howard, Senior District Judge. (5:08-hc-02068-H)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Deron Androne Flood, Appellant Pro Se. Clarence Joe DelForge, III, Assistant Attorney General, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Deron Androne Flood seeks to appeal the district
court’s order denying relief on his 28 U.S.C. § 2254 (2006)
petition. The order is not appealable unless a circuit justice
or judge issues a certificate of appealability. See 28 U.S.C.
§ 2253(c)(1) (2006). A certificate of appealability will not
issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. See Miller-El v. Cockrell, 537
U.S. 322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484
(2000); Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We
have independently reviewed the record and conclude that Flood
has not made the requisite showing. Accordingly, we deny his
motion for a certificate of appealability and dismiss the
appeal. We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7809
CEDRIC EMMANUEL PERKINS,
Petitioner - Appellant,
v.
ROBERT P. BOLLINGER,
Respondent - Appellee.
Appeal from the United States District Court for the District of South Carolina, at Florence. David C. Norton, Chief District Judge. (4:08-cv-03208-DCN)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Cedric Emmanuel Perkins, Appellant Pro Se. William Edgar Salter, III, Assistant Attorney General, Donald John Zelenka, Deputy Assistant Attorney General, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Cedric Emmanuel Perkins seeks to appeal the district
court’s order accepting the recommendation of the magistrate
judge and denying relief on his 28 U.S.C. § 2254 (2006)
petition. The order is not appealable unless a circuit justice
or judge issues a certificate of appealability. 28 U.S.C.
§ 2253(c)(1) (2006). A certificate of appealability will not
issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Perkins has
not made the requisite showing. Accordingly, we deny a
certificate of appealability and dismiss the appeal. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7837
UNITED STATES OF AMERICA,
Plaintiff – Appellee,
v.
HECTOR LOPEZ,
Defendant – Appellant.
Appeal from the United States District Court for the District of South Carolina, at Greenville. Henry F. Floyd, District Judge. (6:06-cr-00503-HFF-1; 6:06-cv-70016-HFF; 6:09-cv-70004-HFF)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Hector Lopez, Appellant Pro Se. William Jacob Watkins, Jr., OFFICE OF THE UNITED STATES ATTORNEY, Greenville, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Hector Lopez seeks to appeal the district court’s
order dismissing as untimely his 28 U.S.C.A. § 2255 (West Supp.
2009) motion. The order is not appealable unless a circuit
justice or judge issues a certificate of appealability.
28 U.S.C. § 2253(c)(1) (2006). A certificate of appealability
will not issue absent “a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2) (2006). A
prisoner satisfies this standard by demonstrating that
reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Lopez has
not made the requisite showing. Accordingly, we deny a
certificate of appealability and dismiss the appeal. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7865
BILLY G. ASEMANI,
Plaintiff - Appellant,
v.
MR. CHRONISTER, Corrections Officer, Eastern Correctional Institution-East ("ECI-E"); MS. PARKS, Correctional Officer, ECI-E; MS. JOSEPH, Sergeant, ECI-E; MR. WEBSTER, Lieutenant, ECI-E, in their individual and official capacities; OFFICER DAVIS; OFFICE OF THE ATTORNEY GENERAL,
Defendants - Appellees.
Appeal from the United States District Court for the District of Maryland, at Baltimore. Richard D. Bennett, District Judge. (1:09-cv-00238-RDB)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Billy G. Asemani, Appellant Pro Se. Stephanie Judith Lane Weber, OFFICE OF THE ATTORNEY GENERAL OF MARYLAND, Baltimore, Maryland, for Appellees.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Billy G. Asemani, a frequent filer, appeals the
district court’s order granting summary judgment to the
Defendants on Asemani’s action under 42 U.S.C. § 1983 (2006).
We have reviewed the record and find no reversible error.
Accordingly, we affirm for the reasons stated by the district
court. Asemani v. Chronister, No. 1:09-cv-00238-RDB (D. Md.
Sept. 21, 2009). We dispense with oral argument because the
facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7875
CHARLES M. RYNES,
Petitioner – Appellant,
v.
MCKITHER BODISON, Warden,
Respondent – Appellee.
Appeal from the United States District Court for the District of South Carolina, at Rock Hill. Terry L. Wooten, District Judge. (0:08-cv-02335-TLW)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Charles M. Rynes, Appellant Pro Se. Donald John Zelenka, Deputy Assistant Attorney General, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Charles M. Rynes seeks to appeal the district court’s
order accepting the recommendation of the magistrate judge and
denying relief on his 28 U.S.C. § 2254 (2006) petition. The
order is not appealable unless a circuit justice or judge issues
a certificate of appealability. 28 U.S.C. § 2253(c)(1) (2006).
A certificate of appealability will not issue absent “a
substantial showing of the denial of a constitutional right.”
28 U.S.C. § 2253(c)(2) (2006). A prisoner satisfies this
standard by demonstrating that reasonable jurists would find
that any assessment of the constitutional claims by the district
court is debatable or wrong and that any dispositive procedural
ruling by the district court is likewise debatable. Miller-El
v. Cockrell, 537 U.S. 322, 336-38 (2003); Slack v. McDaniel,
529 U.S. 473, 484 (2000); Rose v. Lee, 252 F.3d 676, 683-84
(4th Cir. 2001). We have independently reviewed the record and
conclude that Rynes has not made the requisite showing.
Accordingly, we deny a certificate of appealability and dismiss
the appeal. We dispense with oral argument because the facts
and legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7883
MATTHEW GALE,
Petitioner – Appellant,
v.
RICKY ANDERSON,
Respondent – Appellee.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Malcolm J. Howard, Senior District Judge. (5:08-hc-02136-H)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Matthew Gale, Appellant Pro Se. Clarence Joe DelForge, III, Assistant Attorney General, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Matthew Gale has filed a motion for a certificate of
appealability regarding the district court’s dismissal of his
28 U.S.C. § 2254 (2006) petition. A certificate of
appealability will not issue absent “a substantial showing of
the denial of a constitutional right.” 28 U.S.C. § 2253(c)(2)
(2006). A prisoner satisfies this standard by demonstrating
that reasonable jurists would find that any assessment of the
constitutional claims by the district court is debatable or
wrong and that any dispositive procedural ruling by the district
court is likewise debatable. Miller-El v. Cockrell, 537 U.S.
322, 336-38 (2003); Slack v. McDaniel, 529 U.S. 473, 484 (2000);
Rose v. Lee, 252 F.3d 676, 683-84 (4th Cir. 2001). We have
independently reviewed the record and conclude that Gale has not
made the requisite showing. Accordingly, we deny a certificate
of appealability and dismiss the appeal. We dispense with oral
argument because the facts and legal contentions are adequately
presented in the materials before the court and argument would
not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7885
WILLIAM DALE ALLEN, SR.,
Plaintiff – Appellant,
v.
LISA CARRINGTON, in her individual capacity; VERA JENKINS, in her individual capacity; STAN BURTT, in his individual capacity; JON OZMINT, Director, South Carolina Department of Corrections,
Defendants – Appellees.
Appeal from the United States District Court for the District of South Carolina, at Florence. David C. Norton, Chief District Judge. (4:07-cv-00797-DCN)
Submitted: March 16, 2010 Decided: March 22, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
William Dale Allen, Sr., Appellant Pro Se. Robert Holmes Hood, HOOD LAW FIRM, Charleston, South Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
William Dale Allen, Sr., appeals the district court’s
order denying relief on his 42 U.S.C. § 1983 (2006) complaint.
The district court referred this case to a magistrate judge
pursuant to 28 U.S.C. § 636(b)(1)(B) (2006). The magistrate
judge recommended that relief be denied and advised Allen that
failure to file timely objections to this recommendation could
waive appellate review of a district court order based upon the
recommendation. Despite this warning, Allen failed to object to
the magistrate judge’s recommendation.
The timely filing of specific objections to a
magistrate judge’s recommendation is necessary to preserve
appellate review of the substance of that recommendation when
the parties have been warned of the consequences of
noncompliance. Wright v. Collins, 766 F.2d 841, 845-46
(4th Cir. 1985); see also Thomas v. Arn, 474 U.S. 140 (1985).
Allen has waived appellate review by failing to timely file
specific objections after receiving proper notice. Accordingly,
we affirm the judgment of the district court.
We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-7940
LARRY EDWARD HENDRICKS,
Petitioner - Appellant,
v.
LEVERN COHEN, Warden,
Respondent - Appellee.
Appeal from the United States District Court for the District of South Carolina, at Columbia. David C. Norton, Chief District Judge. (3:08-cv-02445-DCN)
Submitted: March 16, 2010 Decided: March 22, 2010
Before WILKINSON, MICHAEL, and KING, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Larry Edward Hendricks, Appellant Pro Se. Donald John Zelenka, Deputy Assistant Attorney General, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Larry Edward Hendricks seeks to appeal the district
court’s orders accepting the recommendation of the magistrate
judge and denying relief on his 28 U.S.C. § 2254 (2006) petition
and denying relief on his Fed. R. Civ. P. 59(e) motion. These
orders are not appealable unless a circuit justice or judge
issues a certificate of appealability. 28 U.S.C. § 2253(c)(1)
(2006). A certificate of appealability will not issue absent “a
substantial showing of the denial of a constitutional right.”
28 U.S.C. § 2253(c)(2) (2006). A prisoner satisfies this
standard by demonstrating that reasonable jurists would find
that any assessment of the constitutional claims by the district
court is debatable or wrong and that any dispositive procedural
ruling by the district court is likewise debatable.
Miller-El v. Cockrell, 537 U.S. 322, 336-38 (2003); Slack v.
McDaniel, 529 U.S. 473, 484 (2000); Rose v. Lee, 252 F.3d 676,
683-84 (4th Cir. 2001). We have independently reviewed the
record and conclude that Hendricks has not made the requisite
showing. Accordingly, we deny a certificate of appealability
and dismiss the appeal. We dispense with oral argument because
the facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
DISMISSED |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-1902
T AMMY S CHMIDT, Plaintiff-Appellant, v.
E AGLE W ASTE & R ECYCLING, INC., Defendant-Appellee.
Appeal from the United States District Court for the Western District of Wisconsin. No. 3:08-cv-00230-bbc—Barbara B. Crabb, Chief Judge.
A RGUED D ECEMBER 2, 2009—D ECIDED M ARCH 22, 2010
Before P OSNER, F LAUM, and SYKES, Circuit Judges. F LAUM, Circuit Judge. The plaintiff, Tammy Schmidt, brought this action for monetary relief under the Fair Labor Standards Act (“FLSA”), alleging that she was not paid overtime due under the Act. The defendant, Eagle Waste and Recycling, Inc. (“Eagle”), moved for sum- mary judgment, arguing that Schmidt was exempt from the act because she was either an “outside salesperson” or a combination of an “outside salesperson” and an “admin- 2 No. 09-1902
istrative employee.” Taking Eagle’s proposed findings of fact as true because Schmidt failed to contest them in the manner prescribed by the local rules, the district court granted summary judgment for the defendant. Schmidt appeals, arguing that the district court errone- ously denied her an opportunity to cure the defects in her response brief, failed to “liberally construe” the FLSA, and incorrectly applied the “outside salesperson” and “combi- nation” exemptions to the FLSA. We affirm.
I. Background 1 Eagle, a corporation located in Eagle River, Wisconsin, is in the business of waste removal from residential and commercial properties. Alan Albee is the president of Eagle and has been since its founding on July 1, 2005. Albee hired Schmidt on September 12, 2005. According to Eagle, Schmidt was hired as a sales representative and adopted the title of “account representative” with Albee’s permission. Schmidt reported to Albee, her sole supervisor. Schmidt’s duties included contacting potential commer- cial customers at their places of business and convincing them to use Eagle’s waste disposal and recycling services. She was responsible for bringing in new customers, and
This summary of the undisputed facts comes mainly from the district court’s opinion, which is in turn largely based on Eagle’s proposed findings of undisputed fact. We address Schmidt’s argument that this summary unfairly deems those findings admitted in Part II of this opinion. No. 09-1902 3
maintaining and increasing the business of existing customers. Schmidt spent some time in the office on approximately half of her workdays. On those days, she was in the office between one and four hours. Schmidt spent four to eight hours a day outside the office making sales calls to current and potential cus- tomers. Schmidt would schedule in-person sales calls in the mornings and afternoons so that she could meet with these customers on the way to and from the office. She controlled the amount of time she spent on these calls. She was also authorized to negotiate prices with customers. For her efforts, she was paid a commission on sales in addition to her base salary. Schmidt also had promotional and marketing duties. She conferred frequently with Albee to determine new loca- tions and businesses to target. Schmidt would then develop a marketing campaign that Albee would review. Schmidt spent time in and out of the office promoting Eagle. For example, she attended weekly chamber of commerce meetings and social functions, where she distributed business cards and flyers, talked to area business people, and sold services Eagle offered. Schmidt spent approximately five or six hours a week promoting Eagle outside the office, including two to four hours a week at chamber of commerce meetings. She spent another ten hours a week working on promotional and marketing efforts at the office. Finally, Schmidt was responsible for customer service and maintaining the customer database. She made in- person visits to resolve any service problems her cus- 4 No. 09-1902
tomers had, ranging from confusion with neighbors’ containers to billing and accounting. Her database tracked current customers, prospects, and lost customers. She used the database to collect money owed by her customers, sometimes adjusting bills if a customer had a complaint or concern. These collections formed the basis of her commission payments. Occasionally, other employees consulted Schmidt when Albee was out of the office. For example, if a customer complained about service, Schmidt would decide whether to give the customer a credit on the next bill. If a vehicle needed to be repaired, Schmidt would some- times authorize the ordering of replacement parts with- out consulting Albee. When she was hired in September 2005, Schmidt’s base salary was $384.62 a week plus commission. Begin- ning January 1, 2006, she received a base salary of $461.54 a week plus commission. She received $26,319.75 in commissions during her time as an employee of Eagle, which ended on December 31, 2007. Schmidt brought this action in state court on April 4, 2008. Eagle removed the case to federal court and an- swered the complaint on April 23, 2008. On May 15, 2008, Magistrate Judge Stephen Crocker held a pretrial confer- ence in which he set deadlines for discovery and a trial date. Notice of these deadlines was sent to both parties along with a copy of the procedures for briefing sum- mary judgment motions. Following depositions of Schmidt and Albee, Eagle filed its motion for summary judgment on November 13, 2008. Schmidt filed her brief No. 09-1902 5
in opposition to Eagle’s motion on December 4, 2008, before the deadline of December 15, 2008. That same day, she filed a sworn affidavit making various statements in support of her response. Eagle filed its reply on Decem- ber 12, 2008, raising Schmidt’s failure to respond to its proposed findings of fact in accordance with the local rule and asking that Schmidt’s affidavit be stricken because it contradicted her deposition testimony. On December 26, 2008, Schmidt filed a motion for leave to file a sur-reply brief and to modify her responses to Eagle’s proposed findings of fact. The brief and proposed findings of fact she sought to file were not included with the motion. On February 25, 2009, the district court entered an order denying Schmidt’s motion for leave to file a sur- reply brief and correct her proposed findings of facts. The same order granted summary judgment to Eagle. Schmidt now appeals.
II. Analysis At the outset, we must address Schmidt’s argument that the district court erred when it deemed Eagle’s proposed findings of fact admitted and refused to consider additional facts alleged by Schmidt. The district court did so because Schmidt failed to follow the local rule for making and opposing proposed findings of fact for summary judgment, which required her to respond to the defendant’s proposed findings paragraph by para- graph and put her own proposed findings into separate numbered paragraphs. Instead, Schmidt included only a 6 No. 09-1902
“statement of facts” of the sort that might be found in an appellate brief. While this statement of facts did contain some pinpoint citations, it did not directly respond to Eagle’s proposed findings and lumped several distinct factual assertions together in each paragraph. We have routinely held that a district court may strictly enforce compliance with its local rules regarding summary judgment motions. See, e.g., Patterson v. Indiana Newspapers Inc., 589 F.3d 357, 360 (7th Cir. 2009). Indeed, we have previously upheld a district court’s decision to enforce compliance with the precise local rule at issue here. See Hedrich v. Bd. of Regents of Univ. of Wis. Sys., 274 F.3d 1174, 1177 (7th Cir. 2001). In Hedrich, as here, the nonmoving party did include some citations to the record but failed to follow the requirement that specific factual allegations be made or contested in numbered paragraphs. Id. at 1178. Similarly, as in Hedrich, a separate reminder of the local rule accompanied notices sent to the parties. Id. Schmidt’s reliance on a pair of Supreme Court cases addressing pleading standards, Swierkiewicz v. Sorema N.A., 543 U.S. 506 (2002) and Conley v. Gibson, 355 U.S. 41 (1957), is misplaced. Not only has Conley been abrogated by Bell Atlantic v. Twombly, 550 U.S. 554, 560-63 (2007), but the issue of notice pleading is fundamentally different from compliance with the local rule at issue here. The local rule serves an important function by ensuring that the proposed findings of fact are in a form that permits the district court to analyze the admissible evidence supporting particular factual propositions and determine precisely what facts, if any, are material and disputed. See Hedrich, 274 F.3d at 1178. No. 09-1902 7
This is not a hyper-technical rule that turns “pleading [into] a game of skill in which one misstep by counsel may be decisive of the outcome,” Conley, 355 U.S. at 48. Rather, the rule provides district courts with the means to resolve motions for summary judgment on the merits. Here, even after Schmidt was informed of the deficiencies in her response brief, she waited two weeks before asking for leave to correct her proposed findings of fact and did not tender a corrected version with her motion. The district court concluded that Schmidt had not given an adequate explanation for her disregard of the local rules or her delay in attempting to cure the error. Schmidt has not explained why those findings were erroneous. Consequently, the district court did not abuse its discre- tion when it denied Schmidt the opportunity to amend her response brief and proposed findings of fact.2 We therefore proceed, as the district court did, on the findings of fact proposed by Eagle. Next, we address Schmidt’s argument that she was not an “outside salesperson” as defined in the FLSA regula-
Schmidt also sought leave to file a sur-reply on the “sham affidavit rule,” which Eagle had raised in its reply brief to attack an affidavit filed by Schmidt along with her response brief. The district court denied Schmidt leave to file a sur-reply and instead decided the summary judgment motion without reference to Eagle’s sham affidavit rule argument. Because this was the only new argument raised in Eagle’s reply brief and the district court did not rely on it, the district court did not abuse its discretion when it denied Schmidt’s request for leave to file a sur-reply. 8 No. 09-1902
tions. The Secretary of Labor defines an “outside sales- person” as an employee (1) whose “primary duty” consists of “making sales” or “obtaining orders or contracts for services” and (2) who is “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” 29 C.F.R. § 541.500 (2009). An employee’s “primary duty” is the “principal, main, major, or most important duty that the employee performs.” Id. § 541.700. Time spent per- forming exempt work is useful, but not dispositive, in determining an employee’s primary duty. Id. The burden is on the employer to prove that an employee is exempt under FLSA, see Piscione v. Ernst & Young LLP, 171 F.3d 527, 533 (7th Cir. 1999), and such exemptions are to be narrowly construed against the employer seeking the exemption. See Yi v. Sterling Collision Centers, Inc., 480 F.3d 505 (7th Cir. 2007). While Schmidt argues that the district court failed to “liberally construe” FLSA in her favor, the district court identified the correct legal standard and applied it to the facts before the court. The undisputed facts show that Schmidt’s primary duty was outside sales. On average, Schmidt spent four to eight hours a day outside the office making in-person sales calls. She visited the office on only about half of her workdays. At the office, much of her work furthered her efforts to make sales. She maintained a database of her customers, which formed the basis of her collections and commission payments. This sort of work relates directly to her outside sales work and is thus exempt itself. See 29 C.F.R. § 541.703 No. 09-1902 9
(2009). She also spent about ten hours a week developing marketing plans and doing other promotional work inside the office, and five to six hours a week promoting Eagle outside of the office. Other than Albee, Eagle’s president, who made some sales directly, there do not appear to have been any other Eagle employees directly involved in sales work. Most of the fruits of Schmidt’s promotional work were therefore realized through her own sales. Thus, this promotional work also counts as exempt outside sales work. See id. § 541.503(a) (promo- tional work is exempt if it is “incidental to and in con- junction with an employee’s own outside sales or solici- tations” but non-exempt if it “is incidental to sales made, or to be made, by someone else”). We also agree with the district court that even if Schmidt did not qualify for the outside salesperson ex- emption on its own, she would fall within the “combina- tion exemption” to the FLSA. Employees “who perform a combination of exempt duties as set forth in the regula- tions in this part for . . . administrative [and] outside sales . . . employees may qualify for exemption.” 29 C.F.R. § 541.708 (2009). Eagle argues that to the extent Schmidt performed duties unrelated to outside sales, these were largely exempt “administrative” duties. See id. § 541.200. Before we proceed to the merits of Eagle’s argument, however, we must address Schmidt’s claim that Eagle has waived any reliance on the combination exemption. Schmidt argues that the combination exemption is an affirmative defense that should have been raised in 10 No. 09-1902
Eagle’s answer.3 She also argues that, in response to a request to admit, Eagle admitted that Schmidt was not an administrative employee. Schmidt made these argu- ments, which she frames as an issue of “estoppel,” to the district court on summary judgment, but the district court did not mention waiver or estoppel in its opinion granting summary judgment. While Fed. R. Civ. P. 8(c) directs parties to raise af- firmative defenses in the pleadings, a delay in raising an affirmative defense only results in waiver if the other party is prejudiced as a result. See Curtis v. Timberlake, 436 F.3d 709, 711 (7th Cir. 2005). Eagle did not raise the administrative or combination exemptions explicitly in its answer. It did, however, deny that Schmidt was a covered employee under FLSA and deny that Schmidt was a nonexempt employee. The nature of Schmidt’s work was the primary focus of the depositions of Albee and Schmidt. Schmidt argues that Eagle misled her by denying in discovery that she was an “administrator” as defined in the FLSA regulations. But the request to admit was itself misleading—“administrator” is defined only as the Administrator of the Wage and Hour Divi- sion. See 29 C.F.R. § 541.1 (2009). Although it seems un- likely that Eagle’s counsel thought Schmidt was asking them to admit that she was the Administrator of the Wage and Hour Division, rather than inartfully
Eagle did not raise the outside salesperson defense in its answer, either. Schmidt, however, does not argue that Eagle has waived that defense. No. 09-1902 11
asking if Eagle intended to invoke the administrative exemption, Eagle’s response was literally true and the confusion, if any, stems from Schmidt’s vague request to admit. In any event, Eagle’s consistent position that Schmidt was an exempt employee and the course of discovery as a whole should have put Schmidt on notice that the administrative and combination exemptions were at issue. Eagle raised the combination and adminis- trative exemptions in its opening brief on summary judgment and Schmidt argued them on the merits in her response brief. Because Schmidt has not shown any prejudice from Eagle’s delay in raising the administrative and combination exemptions to FLSA, the district court did not abuse its discretion in reaching the merits. Curtis, 436 F.3d at 711. We agree with the district court that to the extent Schmidt’s work was not related to outside sales, it was primarily exempt administrative work. The administra- tive employee exemption applies to any employee who is: (1) Compensated on a salary or fee basis at a rate of not less than $455 per week . . .; (2) Whose primary duty is the performance of office or non-manual work directly related to the manage- ment or general business operations of the employer or the employer’s customers; and (3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200 (2009). With the exception of her first few months of employment, Schmidt’s base salary ex- 12 No. 09-1902
ceeded the $455 per week minimum.4 When Schmidt was not actively pursuing sales, she developed advertising and marketing plans, managed customer complaints, administered the customer database, and dealt with issues that would have been handled by Albee had he been in the office, such as approving an order of parts for broken machinery. This office work was directly related to the management and general business opera- tions of Eagle. See id. § 541.201 (“Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as . . . purchasing; procurement; advertising; marketing; research; . . . personnel management; . . . public relations; . . . database administration; . . . and similar activities.”); see also Haywood v. North American Van Lines, Inc., 121 F.3d 1066, 1067-68 (7th Cir. 1997) (finding cus- tomer service coordinator for shipping company to be an exempt administrative employee). While Schmidt argues that Albee “micromanaged” her work, the undis- puted facts show that she negotiated with customers over price and service credits, created marketing cam- paigns, placed advertisements, collected from accounts, and set her own schedule. Cf. Haywood, 121 F.3d at 1072 (holding that resolving customer complaints and disputes about billing requires the exercise of discretion
The record reflects only the total of Schmidt’s commission payments. Spread over the course of her employment, she received an average of $225 per week in commission. Thus, even Schmidt’s lower weekly salary of $384 exceeded the $455 minimum when combined with her commission payments. No. 09-1902 13
and independent judgment). Thus, the district court did not err by holding that even if Schmidt’s primary duty was not outside sales, the combination of her outside sales and administrative work exempts her from the FLSA’s overtime requirements.
III. Conclusion We AFFIRM the district court’s grant of summary judg- ment to Eagle.
3-22-10 |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-1083
U NITED S TATES OF A MERICA, Plaintiff-Appellee, v.
C AREY P ORTMAN, Defendant-Appellant.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 04 CR 64—Blanche M. Manning, Judge.
A RGUED S EPTEMBER 11, 2009—D ECIDED M ARCH 22, 2010
Before B AUER, R OVNER, and W ILLIAMS, Circuit Judges. W ILLIAMS, Circuit Judge. A jury found Carey Portman guilty of multiple counts of mail fraud, wire fraud, bank fraud, and possessing and creating falsely altered checks. After the application of various sentencing enhance- ments, Portman was sentenced to 60 months’ imprison- ment, which was at the low end of the applicable guide- line range of 57-71 months. Following a limited remand due to a miscalculation of the number of victims, the 2 No. 09-1083
district court resentenced Portman to 48 months’ imprison- ment, again a sentence near the low end of his new 46-57 months guideline range. On appeal, Portman argues his sentence is substantively unreasonable because the district court did not reduce Portman’s sentence due to his diminished capacity and lack of success of his crim- inal endeavors. Because there is no causal link between his alleged diminished capacity and his crime, and because the district court properly exercised its discretion in determining the seriousness of Portman’s intended crimes, we affirm Portman’s sentence.
I. BACKGROUND According to Carey Portman, he is an important Pana- manian ambassador and businessman. Sometimes, he is also the lucky inheritor of a Nigerian fortune. In 2003, armed with purported Nigerian inheritance documents, Portman went to a Citibank branch office in Chicago, Illinois, and demanded a loan of $102,824 in order to pay the inheritance tax and receive his inheritance. Citibank’s branch manager attempted to convince Portman that this was a well-known scam, but he was unsuccessful and Portman’s account was closed. Portman then attempted this same scheme with several individual businessmen. Though largely unsuccessful, Portman did receive $50,000 from one man he had known for four years. When he acted as the Panamanian ambassador-business- man, Portman would tell managers at Chicago banks that they could expect him to do a lot of business with the bank. He would then deposit a large, forged check and No. 09-1083 3
attempt to immediately withdraw a portion of the money. In September 2003, Portman presented for deposit a $125,000 cashier’s check, which had originally been issued for $20, payable to “Hon. Carey Portman” at the Oak Brook Bank in Chicago. Oak Brook Bank credited Portman’s account, allowing him to withdraw over $81,000 before the initial deposit was reversed. By reversing transfers and stopping payment, the bank incurred an actual loss of $29,859.81. Portman attempted a variation of this scheme at several other Chicago banks. In Novem- ber 2003, Portman opened an account at North Com- munity Bank, again identifying himself as an important ambassador to Panama. A few days later, Portman pre- sented for deposit a fraudulent $155,000 check made payable to the “Hon. Carey Portman.” Portman attempted to immediately withdraw some money, but the bank refused to comply because the check was not issued by a local bank. North Community Bank eventually informed Portman that the check was counterfeit and closed his accounts. In December 2003, Portman unsuccessfully attempted to cash a $100,000 counterfeit cashier’s check at Washington Mutual. That same month, “ambassador” Portman opened an account at TCF Bank. A few weeks later, he deposited a fraudulently altered $128,000 check made payable to “Carey Portman.” TCF bank allowed Portman to withdraw $2,000 before learning the check was falsely altered. After issuing a stop payment order on Portman’s checks, TCF’s actual loss totaled $1,239.51. Portman was charged with multiple counts of mail fraud, wire fraud, bank fraud, and possessing and 4 No. 09-1083
uttering falsely altered securities, in violation of 18 U.S.C. §§ 513(a), 1341, 1343, and 1344. A jury convicted Portman of all counts. At sentencing, the presentence investiga- tion report (“PSR”) calculated the base offense level at seven, added 16 levels for an intended loss of over $1 million, and two levels for involvement of more than 10 victims, for a total offense level of 25 and a sen- tencing guideline range of 57-71 months. Portman asked for a sentence below his guideline range based on a dispute over the number of victims, the actual loss, and his diminished capacity due to an alleged organic brain disorder. After applying the 18 U.S.C. § 3553(a) sentencing factors, the district court declined to impose a below- guideline sentence. The judge balanced the seriousness of the offense, various letters of recommendation on Portman’s character, the risk of recidivism and the need to protect the public from Portman in imposing a sentence of 60 months’ imprisonment. After the court sentenced Portman, the government conceded it had miscalculated the number of victims. The parties filed a joint motion for limited resentencing to correct the number of victims, and Portman was resentenced to 48 months’ imprison- ment. During this limited resentencing, the district court did not revisit arguments for a reduced sentence based on intended loss amount or diminished capacity. On appeal, Portman makes two arguments. First, he argues that the district court abused its discretion by failing to resolve the issue of Portman’s diminished capacity and not reducing Portman’s sentence due to his No. 09-1083 5
diminished capacity. Second, he argues that the district court abused its discretion by not reducing Portman’s sentence on the theory that the loss calculation of over $1 million overstated the seriousness of his offense.
II. ANALYSIS A. Diminished Capacity Portman argues that the district court should have imposed a below-guidelines sentence because Portman suffered from a diminished capacity that substantially contributed to the commission of the offense. Prior to the Supreme Court’s decision in United States v. Booker, 543 U.S. 220 (2005), a defendant’s diminished capacity could serve as the basis of a downward departure from a guideline range. See U.S.S.G. § 5K2.13. Of course, Booker rendered the guidelines advisory and departures became obsolete. United States v. Blue, 453 F.3d 948, 952 (7th Cir. 2006). Post-Booker, sentencing courts have the discretion to decide that a sentence outside the guide- line range is appropriate. Id. Where a district court has properly calculated the guideline range, we review sen- tences for reasonableness, using an abuse of discretion standard. United States v. Panaigua-Verdugo, 537 F.3d 722, 727 (7th Cir. 2008). The district court judge is given great deference in balancing the § 3553(a) sentencing factors, and a sentence that falls within a properly calcu- lated guideline range is presumptively reasonable. Id. However, when a defendant has raised “nonfrivolous reasons to impose a different sentence, the district court 6 No. 09-1083
must focus on the § 3553(a) factors as they apply to [that defendant] in particular.” United States v. Miranda, 505 F.3d 785, 796 (7th Cir. 2007). It must provide enough explanation so that someone familiar with the case would understand why the court rejected the argument. United States v. Cunningham, 429 F.3d 673, 679 (7th Cir. 2005). Diminished capacity is a ground of “recognized legal merit” for seeking a lesser sentence, Miranda, 505 F.3d at 792, and we have found abuse of discretion when judges have not considered or addressed uncontested evidence of diminished capacity. See, e.g., United States v. Williams, 553 F.3d 1073, 1084 (7th Cir. 2009); Miranda, 505 F.3d at 792. In relevant part, the diminished capacity policy statement reads: A downward departure may be warranted if (1) the defendant committed the offense while suffering from a significantly reduced mental capacity; and (2) the significantly reduced mental capacity contributed substantially to the commis- sion of the offense. Similarly, if a departure is war- ranted under this policy statement, the extent of the departure should reflect the extent to which the reduced mental capacity contributed to the commission of the offense. U.S.S.G. § 5K2.13 1
Diminished capacity is further defined in the following application note: “Significantly reduced mental capacity” means the defendant, although convicted, has a significantly (continued...) No. 09-1083 7
So if there is a nonfrivolous dispute about a defendant’s mental capacity, a sentencing court should address the issue, making a finding on whether the defendant suffers from diminished capacity and whether that diminished capacity contributed substantially to the commission of the crime. This is true of any disputed fact that may be decisive in sentencing. Fed. R. Crim. P. 32(i)(3); see United States v. Dean, 414 F.3d 725, 730 (7th Cir. 2005) (“A judge who thinks that a particular contested char- acteristic of a defendant may be decisive to the choice of sentence, such as the defendant’s mental or emotional state, must resolve the factual issue. . . .”). Here, the district court made no such finding, stating there was no need to resolve whether Portman has ever suffered from diminished capacity because Portman had not linked the diminished capacity to § 3553(a) factors which would show that he should receive a lower sen- tence. Furthermore, the district court stated that a finding of diminished capacity would, if anything, impact sentencing as a potentially aggravating factor. In its sentencing order, the district court focused almost entirely on the risks of recidivism, stating that a person who cannot appreciate the criminality of his conduct will be “more rather than less likely to be a recidivist,
(...continued) impaired ability to (A) understand the wrongfulness of the behavior comprising the offense or to exercise the power of reason; or (B) control behavior that the defendant knows is wrongful. 8 No. 09-1083
a factor under § 3553(a) that would favor a longer sen- tence.” In reaching this conclusion, the district court heavily relied on United States v. Beier, 490 F.3d 572 (7th Cir. 2007), a child pornography case in which the defen- dant argued that § 3553(a) required a below-guidelines sentence due to the defendant’s own abuse as a child and low IQ. There, we held that a defendant must show why personal characteristics act as a mitigating, not potentially aggravating, factor in a case where the defen- dant may not be able to control his sexual impulses. Beier, 490 F.3d at 574. This is true of many personal charac- teristics, such as age. A young defendant might argue that his age is a mitigating factor if the defendant has strong ties to a supportive family, but age could also be used as an aggravating factor if the young defendant already has an extensive criminal history. See United States v. Jackson, 547 F.3d 786, 794-95 (7th Cir. 2008). Diminished capacity and personal characteristics in- creasing risks of recidivism, however, are two different issues. To use a finding of diminished capacity as an aggravating factor for sentencing purposes misunder- stands the relationship between U.S.S.G. § 5K2.13 and 18 U.S.C. § 3553(a). The principal purposes of a criminal sentence are to further goals of retribution, deterrence, and incapacitation. See United States v. Dyer, 216 F.3d 568, 570 (7th Cir. 2000). The sentencing guidelines and the § 3553(a) factors ensure that judges consider these pur- poses when sentencing defendants. A person who cannot understand the wrongfulness of his actions or control his actions due to a reduced mental capacity is No. 09-1083 9
less culpable and less able to be specifically deterred than a person who is not mentally ill, and a long sentence for such a defendant may not serve the purposes of punishment. Id. For these reasons, § 5K2.13 gives judges the discretion to reduce sentences for defendants suffering from diminished capacity. A finding of dimin- ished capacity could also lead to the conclusion that the most effective way of incapacitating the defendant and preventing him from committing further crimes is to provide needed medical care outside a prison setting. See Miranda, 505 F.3d at 793. The potentially greater risk of recidivism in a defendant with diminished capacity can be addressed through different means such as psychological treatment or monitoring. It is a mis- understanding of diminished capacity to suggest that because reduced mental capacity would make recidi- vism more likely, an increased sentence would be neces- sary. Of course, it could also be that a district court could find diminished capacity but choose not to reduce a sentence. For example, a court could find that the de- fendant would remain dangerous after treatment. Id. Or, the court could rule that any diminished capacity did not contribute to the commission of the offense. United States v. Frazier, 979 F.2d 1227, 1230 (7th Cir. 1992). But the potential impact of a diminished capacity finding in Portman’s case is not an issue we need to reach here. Even if Portman is correct that the district court’s lack of a finding was error and its discussion of diminished capacity’s impact on sentencing faulty, any error was harmless. Based on the evidence submitted to the court, the district court could not have found that 10 No. 09-1083
any diminished capacity Portman allegedly suffered sub- stantially contributed to his commission of these crimes. Pre-trial, Portman’s attorney requested a psychiatric examination to determine whether Portman was sane. Dr. Nelson Borelli, a psychiatrist who testified as an expert witness in psychiatry in forty to fifty Illinois state court cases, was appointed to conduct this exam- ination. Between December 2004 and November 2005, Dr. Borelli spent forty-five hours evaluating Portman and reviewing his medical history. In his November 7, 2005 report (“initial report”), Dr. Borelli stated his opinion was that Portman had a defective “emotional/cognitive system.” He also indicated that this opinion was “specula- tive” because of Portman’s unwillingness to “step out of what appears to be his dream life and spell out his internal world of depression and despair.” He noted that Portman exhibited no outward signs of psychiatric dys- function or disease and that testing revealed no mental defect or disease. Dr. Borelli did not speak to anyone else in Portman’s life or to investigators about the charges, and did not substantiate any claims Portman made with external information. Then, in 2007, Dr. Borelli performed a three-hour psychiatric examination on Portman in preparation for the sentencing hearing. In this two-page report, he concluded that Portman’s mental condition met the legal standard of diminished capacity, as Portman had committed the offense while suffering from a “cognitive disorder” that substantially contrib- uted to the commission of the offense. There was no specific mention of how the diminished capacity was connected to Portman’s specific actions underlying the criminal charges. No. 09-1083 11
At the sentencing hearing, the government stipulated that Dr. Borelli was a qualified medical expert in the field of psychiatry, and both his reports were submitted as evidence. Dr. Borelli also testified that Portman had a cognitive disorder, potentially linked to an organic brain injury or lesions in the brain. Dr. Borelli stated his “best guess” was that this brain defect was linked to Reye’s Syndrome, which Portman claimed to have been diagnosed with when he was twelve years old. No inde- pendent medical report confirmed Portman’s affliction with Reye’s Syndrome. Dr. Borelli referred Portman to two different neurologists, but they never found any injury or lesions in Portman’s brain. When pushed on this point during his testimony, Dr. Borelli stated that his final diagnosis of “cognitive disorder” was a result of Portman’s attorney wanting Dr. Borelli to “put something there” with respect to diminished capacity and that “cognitive disorder is as close as you can come to any- thing.” Further, Dr. Borelli stated he may have first learned the definition of diminished capacity when he met with Portman’s attorney before his 2007 three-hour examination of Portman. Even if the district court could have relied on Dr. Borelli’s opinion that Portman had a significantly reduced mental capacity at the time of his offense, a legal diminished capacity finding also requires a causal link between the mental capacity and the crime. Jackson, 547 F.3d at 796. No such connection was made here. In United States v. Frazier, we held that a connection between mental capacity and the actions underlying the criminal offense could not be assumed. 979 F.2d at 12 No. 09-1083
1230. Dr. Borelli needed to analyze the specific charges Portman was convicted of committing and relate Portman’s actions to his mental capacity, but he did not do that. In fact, Dr. Borelli seemed unclear as to what crimes Portman committed. He stated that while he had discussed the charges with Portman’s initial attor- ney, he had little to no understanding of the details of Portman’s charges since he did not think it was im- portant to know what Portman allegedly did. In his initial report, he inaccurately referred to the charges as “internet fraud accounts,” and at the hearing, he stated that he didn’t have the capacity or time or the “disposition or the ability to read all these legal documents.” Dr. Borelli further stated that he was not concerned about the legal definition of diminished capacity, testifying that he did not “spend much time trying to understand that legal thing” as “the legal language is not always clear.” Based on Dr. Borelli’s testimony and two reports, the district court could not have found that Portman’s alleged diminished capacity substantially contributed to the crimes committed. Dr. Borelli derived his under- standing of the causal link between Portman’s dimin- ished capacity and his crimes based only on information Portman provided. He did not confirm Portman’s ac- count of his crimes and did not seem to fully understand the criminal charges. See Frazier, 979 F.2d at 1230. Given the lack of a causal link between Portman’s purported mental capacity and the crimes, there was no reversible error in the district court’s failure to explicitly determine whether Portman had a significantly reduced mental capacity. We conclude that Portman’s unproven mental No. 09-1083 13
illness, the lack of evidence of a causal link between any illness and the crimes committed, and the other relevant factors, did not compel a sentence below the advisory guidelines range.
B. Loss Calculation Next, Portman argues that the district court abused its discretion when it refused to reduce his sentence based on the difference between the intended loss of his schemes and the actual loss. Again, we review Portman’s sentence for reasonableness under an abuse of discretion standard. Jackson, 547 F.3d at 792. In cal- culating sentence enhancements based on economic loss, “loss” is the greater of actual loss or intended loss. U.S.S.G. § 2B1.1(b)(1) cmt. n.3(A). Intended loss is the pecuniary harm intended to result from the offense and includes harm that would have been impossible or unlikely to occur. Id.; see also United States v. Kimoto, 588 F.3d 464, 496 n.37 (7th Cir. 2009). Portman does not dispute the calculation of the intended loss. He argues instead that the intended loss overstates the seriousness of the offense and so, the district court judge should have exercised her discretion to set a below-guideline sentence. A court can consider the amount of variance between the intended loss and the realistic possibility of loss when considering an appropriate sentence. United States v. Stockheimer, 157 F.3d 1082, 1091 (7th Cir. 1998). This decision, however, remains in the sentencing judge’s wide discretion, and our review may only eval- uate the overall reasonableness of the sentence imposed. 14 No. 09-1083
Here, the district court judge considered Portman’s arguments for a sentence below the advisory guidelines range, but found that the intended loss adequately re- flected the seriousness of the offense. The PSR calculated the intended loss amount to be $1,020,825. This calcula- tion is based on Portman’s attempts to obtain approxi- mately $512,825 in loans from various individuals and businesses with his Nigerian inheritance scheme and Portman’s attempts to obtain $508,000 from various banks through falsely altered and counterfeit checks. Of course, the actual loss suffered was much less: $50,000 from one businessman and $31,099.32 from the banks. Although the judge could have reduced the sentence based on the actual loss amount, she was not required to do so. The judge did not ignore Portman’s request for a reduced sentence based on loss calculation; she ad- dressed its merits. In finding a reduced sentence unwar- ranted, the district court judge emphasized the successes that Portman had in his schemes and found that most of the banks initially accepted his fraudulent checks. The judge gave an adequate and thorough statement of reasons, and took into account the § 3553(a) sentencing factors. Specifically, in relating the seriousness of the offense to the § 3553(a) sentencing factors, the district court judge emphasized how Portman moved from one victim to the next, undeterred by his lack of success. The court’s statement of reasons was sufficient “to allow for meaningful appellate review and to promote the percep- tion of fair sentencing.” United States v. Scott, 555 F.3d 605, 608 (7th Cir. 2009) (quotations omitted). Portman has not rebutted the presumption of reasonableness No. 09-1083 15
attached to his sentence by showing that the sentence is unreasonable when considered against the § 3553(a) factors.
III. CONCLUSION Accordingly, we A FFIRM Portman’s sentence.
3-22-10 |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ________________
No. 08-3726 ________________
Monika Clifton, * * Petitioner, * * Petition for Review of an v. * Order of the Board of * Immigration Appeals. Eric H. Holder, Jr., Attorney * General of the United States, * [PUBLISHED] * Respondent. *
________________
Submitted: September 22, 2009 Filed: March 22, 2010 ________________
Before WOLLMAN, HANSEN, and SHEPHERD, Circuit Judges. ________________
HANSEN, Circuit Judge.
Monika Clifton, a native and citizen of Bulgaria, petitions for review of the Board of Immigration Appeals' (BIA) order denying her motion to remand to the immigration judge (IJ) and dismissing her appeal of the IJ's denial of her motion to reopen removal proceedings. We grant the petition for review and remand the case to the BIA for further proceedings consistent with this opinion. I.
Clifton (formerly known as Monika Bakardjieva) is a native and citizen of Bulgaria. She was admitted to the United States in September 1993 on a student visa in order to attend Northeast Missouri State University (now Truman State University). In 1996, she traveled to Jamaica on a spring break trip with friends. She did not take along on the trip her original I-94 arrival and departure record or other immigration documents. Upon returning to the United States, Clifton was paroled into the country at St. Louis and ordered to attend a deferred inspection approximately two weeks later. Clifton asserts that she informed her foreign-student advisor at the university of the problem with her re-entry into the United States. After the conversation with her advisor, Clifton assumed the advisor would resolve the situation and did not attend the deferred inspection. Clifton acknowledges she has not subsequently been inspected and admitted. She remains an "arriving alien."
In May 1998, Clifton discontinued her enrollment at the university. Thereafter, she admittedly accepted unauthorized employment. In November 2003, Clifton was apprehended and charged with violating her immigration status and undertaking unauthorized employment. On December 4, 2003, Clifton received a notice to appear before an immigration judge (I-862) for removal proceedings. The notice alleged that Clifton is removable for two reasons: (1) she is an arriving immigrant not in possession of a valid entry document, and (2) she is a nonimmigrant not in possession of a valid nonimmigrant visa or border crossing identification card. See 8 U.S.C. § 1182(a)(7)(A)(i)(I), & (B)(i)(II). An appearance date was set for March 15, 2005.
Clifton married a U.S. citizen named Steven Clifton on February 18, 2004. Her husband filed a relative immigrant visa petition on her behalf. Clifton also filed an application to adjust her immigration status (I-485) based on the marriage. The relative immigrant visa petition was approved on October 29, 2004.
Prior to the March 15, 2005 hearing, Clifton filed a written motion in immigration court requesting either administrative closure or continuance of the removal proceedings. Clifton recognized that then-existing regulations, see 8 C.F.R. §§ 245.1(c)(8), 1245.1(c)(8) (2004), explicitly prohibited her from applying for adjustment of status in any forum because she was an arriving alien then in removal proceedings. Nonetheless, she argued the regulations were inconsistent with statutory law according to a recent opinion by the United States Court of Appeals for the First Circuit. See Succar v. Ashcroft, 394 F.3d 8, 9 (1st Cir. 2005) (holding the regulations inconsistent with 8 U.S.C. § 1255(a)).1 Based on Succar, Clifton requested administrative closure or continuance of the removal proceedings in order to allow the United States Citizenship and Immigration Services (USCIS) "to process and adjudicate [her] Application for Adjustment of Status." (J.A. at 279.)
Clifton appeared for the March 15, 2005 hearing before the IJ. Clifton renewed her requests for administrative closure or continuance. The IJ denied closure because the Government would not agree. The IJ also denied a continuance. The transcript of the March 15 hearing demonstrates that the IJ thought she could not continue the case because she would not have jurisdiction to ultimately adjudicate the request for adjustment of status of an arriving alien in removal proceedings. As of March 15, 2005, the Eighth Circuit had not yet addressed a challenge to the regulatory bar of an IJ's jurisdiction to adjust the status of aliens in removal proceedings. See Mouelle v. Gonzales, 416 F.3d 923 (8th Cir. 2005) (approving the regulatory bar on July 29,
The then parallel Department of Justice and Department of Homeland Security regulations stated that aliens in removal proceedings—like Clifton—were "ineligible to apply for adjustment of status to that of a lawful permanent resident alien." See 8 C.F.R. §§ 245.1(c)(8), 1245.1(c)(8) (2004). The Succar court, followed by three other circuit courts of appeals, held the regulations were contrary to 8 U.S.C. § 1255(a), which provides that "admitted or paroled" aliens are eligible to apply for adjustment of status. See 394 F.3d at 9-10; Scheerer v. U.S. Attorney Gen., 445 F.3d 1311, 1318 (11th Cir. 2006); Bona v. Gonzales, 425 F.3d 663, 670-71 (9th Cir. 2005); Zheng v. Gonzales, 422 F.3d 98, 119-20 (3d Cir. 2005).
2005), vacated, 548 U.S. 901 (2006). Clifton's case was set for a contested case hearing on June 20, 2005.
Clifton's contested case hearing occurred on June 20, 2005. The IJ issued a written decision and order. In the procedural and factual history section of the IJ's decision, the IJ explained why Clifton's request for a continuance was denied at the previous hearing. It is again apparent that the IJ rejected a continuance based on the IJ's belief that she had no jurisdiction to adjudicate a request for adjustment of status. Turning to the merits of the removal proceedings, the IJ found both charges of inadmissibility were established, held Clifton was not eligible for voluntary departure, and ordered her to be removed.
Clifton appealed to the BIA. Clifton again cited Succar and pressed her entitlement to apply for adjustment of status.
Before the BIA could decide the appeal, the Department of Justice (DOJ) and the Department of Homeland Security (DHS) (both Departments of the Executive Branch) amended their respective administrative regulations governing adjustment of status for arriving aliens in removal proceedings. Recognizing an intercircuit conflict regarding the validity of 8 C.F.R. §§ 245.1(c)(8) and 1245(c)(8) (2004) and desiring "to avoid inconsistent application of the adjustment of status laws depending upon the geographic location of the applicant," the DOJ and DHS amended their administrative rules to allow for the adjustment of status of arriving aliens in removal proceedings. See Eligibility of Arriving Aliens in Removal Proceedings To Apply for Adjustment of Status and Jurisdiction To Adjudicate Applications for Adjustment of Status, 71 Fed. Reg. 27,585, 27,587 (May 12, 2006) (codified at 8 C.F.R. §§ 1, 245, 1001, 1245) [hereinafter "Interim Rule Notice"]. The Interim Rule Notice also explained that a second goal of the amendments was "to make clear which Departmental component has jurisdiction to adjudicate adjustment applications for arriving aliens who have been paroled and placed in removal proceedings." Id. Absent a narrow exception not
applicable to this case, the 2006 amendments vested the jurisdiction to adjust the status of arriving aliens who are in removal proceedings with USCIS, an agency within the DHS. See id.; see also Hanggi v. Holder, 563 F.3d 378, 381 (8th Cir. 2009).
In its June 30, 2006 decision, the BIA referenced the Interim Rule Notice and held that the amended regulations precluded the IJ or BIA from adjusting Clifton's status. For that reason, the BIA affirmed the IJ's holding that Clifton is removable. The BIA reversed the IJ's rejection of voluntary departure and remanded for reconsideration of voluntary departure. The BIA's decision does not reference Clifton's request for administrative closure or a continuance, which had been denied by the IJ and appealed to the BIA.
In August 2006, Clifton sent a written request to Immigration and Customs Enforcement (ICE), yet a third player and a DHS agency, asking that office's chief counsel to exercise his prosecutorial discretion and to cease prosecuting Clifton's case in order to allow her to apply for adjustment of status with USCIS. Also in August, Clifton filed a motion with the IJ for a continuance. The record does not reflect a response to either of these requests.
On October 3, 2006, Clifton's husband died of cancer.
On remand from the BIA on January 16, 2007, the IJ granted Clifton voluntary departure. The order does not mention Clifton's then pending renewed motion for continuance. The IJ originally required Clifton to depart by January 24, 2007, but the departure date was subsequently extended to May 17, 2007.
As the extended deadline for her voluntary departure granted by the IJ approached, Clifton continued to pursue her goal of legalized immigration status in two fora. First, she made two filings with USCIS. In January 2007, Clifton filed a
visa petition as the widow of a United States citizen who died within the past two years (I-360). She also filed a related request for adjustment of status (I-485) with USCIS in March 2007.
In the second forum, Clifton sought to postpone the voluntary departure granted by the IJ. Specifically, on April 10, 2007, she filed a motion with the IJ to reopen the removal proceedings and a motion to stay voluntary departure until her motion to reopen was resolved. The stay was granted by the IJ, and a hearing date was set on the motion to reopen. In support of her motion to reopen Clifton cited the Interim Rule Notice, argued that USCIS had jurisdiction to adjudicate her request for adjustment of status, and asked the IJ to reopen and stay the removal proceedings until USCIS could adjudicate her request for adjustment of status. The government resisted the motion to reopen.
The IJ denied the motion to reopen. The IJ noted that her petition as the widow of a U.S. citizen (I-360) had not yet been approved and, without an approved I-360 petition, Clifton's status could not be adjusted. Consequently, the IJ concluded that Clifton was not prima facie eligible for adjustment of status, and the IJ denied the motion to reopen. Clifton appealed to the BIA.
While Clifton's appeal was pending with the BIA, the USCIS approved her I-360 petition. On June 6, 2007, she filed another request for adjustment of status (I- 485) with USCIS, based on the approved I-360.
On July 9, 2007, Clifton filed a motion with the BIA to remand the case to the IJ to admit new evidence. She wanted the USCIS notice of action (I-797) approving the I-360 to be admitted in support of her motion to reopen.
On October 28, 2008, the BIA denied Clifton's motion to remand for admission of new evidence and dismissed Clifton's appeal of the IJ's denial of the motion to
reopen. The BIA reasoned: "Even assuming that the form I-360 is approved as the respondent claims, . . . [s]ince the respondent is an arriving alien and does not come within the narrow exception which would permit an Immigration Judge to consider an arriving alien's application for adjustment of status, remand is not warranted in this case." (J.A. at 3.) The BIA also declined to reopen proceedings sua sponte.
Clifton then petitioned this court for review of the BIA's decision. She subsequently requested a stay of removal. We granted the stay pending our final resolution of the case.
II.
We review both the denial of a motion to remand and the denial of a motion to reopen for abuse of discretion. Berte v. Ashcroft, 396 F.3d 993, 997 (8th Cir. 2005) (remand); Guerra-Soto v. Ashcroft, 397 F.3d 637, 640 (8th Cir. 2005) (reopen). "The BIA abuses its discretion if its decision is without rational explanation, departs from established policies, invidiously discriminates against a particular race or group, or where the agency fails to consider all factors presented by the alien or distorts important aspects of the claim." Vargas v. Holder, 567 F.3d 387, 391 (8th Cir. 2009) (quotation marks omitted). The United States Supreme Court very recently reaffirmed the federal courts' jurisdiction to review motions to reopen as well as the corresponding "deferential, abuse of discretion standard of review." Kucana v. Holder, 130 S. Ct. 827, 840 (2010).
III.
The October 2008 BIA order from which Clifton petitions for review is a two- page per curiam order. The BIA denied the motion to remand, declined to reopen the proceedings sua sponte, and dismissed the appeal based on the lone rationale that "the respondent is an arriving alien and does not come within the narrow exception which
would permit an Immigration Judge to consider an arriving alien's application for adjustment of status." (J.A. at 3.) Clifton argues that rationale "ignore[s] the fact that the movant is not asking the BIA or an IJ to decide the adjustment application but only seek[s] to stay proceedings while USCIS exercises its jurisdiction over the adjustment application." (Appellant's Br. at 20.) We agree that the BIA's analysis distorted an important aspect of Clifton's claim and consequently departed from then established policies for evaluating the requested relief.
In order to hold that the BIA distorted Clifton's claim and departed from established policy, we must of course understand the forms of relief requested and the related policies. As the deadline for voluntary departure approached, Clifton petitioned USCIS for a visa as the widow of a United States citizen. Clifton alerted the IJ to her new filing with USCIS and moved the IJ to reopen her removal proceedings in light of the new information. The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA), 110 Stat. 3009-546, amended the Immigration and Nationality Act (INA or Act), 66 Stat. 166, 8 U.S.C. §1101 et seq., and "for the first time codified certain rules, earlier prescribed by the Attorney General, governing the reopening process." Kucana, 130 S. Ct. At 831. "The amended Act instructs that reopening motions 'shall state the new facts that will be proven at a hearing to be held if the motion is granted, and shall be supported by affidavits or other evidentiary material.'" Id. (quoting 8 U.S.C. § 1229a(c)(7)(B)). The statute does not otherwise state a standard for evaluating motions to reopen, but administrative regulations fill the statutory gap. The regulations allow an immigration judge "upon his or her own motion at any time, or upon motion of the Service or the alien, [to] reopen or reconsider any case in which he or she has made a decision, unless jurisdiction is vested with the [BIA]." 8 C.F.R. § 1003.23(b)(1). Paralleling the statute, the regulation requires that such motions "shall state the new facts that will be proven at a hearing to be held if the motion is granted and shall be supported by affidavits and other evidentiary material." 8 C.F.R. § 1003.23(b)(3). Additionally, "[a] motion to reopen will not be granted unless the Immigration Judge is satisfied that
evidence sought to be offered is material and was not available and could not have been discovered or presented at the former hearing." Id.
In rejecting Clifton's motion to reopen, the IJ had noted that Clifton's visa petition as a widow was not yet approved and that she had "not established that she is prima facie eligible for the underlying relief she seeks of adjustment of status." (J.A. at 92.) Clifton appealed that ruling to the BIA. In the narrative explanation of her appeal, Clifton argued that the IJ abused its discretion by not reopening the case to consider the "imminent approval of her I-360." (Id. at 66.) In fact, the I-360 was approved shortly thereafter. Later, Clifton filed a brief with the BIA in support of her appeal and included in the brief a motion to remand the case to the IJ for consideration of the approved I-360.
Consequently, in addition to reviewing the IJ's denial of a motion to reopen, the BIA confronted a motion to remand. The BIA's authority to act on a motion to remand is not expressed in any statute, but can be found in administrative regulations. Importantly, "[t]he BIA's function is to review the record, not create it." Berte, 396 F.3d at 997; see also 8 C.F.R. § 1003.1(d)(3)(iv) ("[T]he [BIA] will not engage in factfinding in the course of deciding appeals."). Thus, "[a] party asserting that the Board cannot properly resolve an appeal without further factfinding must file a motion for remand," and "[i]f further factfinding is needed in a particular case, the Board may remand the proceeding to the immigration judge . . . ." 8 C.F.R. § 1003.1(d)(3)(iv). We have said, "the BIA will remand only if the evidence is of such a nature that the Board is satisfied that if proceedings before the IJ were reopened, with all the attendant delays, the new evidence would likely change the result in the case." Berte, 396 F.3d at 997 (internal quotations and marks omitted).
As can be seen, evaluating motions to reopen and evaluating motions to remand can be quite similar endeavors. In addition, the administrative rules allow an alien to move the BIA to reopen proceedings. 8 C.F.R. § 1003.2. In such cases, "[t]he
decision to grant or deny a motion to reopen or reconsider is within the discretion of the Board . . . ." 8 C.F.R. § 1003.2(a). "A motion to reopen proceedings shall state the new facts that will be proven at a hearing to be held if the motion is granted and shall be supported by affidavits or other evidentiary material." 8 C.F.R. § 1003.2(c)(1). "A motion to reopen proceedings shall not be granted unless it appears to the Board that evidence sought to be offered is material and was not available and could not have been discovered or presented at the former hearing . . . ." Id. "A motion to reopen a decision rendered by an Immigration Judge . . . that is filed while an appeal is pending before the Board, may be deemed a motion to remand for further proceedings before the Immigration Judge . . . . Such motion may be consolidated with, and considered by the Board in connection with, the appeal to the Board." 8 C.F.R. § 1003.2(c)(4). In this case, the BIA was not considering a motion to reopen made to it in the first instance. Instead, the BIA was considering a petition for review of a motion to reopen made to, and denied by, the IJ.
Nonetheless, the BIA has interpreted the regulations to require that "where a motion to remand is really in the nature of a motion to reopen or a motion to reconsider, it must comply with the substantive requirements for such motions." Matter of Coelho, 20 I. & N. Dec. at 471. "[T]he motion to remand is in the nature of a motion to reopen [when] the respondent requests additional proceedings to present evidence . . . which was not available during the initial proceedings." Id. While the administrative regulations and the BIA's interpretation of those regulations are a bit circular,2 the standard for evaluating Clifton's motion to remand originating with the BIA is nonetheless clear. Further, it is clear the applicable standard highly resembles the standard the IJ should have used to evaluate the motion to reopen. Additionally, the IJ and the BIA relied on one—and the same—rationale in rejecting all of Clifton's
The regulations allow a motion to the BIA to reopen an IJ's decision to be considered as a motion to remand, see 8 C.F.R. § 1003.2(c)(4), while the BIA's decisions sometimes interpret a motion to remand under standards established for evaluating motions to reopen. See Matter of Coelho, 20 I. & N. Dec. at 471.
requests for relief. The IJ and BIA rejected Clifton's requests because neither body possessed jurisdiction to adjudicate the ultimate relief sought by Clifton—adjustment of status. Consequently, Clifton's petition for review in this court can be resolved by answering one question. Does the BIA abuse its discretion by refusing to remand and reopen removal proceedings solely on the ground that the BIA lacks jurisdiction over an application for adjustment of status that has been filed with and pends before USCIS?
"[A] rote recital of a jurisdictional statement—even if technically accurate—does not adequately discharge the BIA's duty . . . ." Ni v. BIA, 520 F.3d 125, 129-30 (2d Cir. 2008). As our frequently repeated standard of review suggests, the BIA must "consider all factors presented by the alien" in light of "established policies" relevant to the alien's claim, and the BIA must provide a "rational explanation" for its decision. See Vargas, 567 F.3d at 391. The record demonstrates Clifton's goal was to reopen and continue her removal proceedings so that she was not subject to an order of removal while she pursued a prima facie valid adjustment of status application with the USCIS. The IJ has discretionary authority to continue removal proceedings where the alien presents a prima facie case for adjustment of status with the USCIS. See 8 C.F.R. § 1003.29 ("The immigration Judge may grant a motion for continuance for good cause shown."); Matter of Hashmi, 24 I. & N. Dec. 785, 788 (BIA 2009). To the extent that the BIA interpreted Clifton's motion to remand as an attempt to have the IJ decide her adjustment of status application, the BIA distorted an important aspect of Clifton's claim. See Vargas, 567 F.3d at 391 ("The BIA abuses its discretion if its decision . . . distorts important aspects of the claim."). Recognizing that the BIA does not create the record in these cases, Clifton reasonably sought remand not to request that the IJ adjust her status but to bring the newly approved I-360 to the IJ's attention in the hope that the IJ would favorably exercise the IJ's discretion to continue the case while USCIS adjudicated Clifton's prima facie valid application for adjustment of status.
The Attorney General attempts to reframe the relief Clifton is seeking as an indefinite "stay" of the execution of a final order of removal. Indeed, the BIA recently interpreted a motion to reopen that was filed with the goal of allowing USCIS to adjust status to be a motion to "stay" the execution of a final order of removal. See Matter of Yauri, 25 I. & N. Dec. 103, 109-20 (BIA 2009). The BIA held that it possessed no jurisdiction over such motions. Id. As outlined above, the BIA does have jurisdiction to remand as well as jurisdiction to reopen, and the IJ has jurisdiction to reopen and to continue removal proceedings for good cause. Once a case is reopened, there is no executable final order of removal.3 Consequently, when reopening is granted there is no final order of removal that must be "stayed" while USCIS adjudicates a pending application for adjustment of status. Nor do we think that such a "stay" would be "indefinite." While the exact ending date of such a "stay" (if it be one) is unknown, it will end when USCIS adjudicates the pending application for adjustment of status; consequently, it is not indefinite in the sense of being open ended and without a terminating event. Thus, this case does not concern a motion to "indefinitely 'stay'" a final order of removal. Instead, Clifton asked the BIA to remand the case so that evidence could be introduced to the IJ that may affect the IJ's analysis of Clifton's motions to reopen and continue the case.
The BIA's rationale for rejecting the motion to remand—a lack of jurisdiction to adjust Clifton's status—was not relevant to the agency's then established analysis of motions to remand. Typically, such motions are only granted where the alien presents new evidence that is "of such a nature that the Board is satisfied that if proceedings before the IJ were reopened, with all the attendant delays, the new evidence would likely change the result in the case." Berte, 396 F.3d at 997 (internal quotations and marks omitted). Here, the BIA did not consider how the new evidence might affect the IJ's decision to continue the case. In so doing, the BIA departed from
The granting of a motion to reopen is to be distinguished from the mere filing of a motion to reopen. "[T]he filing of a motion to reopen . . . shall not stay the execution of any decision made in the case." 8 C.F.R. § 1003.2(f).
its then established policy for evaluating motions to remand. See Vargas, 567 F.3d at 391 ("The BIA abuses its discretion if its decision . . . departs from established policies . . . .").
We do not suggest that, on remand, the BIA must remand or reopen Clifton's case. Likewise, we do not address whether the United States Code or the corresponding administrative regulations require that removal proceedings be continued while an alien pursues a prima facie valid adjustment application with USCIS. Although other circuits have taken up such questions on petitions for review of BIA action on motions to reopen, compare Kalilu v. Mukasey, 548 F.3d 1215, 1218 (9th Cir. 2008) (holding Interim Rule Notice "rendered worthless" when BIA denies motion to continue removal proceedings to allow USCIS to adjudicate application for adjustment of status); with Scheerer v. U.S. Attorney Gen., 513 F.3d 1244, 1255 (11th Cir.) (holding no reopening or reconsideration necessary where adjustment of status application could not be adjudicated in removal proceedings), cert. denied, 129 S. Ct. 146 (2008), we need not address those questions because the case before us can be dealt with on narrower grounds, see Zine v. Mukasey, 517 F.3d 535, 539-40 (8th Cir. 2008) (avoiding an issue of statutory interpretation of first impression where case could be resolved on narrower grounds). Instead, the case will be remanded to the BIA for consideration of whether Clifton's motion to remand warrants a favorable exercise of the BIA's discretion. See Ni, 520 F.3d at 131. Regardless of how the BIA exercises its discretion, "it must provide adequate reasons for doing so, thereby furnishing this Court with a meaningful opportunity to review . . . ." Id.
IV.
Accordingly, we grant the petition for review and remand the case to the BIA for further proceedings consistent with this opinion. _____________________ |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ___________
No. 08-3999 ___________
Pinnacle Pizza Company, Inc., a * South Dakota Corporation, * * Appellant, * * Appeal from the United States v. * District Court for the * District of South Dakota. Little Caesar Enterprises, Inc., a * Michigan Corporation; LC Trademarks, * Inc., a Michigan Corporation; Ilitch * Holdings, Inc., a Michigan Corporation, * * Appellees. * ___________
Submitted: October 22, 2009 Filed: March 22, 2010 ___________
Before RILEY, SMITH, and GRUENDER, Circuit Judges. ___________
SMITH, Circuit Judge.
Pinnacle Pizza Company, Inc. ("Pinnacle"), a franchisee, brought suit against Little Caesar Enterprises, Inc. (LCE), the franchisor, alleging, inter alia, breach of the corporation's franchise agreement and violation of the South Dakota Franchise Act (SDFA). Pinnacle also sought to cancel LCE's federal trademark for the phrase "Hot- N-Ready." LCE counterclaimed, alleging breach of the franchise agreement on the part of Pinnacle. The district court1 granted LCE summary judgment on all claims. On appeal, Pinnacle argues that the district court erred in granting LCE's motions for summary judgment. Specifically, Pinnacle argues that the district court erred in finding that (1) LCE did not breach the franchise agreement; (2) LCE did not violate the SDFA; (3) LCE did not obtain its federal trademark through fraudulent means; and (4) Pinnacle did breach the franchise agreement by challenging LCE's trademark application. We affirm.
I. Background Pinnacle is a South Dakota corporation formed in 1991 by Jim Fischer and Mike Nichols to own and operate Little Caesar's pizza franchises in Sioux Falls, South Dakota. Pinnacle entered into a franchise agreement with LCE, LC Trademarks, Inc., and Ilitch Holdings, Inc. for each franchise store.2 The three franchise agreements are substantially similar and comprise the contract at issue.
The relevant portion of the franchise agreement governs "Advertising." Section XII.D states:
Franchise Owner, at its sole expense, may utilize LITTLE CAESAR's television and radio advertising materials (for its sole benefit or jointly with other LITTLE CAESAR Franchisees), by dealing directly with LITTLE CAESAR's advertising agency. LITTLE CAESAR may not use the original advertising materials created by Franchise Owner without its prior written consent.
(emphasis added).
The Honorable Karen E. Schreier, United States District Judge for the District of South Dakota. LCE is incorporated as a Michigan corporation.
The parties dispute the right to use the phrase "Hot-N-Ready" in pizza restaurant advertising. Pinnacle asserts that Fischer coined the phrase after receiving inspiration following a LCE convention in Las Vegas. This concept and phrase, Pinnacle asserts, turned around Pinnacle's and ultimately LCE's economic fortunes. Pinnacle's stores, consistent with LCE franchise and company stores nationwide, struggled financially during the mid-1990s. To counter this downturn, Pinnacle, via Fischer, began a new advertising strategy that guaranteed customers a hot, medium pepperoni pizza for $4 within five minutes of request every Tuesday. Pinnacle first advertised this offer on May 7, 1997, in a newspaper advertisement coupled with the phrase "Hot N' Ready."3 Pinnacle asserts that the "Hot-N-Ready" concept was extremely successful and rescued its business.
Pinnacle contends that other LCE franchise stores began to copy the "Hot-N- Ready" concept after observing Pinnacle's success. Pinnacle avers that LCE breached the franchise agreement and wrongfully used Pinnacle's "original advertising materials" without its consent.
LCE, on the other hand, claims that the origin of the "Hot-N-Ready" concept predates Fischer's asserted inspiration. LCE represents that beginning in 1992, it encouraged franchisees to hold "Customer Appreciation Days" once per quarter, during which ready-for-pick-up pizzas were sold at a discounted price. Although not specifically called "Hot-N-Ready," these promotions embodied the same components as Pinnacle's later promotion. LCE argues that Fischer derived his "Hot-N-Ready" concept by adapting portions of sales presentations made by LCE, as well as other franchisees, that contained components of the concept.
Pinnacle claims its original concept was the phrase "Hot N' Ready." LCE later obtained a federal trademark for the words "Hot-N-Ready." The phrase is referred to herein as "Hot-N-Ready."
Neither party disputes that Fischer and Pinnacle readily shared this "Hot-N- Ready" concept with other franchisees and in fact encouraged its use by certain franchisees. Pinnacle neither claimed ownership of the concept when it first shared the phrase nor restricted those franchisees with whom it shared the idea from further spreading the phrase. For instance, Scott Stewart, an LCE franchisee, began sharing "Hot-N-Ready" success stories with LCE and other franchisees in late 1997. Stewart wrote a September 25, 1997 memorandum to LCE describing the "Hot-N-Ready" program as "the best local promo we have done in a long time." Subsequently, LCE distributed Stewart's memo in a booklet of marketing ideas to all franchisees. Stewart also gave a presentation regarding the "Hot-N-Ready" concept in October 1997 at a LCE workshop in Nashville, Tennessee.
Following Stewart's presentation, LCE continued to promote the "Hot-N- Ready" idea to all of its franchisees. By 1999, LCE provided all franchisees with advertising materials which featured the "Hot-N-Ready" phrase. In June of 2000, LCE sent franchisees, including Pinnacle, a "Hot-N-Ready" implementation guide. In late 2000, a LCE executive visited Fischer in Sioux Falls and told Fischer that LCE planned on turning the "Hot-N-Ready" concept into a national program.
The program was unquestionably successful, and according to Pinnacle, transformed LCE from a company loaded with $200 million in debt into one brimming with $200 million in assets. In 2002, LCE filed an application with the United States Patent and Trademark Office (USPTO) to register the phrase "Hot-N- Ready" as a trademark. In that application, LCE indicated that the date of first use of the mark was May 6, 1997—the date Pinnacle submitted its first newspaper advertisement for "Hot-N-Ready" (the advertisement was actually published the following day). LCE ultimately obtained a federal service mark for "Hot-N-Ready."
Pinnacle filed suit against LCE alleging a variety of claims stemming from LCE's use of the "Hot-N-Ready" concept. Pinnacle asserted state law claims for (1)
breach of contract (for violation of the franchise agreement); (2) violation of the SDFA (because Pinnacle argued that LCE engaged in "unfair and inequitable" conduct through its use of the "Hot-N-Ready" phrase); (3) breach of fiduciary duty and confidential relationship; and (4) violation of South Dakota trademark law. Finally, Pinnacle asserted a federal claim to cancel LCE's registered trademark with the USPTO. LCE filed a counterclaim for breach of contract, arguing that by challenging the validity of LCE's registered trademark, Pinnacle breached the franchise agreement.
The district court granted summary judgment in favor of LCE on a number of Pinnacle's claims. First, the court granted LCE's motion for summary judgment against Pinnacle's breach of contract claim. The court did so after determining that "original advertising materials" in the franchise agreement unambiguously refers to only the tangible advertisements that Pinnacle created, not the underlying concepts or ideas that such advertisements promote, or the slogans contained in such advertisements that describe the underlying concepts.
Because the district court found that LCE did not breach its contract through the use of the "Hot-N-Ready" phrase, the court also found that LCE did not breach its obligations under the franchise agreement. Specifically, the district court found that LCE did not act in an "unfair and inequitable" manner under the SDFA and thus granted LCE's motion for summary judgment on Pinnacle's claim under the SDFA.
The district court also granted LCE's motion for summary judgment to dismiss Pinnacle's claim to cancel LCE's trademark application because the court found that Pinnacle did not set forth any evidence that LCE knowingly made false, material representations of fact in connection with its attempt to trademark the phrase "Hot-N- Ready."
Next, the district court awarded LCE nominal damages and denied Pinnacle's motion for summary judgment to dismiss LCE's counterclaim for breach of contract.
The district court found that the franchise agreement contained a covenant not to sue that applies to any contest to the validity or ownership of LCE's proprietary marks, whether made in good faith or in bad faith. The district court found that the undisputed facts showed that under these terms, Pinnacle breached the franchise agreement.
Finally, LCE alternatively moved for summary judgment on several of Pinnacle's claims, asserting that they are barred by the applicable statutes of limitations. The district court held that LCE's alleged actions constituted a series of repeated breaches and that any breaches of contract or the SDFA occurring within the limitations period are actionable. Thus, assuming arguendo that LCE did breach the franchise agreement, the district court held that any such breach after October 25, 1998, would be a valid claim.
II. Discussion On appeal,4 Pinnacle argues that the district court erred in finding that (1) LCE did not breach the franchise agreement; (2) LCE did not violate the SDFA; (3) LCE did not obtain its federal trademark through fraudulent means; and (4) Pinnacle did breach the franchise agreement by challenging LCE's trademark application. Because all issues involve the granting or denying of summary judgment, we review the district court's rulings de novo, applying the same standard as the district court. Mehrkens v. Blank, 556 F.3d 865, 868 (8th Cir. 2009).
Although not at issue in this appeal, the district court also granted LCE's motion for summary judgment to dismiss Pinnacle's breach of fiduciary duty claim, finding that the parties expressly disclaimed the existence of a fiduciary relationship and that such a relationship is not created by operation of law. The district court also granted summary judgment against Pinnacle on its claim under South Dakota trademark law because this law—to the extent that it is applicable to the conduct alleged by Pinnacle's claims—cannot extend liability to "extraterritorial conduct" and Pinnacle did not allege that any of the breaches occurred in South Dakota. Pinnacle neither challenges the district court's rulings on Pinnacle's breach of fiduciary duty claim nor its claim for violation of South Dakota trademark law.
A. Statutes of Limitations 1. Breach of Contract We choose to first address a relevant and raised threshold question before reviewing Pinnacle's specific appellate claims: Do the applicable statutes of limitations bar Pinnacle from making claims for either breach of contract or breach of the SDFA? More specifically, did LCE's alleged improper use of the phrase "Hot-N- Ready" give rise to multiple actionable breaches, or did LCE's alleged improper use consist of one continuing breach that began prior to October 25, 1998? If multiple breaches occurred, the statute of limitations would not bar all of Pinnacle's claims. But one continuing breach occurring prior to October 25, 1998, would not reset the statute with each subsequent use of "Hot-N-Ready" and would therefore time-bar all of Pinnacle's claims in this case.
"A federal court exercising diversity jurisdiction is required to apply the law of the forum when ruling on statutes of limitations." Nettles v. Am. Tel. & Tel. Co., 55 F.3d 1358, 1362 (8th Cir. 1995). The forum state in this case, South Dakota, regards statutes of limitations as procedural. Lyons v. Lederle Labs., 440 N.W.2d 769, 770 (S.D. 1989). Therefore we must apply the South Dakota statute of limitations in resolving this case. Nettles, 55 F.3d at 1362. Under South Dakota law, the statute of limitations for Pinnacle's breach of contract claim is six years. S.D. Codified Laws § 15-2-13(1). However, because the contract claim itself is governed by Michigan law, we must analyze the timing of the alleged breach using Michigan law. See Pinnacle Pizza Co., Inc. v. Little Caesar Enterprises, Inc., 395 F. Supp. 2d 891, 897–98 (D.S.D. 2005).5 Therefore, the statute of limitations was six years pursuant to South Dakota
The district court completed a thorough analysis on this choice-of-law issue, which neither party disputes. We therefore accept the district court's conclusion that Michigan law must govern the timing of any alleged breach.
law, and the timing of the alleged breach will be analyzed using Michigan law.6 Under Michigan law, a breach of contract claim accrues when the breach occurs—even if the plaintiff is unaware of the breach. Mich. Comp. Laws § 600.5827; Harris v. City of Allen Park, 483 N.W.2d 434, 436 (Mich. Ct. App. 1992). Pinnacle filed its original complaint on October 25, 2004, and therefore to advance this case, there must be an actionable breach within six years of that filing, that is, subsequent to October 25, 1998.
Several facts surrounding the birth of the "Hot-N-Ready" concept are not in dispute. Fischer first used the phrase "Hot-N-Ready" promoting his store in radio and newspaper advertisements on May 7, 1997. Fischer then shared the idea of "Hot-N- Ready" with fellow franchisees Stewart and Derek Kothe. Later that year, LCE held a series of regional workshops. In preparation for these workshops, LCE asked franchisees to share information about successful sales promotions. On September 25, 1997, Stewart wrote a memo to LCE describing a promotion in which he "sell[s] the 12[-inch] pepperoni pizza for $4.00. . . . We call it the Hot and Ready. We guarantee it ready in 5 minutes or the first 2 are Free." This memo was included in a booklet containing marketing ideas that was mailed to every LCE franchisee and distributed to all LCE franchisees at the workshops. On October 2 or 3, 1997, Stewart made a presentation on the "Hot-N-Ready" concept to approximately 150 franchisees at a Nashville, Tennessee workshop.
LCE thereafter began actively marketing the "Hot-N-Ready" concept to its franchisees. LCE produced a marketing presentation that included a slide containing the phrase "Hot and Ready $4 Medium Pepperoni Pizza." LCE conducted workshops for franchisees containing this presentation and slide throughout 1997 and 1998. During this time, as part of its regular business practice, LCE also conducted regular
Michigan law also establishes a six-year statute of limitations for breach of contract claims. Mich. Comp. Laws § 600.5807(8).
in-store visits to monitor various franchisees . LCE produced evidence of nine letters sent to different LCE franchisees between October 15, 1997, and September 15, 1998, summarizing its visit to each franchisee. These letters show that, at that time, LCE encouraged these franchisees to either begin using or continue using the "Hot-N- Ready" concept in their store marketing and advertising. For example, on October 15, 1997, Jim Dexter, a LCE franchise coordinator for the West region, wrote a letter to a Bismarck, North Dakota franchisee, remarking, "As we discussed, consider trying the Tuesday night Hot-N-Ready. I think a majority of your stores are . . . capable of jumping right into this." On December 10, 1997, Joedy Coleman, LCE director of operations for the Midwest region, documented in a letter to a Tallahassee franchisee that "[y]ou are trying 'Shaker Boards' and 'Hot and Ready' with some success, this will help with attracting attention to the stores. . . . Make this a weekly event. . . ." Joe Gaitan, also a franchise coordinator for the West region, suggested in a letter dated June 26, 1998, that if a Washington state franchisee would "give the Hot-n-Ready Tuesday a try it will help increase sales on the slower days of the week."
Pinnacle does not dispute that LCE first used the phrase "Hot-N-Ready" prior to October 25, 1998, and that the examples cited above would constitute a breach of the franchise agreement under Pinnacle's theory. Rather, Pinnacle asserts that the contractual duty set forth in the franchise agreement is a continuing duty, and therefore even if it was first breached prior to October 25, 1998, each subsequent use of the "original advertising materials" resulted in a separate and actionable breach for purposes of the statute of limitations. LCE, meanwhile, claims the accrual date for the single, continuing breach of the franchise agreement occurred sometime before October 25, 1998.7
For purposes of the analysis in this section, and this section only, we will assume that LCE did in fact breach the franchise agreement when it used the phrase "Hot-N-Ready."
Pinnacle relies upon H.J. Tucker & Associates, Inc. v. Allied Chucker & Engineering Co. to support its theory that repeated breaches of a contract can give rise to separate claims for each breach. In Tucker, the plaintiff sought damages from nonpayment of certain commissions due under contract. 595 N.W.2d 176, 179 (Mich. Ct. App. 1999). The contract called for the plaintiff to receive a commission each time he referred potential customers to the defendant. Id. The plaintiff sought payment for commissions generated from each of the referrals—some occurring outside of the limitations period and some within the limitations period. Id. at 180. The court concluded that an employment contract that paid a commission-based salary was periodic in nature and that the defendant's continuing non-payment constituted multiple, independent breaches of contract. Id. In holding that the plaintiff could recover for breaches inside the limitations period but not for breaches outside of it, the court stated that
[a]lthough defendant asserts that plaintiff's claim accrued in 1986, more than six years before plaintiff filed its complaint, and thus the entire breach of contract action was time-barred, we conclude that claims for payments due under the contract between the parties are analogous to claims for payments under an installment contract, claims for alimony payments, or claims for monthly pension payments, all of which accrue as each payment becomes due. In the present case, the commissions earned by plaintiff were separately computed, were to be paid monthly, and were of a periodic nature.
Id. (internal citations omitted). The court was then able to separately compute the damages the plaintiff suffered from the contract breaches both inside and outside of the limitations period and compensate him accordingly. Id.
Other Michigan courts have similarly held that only contracts that create duties occurring and resetting monthly are analogous to installment contracts and can constitute separate breaches. In Lube USA Inc. v. Michigan Manufacturers Service Inc., a manufacturer entered into a contract with a distributor, in which the distributor
would be the exclusive distributor for the manufacturer's products. No. 07-cv-14284, 2009 WL 2777332 at *1 (E.D. Mich. Aug. 27, 2009) (slip op.). The manufacturer then made direct sales in violation of the contract, and with evidence of multiple examples of such direct sales, when the first breach occurred was an issue in the case. Id. The court held that the statute of limitations barred all of the distributor's claims because
[t]he pivotal date for statute of limitations purposes is the date of the breach, and later transactions that [the distributor] may point to are not sufficient to restart the limitations period. This contract does not fall within the narrow species of contract which permit discrete independent breaches to reset the statute of limitations.
Id. at *7 (internal citations omitted). The Lube court also pointed out that the distributor was aware of the manufacturer's breach well before the start of the limitations period. Id.
A Michigan statute-of-limitations case not involving installment contracts is Proctor & Schwartz, Inc. v. U.S. Equipment Co., 624 F.2d 771 (6th Cir. 1980). In Proctor & Schwartz, a company contracted with a business to install a machine and all necessary safety parts. Id. at 772. Two years later a person was injured because a necessary safety device was not installed. Id. The court rejected the breach of contract claim under the statute of limitations. Id. at 773. The court found that the original breach occurred when the company installed the machine without the required safety devices and that it was not a repeated breach for every day that the safety device was not installed. Id. Key language comes in a footnote, in which the court declined to extend a "continuing wrong" theory to contract cases:
Michigan courts have found certain acts, such as trespass and nuisance, were continuing wrongs, but we find no authority for treating a breach of contract in the same manner. M.S.A. § 27A.5827, M.C.L.A § 600.5827 (1968) provides:
Except as otherwise expressly provided, the period of limitations runs from the time the claim accrues.
Id. at n.3 (internal citation omitted).
Michigan courts further defined that state's notion of a continuing wrong in Blazer Foods, Inc. v. Restaurant Properties, Inc., 673 N.W.2d 805 (Mich. Ct. App. 2003). In Blazer,8 a franchisee sued the franchisor, claiming that the franchisor failed to provide adequate training, delayed site approval, and improperly changed menu items. Id. at 808. The franchisor's first failure came outside the limitations period, but the parties continued a relationship, and the franchisor continued to neglect to fulfill its duties under the contract. Id. The franchisee claimed that the franchisor's "continuing wrong" extended the limitations period. Id. at 809. The court rejected this theory, noting that there are "no cases extending the continuing wrong . . . theor[y] to a situation in which a party to a contract fails to perform adequately under the contract." Id. at 812. Blazer also interpreted Tucker, noting that
the H[.]J[.] Tucker Court made clear that each improper payment at issue in H[.]J[.] Tucker constituted a separate breach that was not tied to earlier breaches falling outside the limitations period. The Court essentially found that there were repeated breaches that gave rise to separate claims of breach of contract, each of which arose, accrued, and became extinguished separately. The plaintiff could recover only for those breaches occurring within the limitations period.
Id. at 811 (internal citations omitted).
Here, Pinnacle claims that LCE made repeated breaches and that any breach inside the limitations period (but not breaches outside the period) is actionable—the
We note that this case, coincidentally, involves the "Hot 'N Now" restaurant chain.
exact argument that the Blazer court did not consider. The district court considered Pinnacle's argument and ruled that every LCE use of the phrase "Hot-N-Ready" constituted an individual breach, meaning that those within the statute of limitations are thus actionable. However, upon review, we conclude that Pinnacle's breach-of- contract claims are more analogous to the claims in Blazer than the installment claims in Tucker. We note that Pinnacle is not claiming that events outside the limitations period should be saved by the "continuing wrong" theory.
In the present case, for Pinnacle's reliance on Tucker to be effective, we must conclude that the franchise agreement is analogous to an installment contract. We do not. We hold that franchise agreements restricting a franchisor from using a franchisee's "original advertising materials" are materially different from an installment or commission contract, and Tucker is thus distinguishable. In Tucker, the plaintiff sought payment for a series of individual and discrete referrals. Unlike the computations the court was able to complete in Tucker, it would be wholly impracticable to separately compute damages for each breach by LCE, as the advertising campaign by LCE was ultimately ubiquitous and national in nature.
Additionally, in Tucker the defendant's multiple breaches had no relation to one another. Here, LCE first used "Hot-N-Ready" in 1997 and then continued to use the phrase with no interruption. LCE never changed its position with regard to Pinnacle during the period in question, and the entire breach is related to the single phrase, "Hot-N-Ready." Therefore, the alleged "breaches" are all related to the single use of the phrase. Unlike an installment contract, which pays fees that are calculated and reset periodically, and therefore creates a duty that is reset periodically, LCE owed one relevant duty toward Pinnacle—do not use the "original advertising materials" created by Pinnacle. Once breached, nothing reset this duty. Tucker and the installment contract cases like it involve separate and distinct duties for each installment and separate breaches for which specific recovery may be calculated. LCE
had one duty. Each subsequent use of "Hot-N-Ready" is merely more evidence of the original breach but not a new, distinct breach.
Here, as in Lube, Pinnacle was aware that LCE was using the phrase "Hot-N- Ready" before October 25, 1998. LCE never cured its breach and never made a separate, material breach of the contract apart from its use of "Hot-N-Ready" that would give rise to a new cause of action. LCE did not use any "original advertising materials" other than "Hot-N-Ready" and never indicated to Pinnacle that it would cease using the phrase once it learned of the phrase's existence. We thus conclude that if LCE breached the franchise agreement, it did so once—the first time LCE appropriated "Hot-N-Ready." Pinnacle's action for breach of contract, therefore, accrued when LCE allegedly materially breached the contract. This breach would have occurred before October 25, 1998. "'The fabric of the relationship once rent is not torn anew with each added use or disclosure, although the damage suffered may thereby be aggravated.'" Shatterproof Glass Corp. v. Guardian Glass Co., 322 F. Supp. 854, 870 (E.D. Mich. 1970) (quoting Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp., 407 F.2d 288, 293 (9th Cir. 1969)). "'The cause of action arises but once. . . .'" Id.
We find that recovery for repeated breaches is only appropriate in specific circumstances not present in this case. We therefore hold that if LCE breached the contract, it made a single breach of the franchise agreement in 1997. Pinnacle's breach of contract claims are thus time-barred.
2. South Dakota Franchise Act The SDFA does not include a statute of limitations provision. Therefore, we will apply the six-year period provided in South Dakota Codified Laws § 15-2-13(2), as this is an "action upon a liability created by statute other than a penalty or forfeiture. . . ." Pinnacle's SDFA claim is premised on the same facts as its contract
claim, and thus, for the same reasons discussed in Section II.A.1, Pinnacle's claim under the SDFA is also barred by the applicable statute of limitations.
B. LCE's Federal Trademark Because we find that Pinnacle's breach-of-contract claims run afoul of the statute of limitations and that its SDFA claim accrued more than six years from the time of LCE's alleged breach, we need not decide whether LCE actually breached the franchise agreement or violated the SDFA. We must, however, consider Pinnacle's other issues on appeal.
Pinnacle seeks to cancel LCE's trademark on the phrase "Hot-N-Ready," asserting that the trademark was registered in bad faith. Pinnacle argues that LCE's admission that it used the same date on which Pinnacle first employed the phrase in LCE's trademark registration application shows fraud. Now, on appeal, Pinnacle also asserts that even without a showing of bad faith, Pinnacle has the power to cancel the trademark because Pinnacle has shown evidence of LCE's inequitable conduct under the franchise agreement. Pinnacle alternatively argues that irrespective of its rights to cancel the mark, the issue should not have been decided on summary judgment because LCE's intent was at issue, and summary judgment is not appropriate to resolve issues involving intent.
LCE responds that Pinnacle has not met the high standard required to demonstrate fraud and bad faith. LCE contends that it properly used the date because federal law and the franchise agreement establish that LCE owned the phrase on the date of use by a franchisee. LCE also submits that Pinnacle did not meet its burden to bring forward evidence of fraudulent intent to avoid summary judgment.
Pinnacle relies primarily on LCE's use of May 6, 1997, as the date of its first use of the phrase in its trademark application. This date also happens to be the date that Pinnacle first used the phrase. Pinnacle alleges that this proves that LCE
registered the mark in bad faith. A petition to cancel a registration for a federal trademark may be filed "[a]t any time if the registered mark['s] . . . registration was obtained fraudulently. . . ." 15 U.S.C. § 1064(3). "Cancellation [of a fraudulently procured trademark registration] is a discretionary matter for the district court." Gilbert/Robinson, Inc. v. Carrie Beverage-Mo., Inc., 989 F.2d 985, 993 (8th Cir. 1993). But to succeed in its trademark cancellation claim, Pinnacle must prove fraud on the part of LCE by clear and convincing evidence. Allen Homes, Inc. v. Weersing, 510 F.2d 360, 362 (8th Cir. 1975).
The franchise agreement, however, expressly authorizes LCE's actions. LCE's acts were not deceptive but instead were open and consistent with the contract entered into by LCE and Pinnacle. According to the franchise agreement, the rights in the "Hot-N-Ready" phrase and the goodwill that inures as a result of the use of the phrase became the property of LCE upon its use by the franchisee. Section V.B of the franchise agreement states:
Franchise Owner expressly acknowledges that any and all goodwill associated with said Proprietary Marks, including any goodwill which might be deemed to have arisen or to arise in the future through the activities of any Licensee of LITTLE CAESAR, inures directly and exclusively to the benefit of LITTLE CAESAR.
In turn, 15 U.S.C. § 1055 provides:
Where a registered mark or a mark sought to be registered is or may be used legitimately by related companies, such use shall inure to the benefit of the registrant or applicant for registration, and such use shall not affect the validity of such mark or of its registration, provided such mark is not used in such manner as to deceive the public.
When read in combination, § 1055 and the franchise agreement indicate that LCE's use of May 6, 1997—the date of first use by Pinnacle—on LCE's trademark
application is not fraudulent or unreasonable. The relevant sections make clear that use of such marks inure to LCE upon Pinnacle's use. Thus, LCE had reason to believe, notwithstanding Pinnacle's assertions to the contrary, that it could properly trademark the phrase "Hot-N-Ready." Pinnacle presented no other evidence to show bad faith on LCE's part.
Pinnacle alternatively argues that it has broad rights under the Lanham Act, specifically 15 U.S.C. § 1065, which provides that an application to cancel a trademark may be filed when "the use of a mark registered on the principal register infringes a valid right acquired under the law of any State." However, Pinnacle did not present this argument below. Count VIII of Pinnacle's Second Amended Complaint, the only count involving trademark cancellation, states that "LCE . . . illegitimately obtained registered rights to this mark by negotiating in bad faith to acquire the registration of the mark . . . . " The same count states that "LCE has . . . acquired in bad faith the rights to a federally registered mark despite knowing that [Pinnacle] has senior rights based on first use and a contractual property right, both of which impedes a good faith acquisition of the mark." Pinnacle's complaint reflects that the district court examined only an argument that LCE obtained the trademark in bad faith."Ordinarily, we do not consider an argument raised for the first time on appeal." Orr v. Wal-Mart Stores, Inc., 297 F.3d 720, 725 (8th Cir. 2002).
Finally, Pinnacle argues that its trademark cancellation claim should survive summary judgment because the district court was required to make a determination of LCE's intent when it submitted its trademark application. Pinnacle is correct that "[s]ummary judgment is notoriously inappropriate for determination of claims in which issues of intent, good faith and other subjective feelings play dominant roles." Pfizer, Inc. v. Int'l Rectifier Corp., 538 F.2d 180, 185 (8th Cir. 1976). However, in this case, "[t]he party seeking cancellation for fraudulent procurement 'must prove the alleged fraud by clear and convincing evidence.'" 3M Co. v. Intertape Polymer Group, Inc., 423 F. Supp. 2d 958, 962 (D. Minn. 2006) (quoting L.D. Kichler Co. v. Davoil,
Inc., 192 F.3d 1349, 1351 (Fed. Cir. 1999)). "[D]isposition by summary judgment may still be appropriate if the party in opposition to the motion has adduced no evidence whatsoever of the requisite intent to defraud." Demerath Land Co. v. Sparr, 48 F.3d 353, 355 (8th Cir. 1995). "The mere labelling [sic] of [LCE's] representations as fraudulent does not make them so without some evidence to support that assertion." Id.
Pinnacle failed to show any evidence of LCE's alleged fraudulent intent beyond its own assertions. Viewing the facts in the light most favorable to Pinnacle, LCE knew Pinnacle believed that it had rights to the phrase "Hot-N-Ready" when LCE submitted its trademark application. This fact alone, however, is not sufficient to show bad faith, and Pinnacle has shown no more. The franchise agreement and relevant statute vested in LCE rights to the phrase upon Pinnacle's use. We conclude that Pinnacle can prove no fraud in LCE's trademark application.
We hold that the district court did not err in denying Pinnacle's claim for cancellation of LCE's federal trademark.
C. Pinnacle's Breach of the Franchise Agreement In its final argument, Pinnacle asserts that the district court erred in granting LCE's motion for summary judgment in its counterclaim that Pinnacle breached § V.A.2 of the franchise agreement. Pinnacle argues that the district court was wrong to conclude that LCE owns the trademark to "Hot-N-Ready." Alternatively, Pinnacle contends that § V.A.2 violates § 66 of the South Dakota Franchise Act and is unenforceable.
Section V.A.2 of the franchise agreement provides:
Franchise Owner expressly covenants that during the term of this Agreement, and after the termination or expiration thereof, the Franchise
Owner shall not directly or indirectly contest or aid in contesting and/or consent to a third party contesting the validity or ownership of said Proprietary Marks.
As we held in Section II.B, LCE owns the proprietary mark "Hot-N-Ready," even if the phrase was first used by a franchisee. Pinnacle contested the validity and ownership of the "Hot-N-Ready" concept by filing a lawsuit challenging LCE's rights to the mark. Pinnacle also sought the cancellation of LCE's trademark with the USPTO. Pinnacle asserts that its actions did not trigger the covenant not to sue because it brought the lawsuit against LCE in good faith. However, Pinnacle points to no provision in the franchise agreement or anything in Michigan law that implies a good-faith exception to the covenant not to sue. The express terms of the franchise agreement apply to any contest to the validity or ownership of LCE's proprietary marks.
Finally, Pinnacle asserts that LCE's action in bringing this claim constitutes an "unfair or inequitable" practice under South Dakota Codified Laws § 37-5A-66(7) (repealed 2008). This section allowed the state to issue a cease and desist order to a franchisor if the franchise agreement contains a term that "is or would be unfair or inequitable to franchisees."9 Pinnacle has provided no authority to suggest that it is unfair or inequitable for a franchisor to exercise its rights under a mutually agreed upon covenant not to sue. We therefore reject Pinnacle's final argument and hold that LCE was entitled to summary judgment on its counterclaim for breach of contract.
III. Conclusion Accordingly, we affirm the judgment of the district court. ______________________________
Section 66 has been replaced in part by South Dakota Codified Laws § 37-5B- 41. However, § 66(7) was repealed in its entirety. |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ________________
No. 09-1954 ________________
United States of America, * * Appellee, * * Appeal from the United States v. * District Court for the * District of South Dakota. Marc Sean Wisecarver, * * [PUBLISHED] Appellant. *
________________
Submitted: February 10, 2010 Filed: March 22, 2010 ________________
Before WOLLMAN, HANSEN, and MELLOY, Circuit Judges. ________________
HANSEN, Circuit Judge.
Following a jury trial, Marc Sean Wisecarver was convicted of one count of depredation of government property, in violation of 18 U.S.C. § 1361. The district court sentenced him to 36 months' imprisonment. Wisecarver appeals, arguing that the evidence was insufficient to convict him, the district court erred in instructing the jury, and the sentence was improper. Because the supplemental jury instruction was erroneous, we reverse the judgment and remand the case for vacatur of the judgment of conviction and sentence. I.
Wisecarver owns an undivided one-sixth interest in a tract of Indian trust land on the Pine Ridge Indian Reservation near Manderson, South Dakota, where he lives with his teenage daughter, Robin. Another one-sixth share of the land was in probate, and the final share is reportedly in dispute, although the Bureau of Indian Affairs' (BIA) realty records show that Randall Jerry Hughes owns an undivided four-sixths interest in the land. Wisecarver is the only owner residing on the land.
The BIA arranges leases and collects rents for the trust lands it oversees, which include this piece of property. Hughes filed an application to lease his portion of the property to a third party. To determine the best use for the land in order to calculate a suitable rental price, the BIA sent Duke Bourne, a soil conservationist, to the property on April 29, 2008. Bourne drove to the property in a BIA pickup truck bearing "U.S. Government" license plates. Bourne entered the property through a closed gate marked with a "no trespassing" sign. Wisecarver testified that he saw the truck enter his property but he did not recognize it, so he yelled and waved at the truck.
Bourne drove along the fence line to check the condition of the fence, and Wisecarver retrieved his rifle from his home. Bourne then drove towards horses he saw on the land to check for brands and evidence of ownership. Wisecarver testified that the truck came close to hitting and injuring one of his horses, and he again yelled and waved at Bourne to get his attention. Bourne testified that after inspecting the horses, he turned the truck around and noticed Wisecarver pointing a firearm in his general direction. Bourne drove the truck over to Wisecarver and rolled down the window, and Bourne and Wisecarver began to talk. Bourne identified himself as a BIA employee inspecting the land pursuant to a lease application. Bourne did not present any formal identification, but he offered Wisecarver a phone number to call to verify his identity. Wisecarver refused to call the phone number and accused
Bourne of lying and trespassing. Bourne testified that he "didn't tell [Wisecarver] anything because it was my duty to be on that land. I didn't tell him anything." (Trial Tr. I at 99.) Bourne testified that he did not identify himself as a government employee again because he did not see the point, as Wisecarver had already refused to call the phone number Bourne had provided.
Wisecarver identified himself as the sole landowner, to which Bourne expressed disbelief. Wisecarver then attempted to explain the dispute over the ownership of the property and finally told Bourne to leave the property. Wisecarver testified that he feared that if he allowed Bourne to continue driving on the land, Bourne might harm either Wisecarver or his horses. Wisecarver intended to call the police but knew that it would take approximately 45 minutes for them to reach the property because of its remote location. Instead, Wisecarver told Bourne to get out of the truck and walk off the property. Bourne refused, and Wisecarver chambered a round into the rifle, walked to the front of the truck, and fired a round through the grille and into the engine. Wisecarver testified that before he fired his rifle, the truck's engine was running, he saw Bourne put one hand on the steering wheel and one hand on the gearshift, he heard the engine rev up, and he was afraid that Bourne was going to run him over. He testified that he intended to shoot the radiator "to get [Bourne's] attention off of running me over." (Trial Tr. I at 191.) Bourne then said to Wisecarver, "You just shot a government vehicle," to which Wisecarver responded, "You better get out and start walking or I will shoot you." (Trial Tr. I at 102.) Bourne testified that he thought about calling into his office to tell them what had happened, but instead he turned off his communication radio, left the truck, and walked off the property.
Once off the property, Bourne was picked up by a telephone company driver. Bourne called his BIA office, and the telephone truck driver called the police. Wisecarver also called the police and reported that he shot a hole in the radiator of the vehicle of a trespasser who was chasing his horses. Police came to the property and
saw that the truck was a Government-owned truck with a license plate bearing the words "U.S. Government."
On August 20, 2008, Wisecarver was indicted for assaulting a federal officer. On December 17, 2008, the Government filed a superseding indictment charging Wisecarver with two counts: one count of assaulting a federal officer in violation of 18 U.S.C. § 111(a)(1) and (b) and one count of depredation of government property in violation of 18 U.S.C. § 1361.
At the trial, the parties stipulated that Bourne was a federal employee and was performing his official duties, that the truck was the property of the Government, and that the damage was in excess of a thousand dollars. The jury was tasked with determining Wisecarver's intent when firing the gun. Wisecarver argued that he had acted in self-defense, which negated any criminal intent. When instructing the jury before deliberations, the trial court gave a self-defense instruction regarding the assault count but did not give a self-defense instruction on the depredation count, stating that Wisecarver offered no evidence to establish that he had acted to defend himself rather than just his property.
During deliberations, the jury asked for the definition of depredation as it pertained to the case, and, in response, the district court instructed the jury "that the shooting of the pickup truck would constitute 'depredation' under the statute 18 U.S.C. § 1361, unless you find that the defendant did not use justifiable force to protect his person or property," adding self-defense to the instruction at Wisecarver's request. (Rec. at 18.) Neither party objected at the time the supplemental instruction was given, but shortly afterwards the Government's counsel reported that her supervisor had discovered that the trial court's answer to the depredation question actually told the jury to find depredation if it found Wisecarver used justifiable force to protect his person or property (based on the double negatives of "unless" and "did not"). After listening to both counsel's comments, the district court said that it was "going to leave
it the way it [was]," presumably because correcting it might cause more confusion. (Jury Questions Tr. at 9.) Later, the jury said that it had reached a verdict on the assault count but could not reach a unanimous verdict on the depredation count. After the district court instructed the jury that it was "advised to continue" its deliberations (Rec. at 23), the jury returned a verdict of not guilty on the assault count and guilty on the depredation count.
Following the jury's verdict, the district court held a sentencing hearing. At the hearing, the district court heard testimony regarding Wisecarver's sometimes troubled relationship with his teenage daughter and also about a heated argument between Wisecarver and his brother. The district court calculated an advisory sentencing guidelines range of 15 to 21 months' imprisonment. The district court then varied upward and imposed a sentence of 36 months' imprisonment.
Wisecarver appeals his conviction and sentence.
II.
Wisecarver argues that: (1) the evidence was insufficient to support a conviction for depredation; (2) the district court erred in instructing the jury; and (3) the district court committed significant procedural errors in imposing the sentence and imposed a substantively unreasonable sentence.
We must first address Wisecarver's sufficiency of the evidence claim. See Burks v. United States, 437 U.S. 1, 18 (1978) (holding "the Double Jeopardy Clause precludes a second trial once the reviewing court has found the evidence legally insufficient"); United States v. Rush-Richardson, 574 F.3d 906, 909 (8th Cir. 2009) (applying Burks in first addressing a sufficiency challenge before reversing based on an erroneous jury instruction); Palmer v. Grammer, 863 F.2d 588, 592 (8th Cir. 1988)
("[I]t is well-established that Burks does not allow an appellate court to reverse for trial error and remand for retrial while ignoring a claim of insufficient evidence").
A.
Wisecarver argues that the Government did not present sufficient evidence to support a conviction on the depredation count. On a claim for insufficiency of the evidence, we review the evidence in the light most favorable to the verdict. We will reverse only if no reasonable jury could have found Wisecarver guilty beyond a reasonable doubt. See United States v. Plenty Chief, 561 F.3d 846, 854 (8th Cir. 2009).
In his brief, Wisecarver argues that the jury found his testimony credible and acquitted on the assault charge based on his self-defense claim. He then argues that "[b]ecause an objective, reasonable-minded jury could not acquit Wisecarver on [the assault count] and then find him guilty beyond a reasonable doubt based on the same evidence on [the depredation count], the evidence is inherently insufficient to sustain the conviction on [the depredation count]." (Appellant's Br. at 29.) As the Government correctly points out, a defendant may not challenge a conviction because it is inconsistent with another part of the jury's verdict. The Supreme Court has explained, "'[c]onsistency in the verdict is not necessary. Each count in an indictment is regarded as if it was a separate indictment.'" United States v. Powell, 469 U.S. 57, 62 (1984) (quoting Dunn v. United States, 284 U.S. 390, 393 (1932)). "Inconsistent verdicts therefore present a situation where 'error,' in the sense that the jury has not followed the court's instructions, most certainly has occurred, but it is unclear whose ox has been gored." Id. at 65. "Given this uncertainty, and the fact that the Government is precluded from challenging the acquittal, it is hardly satisfactory to allow the defendant to receive a new trial on the conviction as a matter of course." Id.
Rather than specifically explaining why the Government presented insufficient evidence for a conviction on the depredation count, Wisecarver merely claims that "the evidence in this case did not prove the requisite intent on either count by negating self-defense," so "[n]o reasonable jury could convict for depredation of government property after crediting Wisecarver's testimony and finding that he acted in self- defense when he fired the rifle into Bourne's vehicle." (Appellant's Br. at 29, 30.)
Because the parties stipulated that Bourne was a government employee and the vehicle was government property that had damage of over one thousand dollars, the jury was only required to determine whether Wisecarver acted with the requisite intent and whether he demonstrated that he had used justifiable force in protecting himself or his property. The Government presented evidence that Bourne identified himself as a BIA official and offered Wisecarver a phone number he could call and verify Bourne's identity and position. The truck's front license plate, located just below the bullet hole caused by Wisecarver's shot, bore the words "U.S. Government," identifying it as a Government-owned truck. Although Wisecarver presented some evidence to support his self-defense theory, when we view the evidence in the light most favorable to the guilty verdict, there is sufficient evidence for a correctly- instructed reasonable jury to have determined that Wisecarver had the requisite intent to damage Government property, to find that he did not act in self-defense, and to find Wisecarver guilty beyond a reasonable doubt. See Plenty Chief, 561 F.3d at 854.
B.
Second, Wisecarver argues that the district court erred in giving the supplemental jury instruction as to the depredation count. The supplemental instruction stated that, "You are instructed that the shooting of the pickup truck would constitute 'depredation' under the statute 18 U.S.C. § 1361, unless you find that the defendant did not use justifiable force to protect his person or property." (Rec. at 18.) The double negative instructed the jury to find Wisecarver guilty of depredation if it
found that he used justifiable force; both parties acknowledge that the supplemental instruction was an incorrect statement of the law.
The jury specifically requested a definition of depredation. In composing the response, the following discussion took place:
The Court: Here is my recommended response. "You are instructed that the shooting of the pickup truck would constitute depredation under the statute 18 U.S. Code Section 1361. Please continue your deliberations." What do you think of that response, counsel? *** Defense Counsel: I would propose that the only way that would be appropriate is you would have to add "unless you find that such act was done in self-defense." . . . . The Court: I think you have a point, counsel. . . . What do you think of this addition? Unless you find that the defendant did not use justifiable force to protect his property. . . . Defense Counsel: I would ask that it say, "To protect his person." . . . . The Court: How about put in there "to protect his person or property"? Defense Counsel: That would be acceptable to me. *** The Court: All right. I have heard counsel's comments and I will consider them in putting this phrase, "Unless you find that the defendant did not use justifiable force to protect his person or property." Any problems with that? Defense Counsel: No, Your Honor.
[Less than an hour later]
Government's Counsel: I actually showed the Court's last response to my supervisor actually and he caught an error. I just wanted to—I think in it you put "You are instructed that the shooting of the pickup truck would constitute depredation under the statute unless you find that the defendant did not use justifiable force. To protect his person"—probably I think it should say, "Unless you find that the defendant did use justifiable force."
*** Government's Counsel: I imagine they understood what you meant, but I think— Defense Counsel: I think that's right. It's just the opposite of what we meant to say. Because obviously if he did not—yes. He did not use justifiable force. *** Defense Counsel: The way I read that is the shooting constitutes depredation unless the defendant did—unless the defendant used justifiable force to protect his person and property. Then it doesn't constitute that. I believe that was the message, I think. The Court: Did not use justifiable force. He committed depredation. Defense Counsel: I agree the way the Court says that. That's a correct statement. I agree with you, Your Honor. [Government's Counsel] is probably right as well in that the message we were trying to communicate was probably understandable. Now that I read it again, I think it's a double negative. I don't know that correcting it might cause more confusion. The Court: I am going to leave it the way it is.
(Jury Questions Tr. at 2-5, 7-9.)
The Government first contends that this was an invited error such that it was not a reversible error. "'It is fundamental that where the defendant "opened the door" and "invited error" there can be no reversible error.'" United States v. Beason, 220 F.3d 964, 968 (8th Cir. 2000) (quoting United States v. Steele, 610 F.2d 504, 505 (8th Cir. 1979)). However, Wisecarver did not propose the jury instruction; thus, we reject a claim of invited error. Cf. Roth v. Homestake Mining Co., 74 F.3d 843, 845 (8th Cir. 1996) ("Roth invited the alleged error by introducing an exhibit that included the allegedly [improper evidence]. . . . The alleged erroneous ruling thus is not reversible. An erroneous ruling generally does not constitute reversible error when it is invited by the same party who seeks on appeal to have the ruling overturned."); United States v. Martinez, 3 F.3d 1191, 1199 (8th Cir. 1993) ("Having specifically requested that
the district court exclude the statistical evidence [of DNA matches], Martinez may not now complain about its exclusion."), cert. denied, 510 U.S. 1062 (1994).
The Government also claims that Wisecarver waived the argument he now makes. The Supreme Court has defined a waiver as a defendant's "'intentional relinquishment or abandonment of a known right.'" United States v. Olano, 507 U.S. 725, 733 (1993) (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)). This is to be distinguished from a forfeiture, which is a "failure to make the timely assertion of a right." Id. "While forfeited claims are subject to appellate review under the plain error standard, waived claims are unreviewable on appeal." United States v. Booker, 576 F.3d 506, 511 (8th Cir.), cert. denied, 130 S. Ct. 777 (2009).
Waiver is a close issue in this case. The Government raised the issue of the problematic instruction not long after it was given to the jury, and a discussion between the parties and the district court ensued. Wisecarver's counsel said that he agreed with the Government that "the message we were trying to communicate was probably understandable. Now that I read it again, I think it's a double negative. I don't know that correcting it might cause more confusion." (Jury Questions Tr. at 9.) The district court then said that it was "going to leave it the way it [was]." (Id.) Obviously, Wisecarver's counsel's statement was not an objection. However, it is not clear that it was an "intentional relinquishment or abandonment" of a known right either. He did not, for example, explicitly say that he had no objection to the double- negative aspect of the instruction or that it was a correct statement of the law that he was willing to be bound by. Cf. Booker, 576 F.3d at 511 (finding waiver when the defendant's counsel stated he "[didn't] have any objections to" the later-claimed error); United States v. McCoy, 496 F.3d 853, 857 (8th Cir. 2007) (finding waiver when the defendant previously conceded that he was bound by a ten-year statutory mandatory minimum sentence and later claimed that he should not have been subject to the mandatory minimum). Wisecarver's counsel did say that he did not have a problem with the addition of the phrase, "to protect his person or property," but that involves
adding a desired self-defense element to the instruction, not approving of the double negative. In these circumstances, we hold that Wisecarver's counsel's statement did not constitute a waiver of Wisecarver's rights.
Because Wisecarver failed to object at the time the instruction was offered, we must review the jury instruction under plain error review. See Rush-Richardson, 574 F.3d at 910 (applying plain error review where the defendant failed to object to a jury instruction that misstated the law). To reverse under plain error review, we must determine that there was "(1) an error, (2) that was 'plain,' (3) [that] 'affects substantial rights,' and (4) 'the error seriously affects the fairness, integrity or public reputation of judicial proceedings.'" Id. (quoting Olano, 507 U.S. at 735-36).
The supplemental instruction was plainly erroneous, because it misstated the law by instructing the jury to find Wisecarver guilty if it found he used justifiable force to defend himself or his property. The instruction also affected Wisecarver's substantial rights. "An error is prejudicial if the defendant shows 'a reasonable probability that, but for [the error claimed], the result of the proceeding would have been different.'" United States v. Kent, 531 F.3d 642, 656 (8th Cir. 2008) (quoting United States v. Dominguez Benitez, 542 U.S. 74, 82 (2004)) (alteration in original). The defendant must establish "that the probability of a different result is 'sufficient to undermine confidence in the outcome' of the proceeding." Dominguez Benitez, 542 U.S. at 83 (quoting Strickland v. Washington, 466 U.S. 668 (1984)).
As has been repeatedly emphasized, the words that a judge says, particularly to a jury, are very important. It is axiomatic "that jurors are presumed to follow the court's instructions." United States v. Espinosa, 585 F.3d 418, 429 (8th Cir. 2009). Further, the Supreme Court has explained, "'[t]he influence of the trial judge on the jury is necessarily and properly of great weight,' and jurors are ever watchful of the words that fall from him." Bollenbach v. United States, 326 U.S. 607, 612 (1946) (quoting Starr v. United States, 153 U.S. 614, 626 (1894)). "Particularly in a criminal
trial, the judge's last word is apt to be the decisive word. If it is a specific ruling on a vital issue and misleading, the error is not cured by a prior unexceptionable and unilluminating abstract charge." Id. Thus, the fact that the district court initially properly instructed the jury is insufficient to cure the error, especially because this supplemental instruction was in response to a specific question posed by the jury. "'When a jury explicitly requests a supplemental instruction, a trial court must take great care to ensure that any supplemental instructions are accurate [and] clear.'" United States v. Jenkins-Watts, 574 F.3d 950, 964 (8th Cir. 2009) (quoting United States v. Garcia, 562 F.3d 947, 957 (8th Cir. 2009) (emphasis added), petition for cert. filed, --- U.S.L.W. --- (U.S. Jan. 22, 2010) (No. 09-8991). "Discharge of the jury's responsibility for drawing appropriate conclusions from the testimony depended on discharge of the judge's responsibility to give the jury the required guidance by a lucid statement of the relevant legal criteria. When a jury makes explicit its difficulties a trial judge should clear them away with concrete accuracy." Bollenbach, 326 U.S. at 612-13.
Given the high importance placed on jury instructions and on the words of the district court and the fact that the erroneous instruction was a supplemental one, in combination with the already somewhat close case, there is a reasonable probability that, but for the erroneous supplemental instruction, the outcome would have been different. We note, parenthetically, that if the jury followed the court's erroneous supplemental instruction (as we must presume it did) then its verdicts on the two counts are consistent. That is, if the jury credited Wisecarver's self-defense evidence, it would acquit him of assault and, because he used justifiable force, would be compelled to convict him of depredation based on the double negative in the supplemental instruction. Because of the erroneous supplemental jury instruction, the probability of a different outcome is such that our confidence in the guilty verdict is undermined.
Finally, because the jury instruction was given in a close case, in which Wisecarver was found not guilty of the assault charge and found guilty of the depredation charge only after the erroneous supplemental instruction was given, we conclude that the fairness and integrity of the trial was seriously affected. See Rush- Richardson, 574 F.3d at 913 (noting that a plainly erroneous jury instruction that was highlighted to the jury in a close case seriously affected the fairness and integrity of the trial). We conclude the district court committed plain error in giving the supplemental instruction, and Wisecarver's conviction on the depredation count should be reversed and remanded.1
C.
Finally, Wisecarver challenges his sentence as procedurally erroneous and substantively unreasonable. Because we reverse Wisecarver's conviction, we need not address his argument regarding his sentence. See Rush-Richardson, 574 F.3d at 913 (holding that because the court reversed the defendant's conviction, it did not have to address his arguments regarding his sentence).
III.
Accordingly, the judgment of the district court is reversed. The case is remanded to the district court with directions to vacate its judgment of conviction on the depredation count and its sentence. ______________________________
We decline to address Wisecarver's argument that the district court erred in not instructing the jury on self-defense regarding the depredation count initially because we reverse under a plain error review of the supplemental instruction. |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
XILINX, INC., AND CONSOLIDATED SUBSIDIARIES, Petitioner-Appellee, No. 06-74246 v. Tax Ct. No. COMMISSIONER OF INTERNAL 702-03 REVENUE, Respondent-Appellant.
XILINX, INC., AND CONSOLIDATED SUBSIDIARIES, No. 06-74269 Petitioner-Appellee, v. Tax Ct. No. 4142-01 COMMISSIONER OF INTERNAL OPINION REVENUE, Respondent-Appellant. Appeal from a Decision of the United States Tax Court Maurice B. Foley, Tax Court Judge, Presiding
Argued and Submitted March 12, 2008—San Francisco, California
Filed March 22, 2010
Before: Stephen Reinhardt, John T. Noonan, Jr. and Raymond C. Fisher, Circuit Judges.
Opinion by Judge Noonan; Concurrence by Judge Fisher; Dissent by Judge Reinhardt
4600 XILINX, INC v. CIR
.
COUNSEL
Gilbert S. Rothenberg, Richard Farber and Arthur T. Catterall (argued), Tax Division, Department of Justice, Washington, D.C., for the respondent-appellant.
Ronald B. Schrotenboer, Kenneth B. Clark (argued) and Tyler A. Baker, Fenwick & West LLP, Mountain View, California, for the petitioner-appellee.
Alice E. Loughran, Steptoe & Johnson LLP, Washington, D.C., for amici curiae Cisco Systems, Inc., and Altera Corpo- ration.
A. Duane Webber, Baker & McKenzie LLP, Washington, D.C., for amici curiae Software Finance and Tax Executives Council and AeA. XILINX, INC v. CIR 4601 OPINION
NOONAN, Circuit Judge:
On this appeal from the tax court, we must decide whether, under the tax regulations in effect during tax years 1997, 1998 and 1999, related companies engaged in a joint venture to develop intangible property must include the value of certain stock option compensation one participant gives to its employees in the pool of costs to be shared under a cost shar- ing agreement, even when companies operating at arm’s length would not do so. The tax court found related compa- nies are not required to share such costs and ruled that the Commissioner of Internal Revenue’s attempt to allocate such costs was arbitrary and capricious. We affirm.
I. BACKGROUND
Xilinx, Inc. (“Xilinx”) researches, develops, manufactures, and markets integrated circuit devices and related develop- ment software systems. Xilinx wanted to expand its position in the European market and established Xilinx Ireland (“XI”) in 1994 as an unlimited liability company under the laws of Ireland. XI sold programmable logic devices and conducted research and development (“R&D”). Two wholly owned Irish subsidiaries of Xilinx owned XI during the tax years of 1997, 1998 and 1999, the only years at issue in this appeal.
In 1995, Xilinx and XI entered into a Cost and Risk Shar- ing Agreement (“the Agreement”), which provided that all right, title and interest in new technology developed by either Xilinx or XI would be jointly owned. Under the Agreement, each party was required to pay a percentage of the total R&D costs in proportion to the anticipated benefits to each from the new technology that was expected to be created. Specifically, the Agreement required the parties to share: (1) direct costs, defined as costs directly related to the R&D of new technol- ogy, including, but not limited to, salaries, bonuses and other 4602 XILINX, INC v. CIR payroll costs and benefits; (2) indirect costs, defined as costs incurred by departments not involved in R&D that generally benefit R&D, including, but not limited to, administrative, legal, accounting and insurance costs; and (3) costs incurred to acquire products or intellectual property rights necessary to conduct R&D. The Agreement did not specifically address whether employee stock options (ESOs) were a cost to be shared.
Xilinx offered ESOs to its employees under two plans. Under one plan, employees were granted options as part of the employee hiring and retention program. The options were of two varieties: incentive stock options (ISOs) and nonstatu- tory stock options (NSOs). Employees could exercise these options two ways: (1) by purchasing the stock at the market price on the day the option was issued (“exercise price”) regardless of its then-current market price or (2) by simulta- neously exercising the option at the exercise price and selling it at its then-current price, pocketing the difference. Under the other plan, employees could acquire employee stock purchase plan shares (ESPPs) by contributing to an account through payroll deductions and purchasing stock at 85 percent of either its exercise price or its market price on the purchase date. Employees must always pay taxes on NSOs, see 26 U.S.C. § 83, but have to pay taxes on ISOs and ESPPs only if they sell acquired stock shares before a specified waiting period has expired (“a disqualifying disposition”), see 26 U.S.C. § 421(b). In determining the R&D costs to be shared under the Agreement for tax years 1997, 1998 and 1999, Xilinx did not include any amount related to ESOs.
In tax years 1997, 1998 and 1999, Xilinx deducted as busi- ness expenses under 26 U.S.C. §§ 83 and 162 approximately $41,000,000, $40,000,000 and $96,000,000, respectively, based on its employees’ exercises of NSOs or disqualifying dispositions of ISOs and ESPPs.1 It also claimed an R&D Under 26 U.S.C. § 162(a)(1), employers may deduct from their taxable income “all the ordinary and necessary expenses paid or incurred during XILINX, INC v. CIR 4603 credit under 26 U.S.C. § 41 for wages related to R&D activ- ity, of which approximately $34,000,000, $23,000,000 and $27,000,000 in the respective tax years were attributable to exercised NSOs or disqualifying dispositions of ISOs and ESPPs.2 Furthermore, in 1996 Xilinx and XI entered into two agreements that allowed XI employees to acquire options for Xilinx stock. Both agreements provided XI would pay Xilinx for the “cost” of the XI employees’ exercise of the stock options, which was to equal the stock’s market price on the exercise date minus the exercise price. In the 1997, 1998 and 1999 tax years, XI paid Xilinx $402,978, $243,094 and $808,059, respectively, under these agreements.
The Commissioner of Internal Revenue (“Commissioner”) issued notices of deficiency against Xilinx for tax years 1997, 1998 and 1999, contending ESOs issued to its employees involved in or supporting R&D activities were costs that should have been shared between Xilinx and XI under the Agreement. Specifically, the Commissioner concluded the amount Xilinx deducted under 26 U.S.C. § 83(h) for its employees’ exercises of NSOs or disqualifying dispositions of ISOs and ESPPs should have been shared. By sharing those costs with XI, Xilinx’s deduction would be reduced, thereby increasing its taxable income. The Commissioner’s determi- nation resulted in substantial tax deficiencies and accuracy- related penalties under 26 U.S.C. § 6662(a).
Xilinx timely filed suit in the tax court. The tax court denied cross motions for summary judgment. After a bench
the taxable year in carrying on any trade or business, including a reason- able allowance for salaries or other compensation for personal services actually rendered.” Under 26 U.S.C. § 83(h), employers may deduct under § 162 the value of any property transferred to an employee in connection with the performance of employment. Under 26 U.S.C. § 41(b)(2)(A), companies can claim a tax credit for “wages paid or incurred to an employee for qualified [research] services performed by such employee.” 4604 XILINX, INC v. CIR trial, the tax court found that two unrelated parties in a cost sharing agreement would not share any costs related to ESOs. After assuming ESOs were costs for purposes of 26 C.F.R. § 1.482-7(d)(1), the tax court then found 26 C.F.R. § 1.482- 1(b)(1) — which requires cost sharing agreements between related parties to reflect how two unrelated parties operating at arm’s length would behave — dispositive and concluded the Commissioner’s allocation was arbitrary and capricious because it included the ESOs in the pool of costs to be shared under the Agreement, even though two unrelated companies dealing with each other at arm’s length would not share those costs.
The Commissioner timely appealed. On appeal, the parties focused primarily on whether the requirement in 26 C.F.R. § 1.482-7(d)(1) that “all costs” be shared between related par- ties in a cost sharing agreement or whether the controlling requirement was 26 C.F.R. § 1.482-1(b)(1) that all transac- tions between related parties reflect what two parties operat- ing at arm’s length would do. After oral argument, we requested supplemental briefing on whether ESOs were “costs” and whether they were “related to” the intangible product development for purposes of 26 C.F.R. § 1.482- 7(d)(1), and whether a literal application of 26 C.F.R. § 1.482-7(d)(1) would conflict with a tax treaty between the United States and Ireland that was in effect during the 1998 and 1999 tax years.
II. STANDARD OF REVIEW
“Decisions of the tax court are reviewed on the same basis as decisions from civil bench trials in the district court.” DHL Corp. v. Comm’r, 285 F.3d 1210, 1216 (9th Cir. 2002). “Thus, we review the tax court’s conclusions of law de novo and its factual findings for clear error.” Id.
III. DISCUSSION
The Commissioner does not dispute the tax court’s factual finding that unrelated parties would not share ESOs as a cost. XILINX, INC v. CIR 4605 Instead, the Commissioner maintains ESOs are a cost that must be shared under § 1.482-7(d)(1), even if unrelated par- ties would not share them.
[1] Ambiguity. Congress has authorized the Secretary of the Treasury to allocate income and deductions among related business entities to prevent tax avoidance.
In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indi- rectly by the same interests, the Secretary may dis- tribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he deter- mines that such distribution, apportionment, or allo- cation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. In the case of any transfer (or license) of intangible property (within the meaning of section 936(h)(3)(B)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible.
26 U.S.C. § 482. The Secretary in turn promulgated regula- tions authorizing the Commissioner to allocate income and deductions among related entities. The introduction to these regulations explains:
The purpose of section 482 is to ensure that taxpay- ers clearly reflect income attributable to controlled transactions and to prevent the avoidance of taxes with respect to such transactions. Section 482 places a controlled taxpayer on a tax parity with an uncon- trolled taxpayer by determining the true taxable income of the controlled taxpayer. This section sets 4606 XILINX, INC v. CIR forth general principles and guidelines to be fol- lowed under section 482.
26 C.F.R. § 1.482-1(a)(1).3 The next subsection states that the standard to be employed “in every case” to ensure taxpayers accurately reflect income from controlled transactions and do not avoid taxes through such transactions is an arm’s length standard:
In determining the true taxable income of a con- trolled taxpayer, the standard to be applied in every case is that of a taxpayer dealing at arm’s length with an uncontrolled taxpayer. A controlled transaction meets the arm’s length standard if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same cir- cumstances (arm’s length result). However, because identical transactions can rarely be located, whether a transaction produces an arm’s length result gener- ally will be determined by reference to the results of comparable transactions under comparable circum- stances.
26 C.F.R. § 1.482-1(b)(1).
Another section, however, specifically governing cost shar- ing agreements between controlled parties to develop intangi- ble property, authorizes the Internal Revenue Service “to make each controlled participant’s share of the costs (as deter- mined under paragraph (d) of this section) of intangible devel- opment under the qualified cost sharing arrangement equal to its share of reasonably anticipated benefits attributable to such Controlled taxpayer is defined as “any one of two or more taxpayers owned or controlled directly or indirectly by the same interests, and includes the taxpayer that owns or controls the other taxpayers.” 26 C.F.R. § 1.482-1(i)(5). XILINX, INC v. CIR 4607 development . . . .” 26 C.F.R. § 1.482-7(a)(2). Controlled par- ticipants, under paragraph (d) of § 1.482-7, must include “all” costs in the pool of costs to be shared proportionally (the “all costs requirement”):
For purposes of this section, a controlled partici- pant’s costs of developing intangibles for a taxable year mean all of the costs incurred by that participant related to the intangible development area, plus all of the cost sharing payments it makes to other con- trolled and uncontrolled participants, minus all of the cost sharing payments it receives from other con- trolled and uncontrolled participants. Costs incurred related to the intangible development area consist of: operating expenses, as defined in § 1.482-5(d)(3), other than depreciation or amortization expense, plus (to the extent not included in such operating expenses, as defined in § 1.482-5(d)(3)) the charge for the use of any tangible property made available to the qualified cost sharing arrangement.
26 C.F.R. § 1.482-7(d)(1). “Operating expenses” are defined as “includ[ing] all expenses not included in cost of goods sold except for interest expense, foreign income taxes, domestic income taxes, and any other expenses not related to the opera- tion of the relevant business activity.” 26 C.F.R. § 1.482- 5(d)(3). How these various provisions interact is the crux of the parties’ dispute.
[2] Section 1.482-1(b)(1) specifies that the true taxable income of controlled parties is calculated based on how par- ties operating at arm’s length would behave. The language is unequivocal: this arm’s length standard is to be applied “in every case.” In the context of cost sharing agreements, this rule would require controlled parties to share only those costs uncontrolled parties would share. By implication, costs that uncontrolled parties would not share need not be shared. In contrast, § 1.482-7(d)(1) specifies that controlled parties in a 4608 XILINX, INC v. CIR cost sharing agreement must share all “costs . . . related to the intangible development area,” and that phrase is explicitly defined to include virtually all expenses not included in the cost of goods. The plain language does not permit any excep- tions, even for costs that unrelated parties would not share. Each provision’s plain language mandates a different result. Accordingly, we conclude that when related to each other, the two provisions establish an ambiguous standard for determin- ing which costs must be shared between controlled parties in cost sharing agreements specifically related to intangible product development.
Given the resultant ambiguity, our choice is to:
1. Apply a rule of thumb: the specific controls the general.
2. Resolve the ambiguity based on the dominant purpose of the regulations.
The first alternative is a simple solution. It is plausible. But it is wrong. It converts a canon of construction into something like a statute.
[3] Often the specific controls the general. This rule has been used by the Supreme Court. E.g., Long Island Care At Home, Ltd. v. Coke, 127 S. Ct. 2339, 2348 (2007). Apply this simple rule here, and section 1.482-7(d)(1) controls. The con- flict dissolves. The Commissioner is vindicated.
[4] This simple solution is all too pat. It gives controlling importance to a single canon of construction. But, as every judge knows, the canons of construction are many and their interaction complex. The canons “are not mandatory rules.” Chickasaw Nation v. United States, 534 U.S. 84, 94 (2001). They are guides “designed to help judges determine the Leg- islature’s intent.” Id. They can be “overcome” by “other cir- cumstances” manifesting that intent. Id. The canons are “tools XILINX, INC v. CIR 4609 designed to help courts better determine what Congress intended, not to lead courts to interpret the law contrary to that intent.” Scheidler v. National Org. of Women, Inc., 547 U.S. 9, 23 (2006). In the light of these principles, two consid- erations show the Commissioner’s position to be untenable.
[5] Purpose. Purpose is paramount. The purpose of the regulations is parity between taxpayers in uncontrolled trans- actions and taxpayers in controlled transactions. The regula- tions are not to be construed to stultify that purpose. If the standard of arm’s length is trumped by 7(d)(1), the purpose of the statute is frustrated. If Xilinx cannot deduct all its stock option costs, Xilinx does not have tax parity with an indepen- dent taxpayer.
[6] Treaties. The “arm’s length” standard used in the United States Ireland Tax Treaty RIA Int. Tax Treaty 3057, aids in understanding the mind and practice of the Treasury. A tax treaty is negotiated by the United States with the active participation of the Treasury. The Treasury’s reading of the treaty is “entitled to great weight.” United States v. Stuart, 489 U.S. 353, 369 (1989) (quoting Sumitomo Shoji America, Inc. v. Aragliano, 457 U.S. 176, 184-185 (1982)). Simulta- neous with the signing of the treaty into law, the Treasury issued its “Technical Explanation.” As to Article 9, the Expla- nation reads:
This article incorporates in the Convention the arm’s length principle reflected in the U.S. domestic transfer pricing provision, particularly Code section 482.
Department of the Treasury Technical Explanation of the 1997 United States-Ireland Tax Treaty, RIA Int. Tax Treaty 3095. See also, e.g., United States-France, Article 9 (RIA Int. Tax Treaty 2225); United States-Germany, Article 9 (RIA Int. Tax Treaty 1542); and United States-United Kingdom, Article 9 (RIA Int. Tax Treaty 2546). 4610 XILINX, INC v. CIR We do not, however, need to decide in this case whether the treaty obligations “constitute binding federal law enforce- able in United States courts.” Medellin v. Texas, 128 S. Ct. 1346, 1356 (2008). It is enough that our foreign treaty part- ners and responsible negotiators in the Treasury thought that arm’s length should function as the readily understandable international measure.
The judgment of the tax court is AFFIRMED.
FISHER, Circuit Judge, concurring:
I concur, but write to explain my particular reasons for rejecting the Commissioner’s position in this case.
The parties provide dueling interpretations of the “arm’s length standard” as applied to the ESO costs that Xilinx and XI did not share. Xilinx contends that the undisputed fact that there are no comparable transactions in which unrelated par- ties share ESO costs is dispositive because, under the arm’s length standard, controlled parties need share only those costs uncontrolled parties share. By implication, Xilinx argues, costs that uncontrolled parties would not share need not be shared.
On the other hand, the Commissioner argues that the com- parable transactions analysis is not always dispositive. The Commissioner reads the arm’s length standard as focused on what unrelated parties would do under the same circum- stances, and contends that analyzing comparable transactions is unhelpful in situations where related and unrelated parties always occupy materially different circumstances. As applied to sharing ESO costs, the Commissioner argues (consistent with the tax court’s findings) that the reason unrelated parties do not, and would not, share ESO costs is that they are unwill- ing to expose themselves to an obligation that will vary with XILINX, INC v. CIR 4611 an unrelated company’s stock price. Related companies are less prone to this concern precisely because they are related — i.e., because XI is wholly owned by Xilinx, it is already exposed to variations in Xilinx’s overall stock price, at least in some respects. In situations like these, the Commissioner reasons, the arm’s length result must be determined by some method other than analyzing what unrelated companies do in their joint development transactions.
Under Xilinx’s interpretation, § 1.482-1(b)(1) and § 1.482- 7(d)(1) are irreconcilable. The latter specifies that controlled parties in a cost sharing agreement must share all “costs . . . related to the intangible development area,” and that phrase is explicitly defined to include virtually all expenses not included in the cost of goods. The plain language does not permit any exceptions, even for costs that unrelated parties would not share, so each provision mandates a different result.
Under the Commissioner’s interpretation, § 1.482-7(d)(1)’s “all costs” requirement is consistent with § 1.482-1(b)(1)’s arm’s length standard and controls. In particular, the Commis- sioner argues that, because there are material differences in the economic circumstances of related and unrelated compa- nies in relation to cost-sharing agreements like the one in this case, it was proper for the IRS to require that in this narrow context the arm’s length result should be defined by the “all costs” requirement.
Having thoroughly considered not only the plain language of the regulations but also the various interpretive tools the parties and amici have brought before us, including the legis- lative history of § 482, the drafting history of the regulations, persuasive authority from international tax treaties1 and what I agree that the 1997 United States-Ireland Tax Treaty, along with Treasury’s Technical Explanation, although not addressing the specific regulatory conflict at issue here, is evidence that Xilinx’s understanding of the arm’s length standard was and is quite reasonable. The treaty, and others like it, reinforce the arm’s length standard as Congress’ intended touchstone for § 482. 4612 XILINX, INC v. CIR appears to have been the understanding of corporate taxpayers in similar circumstances and of others,2 I conclude that Xilinx’s understanding of the regulations is the more reason- able even if the Commissioner’s current interpretation may be theoretically plausible. Traditional tools of statutory construc- tion do not resolve the apparent conflict in these regulations as applied to Xilinx, and the Commissioner’s attempts to square the “all costs” regulation with the arm’s length stan- dard have only succeeded in demonstrating that the regula- tions are at best ambiguous.3
Although I would not go so far as Xilinx in characterizing the Commissioner’s interpretation as merely a “convenient lit- igating position,” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 213 (1988), we need not defer to it because he has not clearly articulated his rationale until now. See United States v. Thompson/Ctr. Arms Co., 504 U.S. 505, 518-19 & n.9 (1992) (declining to defer to an agency interpretation of a tax statute where no prior guidance went directly “to the narrow question presented”). Indeed, I am troubled by the complex, theoretical nature of many of the Commissioner’s arguments trying to reconcile the two regulations. Not only Apparently Xilinx’s understanding was widely shared in the business community and tax profession. See Brief of PricewaterhouseCoopers LLP, Deloitte Tax LLP and KMPG LLM as Amici Curiae on the Petition for Rehearing at 5-6 (describing a “global consensus”); Brief of Cisco Sys- tems, Inc. and Thirty-Two Other Affected Companies as Amici Curiae on the Petition for Rehearing at 3 (describing “settled business expecta- tions”); cf. Brief of Former U.S. Treasury and Internal Revenue Service Officials at 3-5. The dissent invokes the prior, withdrawn majority opinion. Dissent at 4613-14; see Xilinx, Inc. v. CIR, 567 F.3d 482 (9th Cir. 2009), withdrawn January 13, 2010. In writing that opinion, I was persuaded that the arm’s length standard and the all costs regulation were in conflict, and that the more specific of the two should control. See 567 F.3d at 486. I no longer share Judge Reinhardt’s confidence in that resolution because the Com- missioner’s response to Xilinx’s petition for rehearing declined to fully endorse its reasoning. Instead, the thrust of the Commissioner’s response was that our result was correct, even though our reasoning was not. XILINX, INC v. CIR 4613 does this make it difficult for the court to navigate the regula- tory framework, it shows that taxpayers have not been given clear, fair notice of how the regulations will affect them.4
Accordingly, I join Judge Noonan in affirming the tax court. These regulations are hopelessly ambiguous and the ambiguity should be resolved in favor of what appears to have been the commonly held understanding of the meaning and purpose of the arm’s length standard prior to this litigation.
REINHARDT, Circuit Judge, dissenting:
I have considerable doubt as to whether Xilinx, Inc. (“Xilinx”) and Xilinx Ireland allocated the costs associated with employee stock options in a manner that can be charac- terized as an arm’s length result. I will assume, however, that the tax court correctly resolved that issue. If so, there is clearly a conflict between the arm’s length regulation codified at 26 C.F.R. § 1.482-1(b)(1), which applies to all transactions between controlled parties, and the “all costs” regulation codi- fied at § 1.482-7(d)(1), which applies only to cost-sharing arrangements between controlled parties.1 I continue to believe that, as a matter of law, the “all costs” regulation, as the specific of the two provisions, the one designed to deal specifically with the type of question before us, controls. I would therefore reverse the tax court’s ruling that the Com- missioner’s proposed allocation was arbitrary and capricious for the reasons explained in our opinion, Xilinx Inc. v. CIR, It is an open question whether these flaws have been addressed in the new regulations Treasury issued after the tax years at issue in this case. See 26 C.F.R. § 1.482-7T(a) & (d)(1)(iii) (2009) (stating explicitly that ESOs are costs that must be shared and that the all costs requirement is an arm’s length result). To be clear, I refer here only to the regulations in effect during tax years 1997, 1998, and 1999. I express no view as to whether subsequent regulations resolved this conflict. 4614 XILINX, INC v. CIR 567 F.3d 482 (9th Cir. 2009), withdrawn on January 13, 2010 in anticipation of the issuance of Judge Noonan’s and Judge Fisher’s new opinions, supra.
I agree with the majority that the canons of construction “are not mandatory rules,” and that their interpretive force can be overcome by other circumstances evidencing legislative intent. Maj. op. at 4608-09 (quoting Chickasaw Nation v. United States, 534 U.S. 84, 94 (2001)). Such circumstances, however, are not present here. Contrary to the majority’s assertions, the conflict between the arm’s length provision and the “all costs” requirement cannot be resolved by looking to the purpose of the regulations or to Treasury’s Technical Explanation of the 1997 United States-Ireland Tax Treaty. Judge Fisher also looks to the understanding of the multina- tional corporations and their business and tax advisors, a dubi- ous practice for which he cites no legal authority.
The stated purpose of the regulatory scheme is “to ensure that taxpayers clearly reflect income attributable to controlled transactions and to prevent the avoidance of taxes with respect to such transactions.” 26 C.F.R. § 1.482-1(1)(a). In the context of this case, neither regulation more clearly imple- ments that purpose than the other. Controlled and uncon- trolled parties always operate under materially different circumstances with regard to employee stock option costs. Accordingly, the “all costs” regulation may simply reflect the conclusion that, whatever uncontrolled parties might do, requiring controlled parties to share such costs “ensure[s] that taxpayers clearly reflect [the] income attributable to [the] con- trolled transaction[ ]” as a whole. Nor is it clear that excluding those costs would better achieve tax parity. It is not the iden- tity of treatment with respect to a single item that controls with respect to this general goal, but the overall manner in which the transaction is treated. The Commissioner has deter- mined that including “all costs” is the best manner of achiev- ing this general objective, and his decision does not appear to be unreasonable. XILINX, INC v. CIR 4615 Similarly, Treasury’s Technical Explanation of the 1997 United States-Ireland Tax Treaty does not justify disregarding the “all costs” requirement when determining deductible costs. A Technical Explanation is not subject to the APA’s notice and comment requirement and does not carry the force of law. See 5 U.S.C. § 553(a)(1) (exempting “foreign affairs function[s] of the United States” from the APA); see, e.g., Explanation of Convention with Ireland (1997) (“The Techni- cal Explanation is an official guide to the Convention and Protocol.” (emphasis added)). Certainly, it cannot trump the plain language of the duly enacted “all costs” regulation, which does have the force of law and is entitled to this court’s deference. United States v. Mead Corp., 533 U.S. 218, 226-27 (2001); cf. Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739, 748 (2004) (“[N]either an unreasoned statement in the manual nor allegedly longstanding agency practice can trump a formal regulation with . . . the force of law.”).
I recognize that Xilinx and amici have raised serious doubts as to whether the result that I believe to be legally required is, from both a practical and an equitable standpoint, the proper one. I am particularly troubled by the international tax conse- quences that such a result would apparently create. Tax law, however, involves the resolution by Congress of complex political and economic issues that sometimes may affect busi- ness or individual interests in unforeseen ways, and some- times in ways that benefit one political or economic interest at the expense of another. These resolutions are not always arrived at in an open, objective, or non-political manner. To put it plainly, fairness is not always Congress’s ultimate objective in enacting tax legislation. Accordingly, some pro- visions of tax law may appear to some businesses, individu- als, or even judges to be in conflict with reasonable or sensible tax or national policy. Yet they may reflect the intent of Congress when it enacted the statute. Tax regulations are frequently even more complex than the legislation they imple- ment, and it is often difficult for judges to clearly resolve their meaning. Still, it is the job of the courts to make the necessary 4616 XILINX, INC v. CIR determinations and in doing so to apply established legal rules and principles. By contrast, it is the business of Congress and the Treasury, not the courts, to correct any errors in those stat- utes or regulations, especially as they can be readily corrected once they are called to their attention.
For the reasons I have explained, it is particularly inappro- priate for courts to resolve tax cases on a practical or equita- ble basis or to interpret tax statutes and regulations other than strictly in accordance with settled legal principles. The canon of construction under which the specific controls the general is one such settled legal principle, and one that is especially pertinent here. Indeed, it is controlling. I adhere to the previ- ous majority opinion of this court.2
For these reasons, I respectfully dissent.
I, like Judge Fisher, am less than enthusiastic about the Commission- er’s explanation of how he believes we should resolve this case. His pref- erence is that we find somehow that the arm’s length standard is met by way of the all costs requirement. I must confess that I have difficulty fol- lowing his reasoning and, like Judge Fisher, am not persuaded by that argument. However, the Commissioner then says that if we still believe that the two provisions are in conflict, we must apply the rule on which Judge Fisher originally relied and on which I continue to rely. I guess I am just not as sensitive as Judge Fisher. Simply because the Commis- sioner advanced an argument that we reject, but then argued that if we reject it, we should apply the rule that we held applicable in our opinion is hardly a reason for abandoning the rule that we believed to be correct. We can’t expect anyone, let alone the Commissioner of Internal Revenue, to agree completely with everything we say. Rejecting the Commission- er’s first argument leaves us exactly where we were before he advanced it: The two regulations are in conflict, and (as Judge Fisher and I once agreed) that conflict must be resolved by applying the specific regulation rather than the general one. |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
COMPTON UNIFIED SCHOOL DISTRICT, Plaintiff-Appellant, No. 07-55751 v. D.C. No. STARVENIA ADDISON; GLORIA CV-06-04717-AHM ALLEN, Defendants-Appellees.
COMPTON UNIFIED SCHOOL DISTRICT, Plaintiff-Appellant, No. 07-56013 v. D.C. No. CV-06-04717-AHM STARVENIA ADDISON; GLORIA ALLEN, OPINION Defendants-Appellees. Appeal from the United States District Court for the Central District of California A. Howard Matz, District Judge, Presiding
Argued and Submitted October 23, 2008—Pasadena, California
Filed March 22, 2010
Before: Harry Pregerson and N. Randy Smith, Circuit Judges, and Raner C. Collins,* District Judge.
*The Honorable Raner C. Collins, United States District Judge for the District of Arizona, sitting by designation.
4666 COMPTON USD v. ADDISON Opinion by Judge Pregerson; Dissent by Judge N.R. Smith COMPTON USD v. ADDISON 4667
COUNSEL
Barrett K. Green and Daniel J. Cravens, Littler Mendelson, Los Angeles, California, for the appellant. 4668 COMPTON USD v. ADDISON George D. Crook, Newman Aaronson Vanaman, Sherman Oaks, California, for the appellee.
OPINION
PREGERSON, Circuit Judge:
Compton Unified School District (the “School District”) appeals the district court’s decision granting judgment on the pleadings in favor of Starvenia Addison (“Addison”), a stu- dent in the School District. The School District argues that Addison does not have a cognizable claim against the School District for its failure to identify her disabilities. We have jurisdiction under 28 U.S.C. § 1291. We review matters of law, such as the jurisdictional issue raised here, de novo, see Johnson v. Special Educ. Hearing Office, 287 F.3d 1176, 1179 (9th Cir. 2002), and affirm.
I. Background
Addison received very poor grades and scored below the first percentile on standardized tests during her ninth-grade year in 2002-2003. The school counselor attributed Addison’s poor performance to common “transitional year” difficulties. The counselor did not consider it atypical for a ninth-grader such as Addison to perform at a fourth-grade level.
In the fall of her tenth-grade year, Addison failed every academic subject. The counselor considered these grades to be a “major red flag.” Teachers reported that Addison was “like a stick of furniture” in class, and that her work was “gib- berish and incomprehensible.” Teachers also reported that Addison sometimes refused to enter the classroom, colored with crayons at her desk, played with dolls in class, and uri- nated on herself in class. COMPTON USD v. ADDISON 4669 Addison’s mother was reluctant to have the child “looked at,” and School District officials decided not to “push.” Instead, the School District referred Addison to a third-party mental-health counselor. The third-party counselor recom- mended that the School District assess Addison for learning disabilities. Despite the recommendation, the School District did not refer Addison for an educational assessment, and instead promoted Addison to eleventh grade.
In September 2004, Addison’s mother wrote a letter to the School District explicitly requesting an educational assess- ment and Individualized Education Program (“IEP”) meeting. The assessment took place on December 8, 2004. The IEP team determined that Addison was eligible for special educa- tion services on January 26, 2005.
Addison brought an administrative claim under the Individ- uals with Disabilities Education Act (“IDEA”), 20 U.S.C. §§ 1400-1485, seeking compensatory educational services for the School District’s failure to identify her needs and provide a free appropriate public education. The administrative law judge found for Addison, and the district court affirmed. This appeal timely followed.
II. Analysis
A. IDEA Claims
[1] The IDEA seeks to ensure that children with disabili- ties have access to a free appropriate public education. 20 U.S.C. § 1400. The IDEA “provides federal funds to assist state and local agencies in educating children with disabilities, but conditions such funding on compliance with certain goals and procedures.” Ojai Unified Sch. Dist. v. Jackson, 4 F.3d 1467, 1469 (9th Cir. 1993). One of these conditions is that states enact policies and procedures ensuring that “all children with disabilities . . . who are in need of special education ser- vices[ ] are identified, located, and evaluated.” 20 U.S.C. 4670 COMPTON USD v. ADDISON § 1412(a)(3)(A). This obligation is also known as the “child find” requirement.
[2] The IDEA also requires states to implement a number of procedural safeguards to ensure that disabled children receive an appropriate education. Among these safeguards is the opportunity for any party to present a complaint “with respect to any matter relating to the identification, evaluation, or educational placement of the child.” 20 U.S.C. § 1415(b)(6)(A). 34 C.F.R. § 300.507 implements this due process complaint requirement.
[3] As another, separate procedural safeguard, the IDEA requires that local educational agencies provide written notice to a child’s parents whenever the agency “proposes to initiate or change” or “refuses to initiate or change the identification, evaluation, or educational placement of the child . . . .” 20 U.S.C. § 1415(b)(3). 34 C.F.R. § 300.503(a) implements these notice requirements.
[4] California, in compliance with the IDEA, mandates that local educational agencies “shall actively and systemati- cally seek out all individuals with exceptional needs.” Cal. Educ. Code § 56300. “All children with disabilities . . . shall be identified, located, and assessed.” Cal. Educ. Code § 56301(a). California also allows parents to initiate a due process hearing when there is a proposal or a refusal to initi- ate or change “the identification, assessment, or educational placement” of a child. Cal. Educ. Code § 56501(a).
The School District first argues that the IDEA’s written notice procedures limit the jurisdictional scope of the due pro- cess complaint procedure. The notice provisions set forth in 20 U.S.C. § 1415(b)(3) and 34 C.F.R. § 300.503(a) apply to proposals or refusals to initiate a change regarding a student’s identification, assessment, or placement. The School District asserts that, because it chose to ignore Addison’s disabilities and take no action, it has not affirmatively refused to act. The COMPTON USD v. ADDISON 4671 School District therefore contends that the notice requirement does not apply. The School District further asserts that there can be no due process right to file a claim unless the notice provisions specifically apply to such a claim. We reject this argument.
[5] We read statutes as a whole, and avoid statutory inter- pretations which would produce absurd results. See United States v. Morton, 467 U.S. 822, 828 (1984); Arizona State Bd. for Charter Schools v. United States Dep’t of Educ., 464 F.3d 1003, 1008 (9th Cir. 2006). As the Supreme Court recently stated in the context of an unrelated provision of the IDEA, a “reading of the [Individuals with Disabilities Education] Act that left parents without an adequate remedy when a school district unreasonably failed to identify a child with disabilities would not comport with Congress’ acknowledgment of the paramount importance of properly identifying each child eli- gible for services.” Forest Grove School Dist. v. T.A., 129 S.Ct. 2484, 2495 (2009). The jurisdictional requirements for an IDEA complaint are clearly set out in 20 U.S.C. § 1415(b)(6)(A), apart from the notice provisions of 20 U.S.C. § 1415(b)(3). Section 1415(b)(6)(A) states that a party may present a complaint “with respect to any matter relating to the identification, evaluation, or educational placement of the child.” (emphasis added). The notice requirements of 20 U.S.C. § 1415(b)(3) do not cabin this broad jurisdictional man- date.1 Addison’s claim is cognizable under the IDEA.2 The School District also argues that notice requirements in 20 U.S.C. § 1415(b)(7)(A) strictly limit the scope of 20 U.S.C. § 1415(b)(6). Strict adherence to the language of Section (b)(7)(A), however, would conflict not only with 20 U.S.C. § 1415(b)(6) (granting jurisdiction over “any mat- ter”), but also with 20 U.S.C. § 1415(b)(3) (establishing notice require- ments where an agency proposes or refuses to act). Section (b)(7)(A)(ii)(III) requires “a description of the nature of the problem of the child relating to such proposed initiation or change.” Nowhere does Sec- tion (b)(7)(A) refer to a refusal to act, despite the explicit inclusion of such language in Section (b)(3). “It is a well-established principle of statutory construction that legislative enactments should not be construed to render 4672 COMPTON USD v. ADDISON [6] The School District also contends, based on Arlington Century School Dist. Bd. of Ed. v. Murphy, 548 U.S. 291 (2006), that it did not have “clear notice” of the availability of an administrative hearing in “child find” cases. This argu- ment has no merit, as the IDEA clearly allows complaints “with respect to any matter relating to the identification, eval- uation, or educational placement of the child.” 20 U.S.C. § 1415(b)(6)(A) (emphasis added).
B. Attorneys’ Fees
[7] We lastly address, and reject, the School District’s argument that the district court’s award of attorneys’ fees should be vacated. The district court may, in its discretion, award attorneys’ fees to the prevailing party. Aguirre v. Los Angeles Unified School Dist., 461 F.3d 1114, 1115 (9th Cir. 2006). In Aguirre, we held that the “degree of success obtained” is the most critical factor in determining whether fees are warranted in an IDEA case. Id. at 1118. Citing Hen- ley v. Eckerhart, 461 U.S. 424 (1983), we also stated that
their provisions mere surplusage.” American Vantage Cos., Inc. v. Table Mountain Rancheria, 292 F.3d 1091, 1098 (9th Cir. 2002) (internal quota- tion omitted). We therefore do not accept the School District’s suggestion that we should read Section (b)(7)(A) to strictly control the scope of IDEA’s notice and jurisdictional provisions. Even if the School District were correct in its contention that IDEA claims may only be brought over proposals or affirmative refusals to initi- ate a change, Addison’s claim would still be cognizable. The School Dis- trict does not contest that a due process hearing is available when an education agency “refuses to initiate or change[ ] the identification, evalu- ation, or educational placement of the child, or the provision of a free appropriate education to the child.” 20 U.S.C. § 1415 (b)(3)(B). Instead, the School District seeks to cast its deliberate indifference as something other than a “refusal.” We do not agree with the School District’s charac- terization. To refuse is “to show or express an unwillingness to do . . . .” Webster’s New Collegiate Dictionary 972 (1973 ed.). The School Dis- trict’s wilful inaction in the face of numerous “red flags” is more than suf- ficient to demonstrate its unwillingness and refusal to evaluate Addison. COMPTON USD v. ADDISON 4673 there is “no precise rule or formula for making these determi- nations,” and that a district court may award “full fees even where a party did not prevail on every contention.” Id. at 1121 (citations omitted). Here, though the district court did not use the term “degree of success,” it did cite Aguirre as the appli- cable standard. Considering Addison’s substantial degree of success in administrative and district court proceedings, the district court did not abuse its discretion in awarding attor- neys’ fees.
III. Conclusion
We conclude that claims based on a local educational agen- cy’s failure to meet the “child find” requirement are cogniza- ble under the IDEA, and that here, the School District had clear notice of this fact. Accordingly, the district court’s orders granting judgment on the pleadings and awarding attor- neys’ fees are AFFIRMED.
N.R. Smith, Circuit Judge, dissenting:
The majority finds and district judge found that Congress clearly intended to create a cause of action when it drafted 20 U.S.C. § 1415 of the IDEA. I cannot agree. The clear lan- guage of the statute makes them wrong. Further, even if their position could be harmonized with the statute, one cannot find that Addison is entitled to relief on this record.
This case comes before our panel as an appeal from a judg- ment on the pleadings against Plaintiff, CUSD. We review de novo a Rule 12(c) judgment on the pleadings. Fleming v. Pic- kard, 581 F.3d 922, 925 (9th Cir. 2009). A judgment on the pleadings is proper if, taking all of CUSD’s allegations in its pleadings as true, Addison is entitled to judgment as a matter of law. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993). 4674 COMPTON USD v. ADDISON On appeal to the district court, CUSD only challenged whether the ALJ had authority to conduct a due process hear- ing, in which the ALJ could determine whether CUSD vio- lated the IDEA’s child-find provision. CUSD argued that, under the IDEA and state law, a due process hearing may be held only where the school district purposefully acts or refuses to act, not when the complained-of conduct is best described as negligence.
“In the absence of clear evidence of congressional intent, we may not usurp the legislative power by unilaterally creat- ing a cause of action.” In re Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1230-31 (9th Cir. 2008) (citing Touche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979) (“The ultimate question is one of congressional intent, not one of whether this Court thinks that it can improve upon the statutory scheme that Congress enacted into law.”)). Thus, the burden of establishing a private cause of action falls upon the plain- tiff; a burden Addison has not carried.
I. THE EXISTENCE OF A PRIVATE CAUSE OF ACTION
In federal court, parents may only challenge a school dis- trict’s failure to carry out its IDEA obligations based on the provisions of the IDEA. It is not a common law action, and an action cannot be brought against a school district pursuant to 42 U.S.C. § 1983. While the IDEA presents standards for educating children, a private right of action must exist in order for a court to grant relief for a statutory violation. Thus, it is not enough that Addison shows a statutory violation, she must also establish that the statute creates a private cause of action.
Looking first to the IDEA, Congress left the details of how the objectives of the IDEA are to be achieved to the states, by requiring those states who wish to obtain funding, “submit[ ] a plan that provides assurances to the Secretary that the State has in effect policies and procedures to ensure that the State COMPTON USD v. ADDISON 4675 meets [the conditions of the IDEA].” 20 U.S.C. § 1412(a). In California, this plan is found in Part 30 of the California Edu- cation Code. As set out in the California Education Code, the state has, in turn, given local education areas the task of estab- lishing written policies and procedures to govern implementa- tion of the IDEA in its area. Cal. Educ. Code § 56301(d)(1). Therefore, to determine whether parents may bring an IDEA due process hearing, one must consider all three plans: fed- eral, state, and local. Addison brought her claim for due pro- cess on the ground that CUSD violated the IDEA’s Child-find provision. The district court found § 1415(b)(6) and its accompanying regulation, 34 C.F.R. § 300.507, establish a private cause of action for violations of the Child-find provi- sion.
The plain language of § 1415 requires that states establish and maintain procedures allowing parties to present a com- plaint as to matters regarding identification of children.1 The Child-find provision, 20 U.S.C. § 1412(a)(3)(A), requires that the state has “in effect policies and procedures to ensure that the State meets . . . the following condition[ ]:”
All children with disabilities residing in the State, . . . regardless of the severity of their disabilities, and who are in need of special education and related ser- vices, are identified, located, and evaluated and a practical method is developed and implemented to determine which children with disabilities are cur- rently receiving needed special education and related services.
The state must present these policies and procedures to the When a statute only requires that the state or school district have a pro- cedure in place, governing a certain course of action, I refer to it as creat- ing a “procedural requirement.” However, when the statute actually governs the very course of action, I refer to it as creating a “substantive standard” or “substantive requirement.” 4676 COMPTON USD v. ADDISON satisfaction of the Secretary. Id. at § 1412(a). Section 1412 thus requires that the state have policies and procedures in place, to the satisfaction of the Secretary.
In § 1415, Congress requires that the education agency “shall establish and maintain procedures in accordance with this section to ensure that children with disabilities and their parents are guaranteed procedural safeguards with respect to the provision of free appropriate public education by such agencies.” Id. at § 1415(a) (emphases added). Looking at the plain language of § 1415, a school district “maintains” a pro- cedure when it follows and enforces that procedure. The list of procedures that must be maintained includes a procedure providing “[a]n opportunity . . . to present [ ] complaint[s] with respect to any matter relating to the identification, evalu- ation, or educational placement of the child . . . .” Id. at § 1415(b)(6)(A). By requiring that the states develop and maintain procedures governing initiating a due process hear- ing, Congress instructed the courts that we are to give defer- ence to the states.
California allows parents to initiate due process hearing procedures (as prescribed by Chapter 5, Part 30, Division 4, Title 2, of the California Education Code) under circum- stances where the school district has refused to initiate the identification, assessment, or education placement of a child. Cal. Educ. Code § 56501(a)(2). The majority holds that CUSD’s inaction, in the face of these troubling facts, amounts to a “refusal” under the IDEA. The majority cites no authority for its interpretation of the term “refusal.”
A. Defining “Refusal”
(1) Refusal Is Not Defined In The IDEA, The CFRs, or The California Education Code
The IDEA does not define the term “refusal.” However, it does discuss the consequences of a school district’s refusal to COMPTON USD v. ADDISON 4677 initiate identification, evaluation, or educational placement of a child of Addison’s age (at the relevant time) in its section on procedural safeguards. Section 1415 requires that states establish and maintain a procedure requiring the governmen- tal agency provide parents written prior notice whenever it “refuses to initiate or change, the identification, evaluation, or educational placement of the child.” 20 U.S.C. § 1415(b)(3)(B). Such notice must include :
(1) “a description of the action . . . refused by the agency,” § 1415(c)(1)(A);
(2) “an explanation of why the agency . . . refuses to take the action,” § 1415(c)(1)(B);
(3) “a description of each evaluation procedure, assessment, record, or report the agency used as a basis for the . . . refused action,” Id.;
(4) “a description of other options considered by the IEP Team and the reasons why those options were rejected,” § 1415(c)(1)(E); and
(5) “a description of the factors that are relevant to the agency’s . . . refusal,” § 1415(c)(1)(F).
The regulations accompanying the IDEA also do little to help this court interpret “refusal.” An agency must give writ- ten notice to the parent of a child with a disability “a reason- able time before the public agency” “[r]efuses to initiate or change the identification, evaluation, or educational place- ment of the child.” 34 C.F.R. § 300.503(a)(2). The regulation mimics § 1415 as to the required contents of that notice, in that it requires that the notice include all five of the statements listed above. 34 C.F.R. §§ 300.503(b)(1), (b)(2), (b)(3), (b)(6), (b)(7).
The California Education Code repeats the requirements found in the IDEA and accompanying CFRs without adding 4678 COMPTON USD v. ADDISON any more detailed definition for “refusal.” Pursuant to § 1415(b)(3) and 34 C.F.R. § 300.503, California requires a public agency provide parents with prior written notice upon a child’s initial assessment, and notice a reasonable time before its refusal to initiate or change identification, assess- ment, or educational placement of a child. Cal. Educ. Code § 56500.4(a). The agency must also “provide a description of any assessment procedures the agency proposes to conduct.” Id. The contents of a notice requirement are identical to the content requirements found in the CFR. See id. at § 56500.4(b).
(2) Statutory Interpretation
The IDEA, the CFRs, and the California Education Code all presuppose that there has been purposeful action with regard to a specific student, before any “refusal” occurred. “When the statutory ‘language is plain, the sole function of the courts—at least where disposition required by the text is not absurd—is to enforce it according to its terms.’ ” Arling- ton Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296-97 (2006) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000)). Interpreting refusal to include a school district’s negligent failure to iden- tify students with disabilities in a timely manner—as the majority argues here—leads to an absurd result (even under the distressing facts before us) and leaves a host of questions in its wake.
The IDEA states implicitly, and the CFR and the California Education Code state explicitly, that written notice is to be given to a parent prior to the refusal. 20 U.S.C. § 1415(c), 34 C.F.R. § 300.503(a), and Cal. Educ. Code § 56500.4(a). Pub- lic agencies are required to give prior written notice to the parents of the student (a) describing the refused action, (b) explaining why the agency refused the action, and (c) setting out the factors considered by the agency in making its refusal. We cannot read the IDEA to require an agency give prior COMPTON USD v. ADDISON 4679 written notice that it will be negligent: describing the decision concerning which it will be negligent, the reasons it has decided to be negligent, and the factors it considered in decid- ing to be negligent. It would make the prior written notice requirement absurd (unless CUSD’s actions are described as something other than negligence; here, neither party claims that CUSD acted purposefully in its failure to evaluate Addi- son).
The term “refusal” obviously includes purposeful agency action in response to a conflict over (1) whether to evaluate a student, or (2) how to deal with an evaluated student. The plain language of the statute makes that a reasonable interpre- tation. Plenty of IDEA cases come before the courts as the result of a parent and the local education agency disagreeing over the proper classification of a child or the proper appro- priate education. Such cases fit neatly into the statutory scheme. As discussed above, once an issue has come to a point of contention, the content requirements for the prior written notice (and the due process hearing complaint, for that matter) make sense.
However, applying the IDEA in cases where there is no point in dispute between a parent and the public agency not only renders the statutory language absurd, but also appears to go against the purpose of the IDEA. The core of the IDEA “is the cooperative process that it establishes between parents and schools.” Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 53 (2005). The IDEA was enacted to provide better education for children with disabilities by “strengthening the role and responsibility of parents and ensuring that families of such children have meaningful opportunities to participate in the education of their children at school and at home.” 20 U.S.C. § 1400(c)(5)(B). Rather than empowering parents and strengthening their role and responsibility in their children’s education, this majority’s interpretation of the school district’s duties weakens parents’ role by casting the responsibility to 4680 COMPTON USD v. ADDISON monitor and identify children’s development solely on to the shoulders of our school system.
Finally, not having a private cause of action does not mean that there is no public recourse for violations of the IDEA, the CFRs, or the California Education Code. As seen at every level of this legislation, funding is conditioned upon compli- ance. Cal. Educ. Code §§ 56045, 56125, 56845. Furthermore, such compliance is ensured not merely through the investiga- tion of complaints—as discussed in § 56500.2—but also in monitoring. Cal. Educ. Code §§ 56125, 56135.
Finding that CUSD did not “refuse” under the statute means that the ALJ did not have authority to conduct a due process hearing, because Congress did not create a private right of action as a method of recourse for the school district’s actions here.
II. FINDING A CHILD-FIND VIOLATION
Even if Addison were to demonstrate that a private cause of action existed under the IDEA, the record before this panel is not sufficiently developed so that we should render judg- ment in this case. On a motion for judgment on the pleadings, the panel cannot properly determine whether CUSD violated its Child-find requirement, because the CUSD local plan is not in this record. This panel must review the CUSD local plan, because the IDEA and its accompanying CFRs are procedural—allowing the states to determine how best to achieve the Child-find requirement, so long as certain proce- dures are in place. At the state level, the California Education Code allows the school districts to develop local plans detail- ing how the districts will satisfy the Child-find requirement. In the absence of this local plan, the majority not only rules without a standard to apply, it ignores the statutory framework of the IDEA.
As mentioned above, § 1412 outlines the Child-find requirement for school districts. Unlike § 1415, § 1412 only COMPTON USD v. ADDISON 4681 requires that states establish certain procedures to the satisfac- tion of the Secretary. Therefore, while a state can violate § 1415 if it fails to either establish a procedure or to maintain that procedure, a state can only violate § 1412 by not having a procedure at all. Given that Congress included that addi- tional substantive requirement only three sections later, it appears that Congress did not intend to create such a require- ment in § 1412. (Again, this does not leave the public without redress; failure to perform under the IDEA can and does lead to reduced funding. See Ojai Unified Sch. Dist. v. Jackson, 4 F.3d 1467, 1469 (9th Cir. 1993) (explaining that funding is conditioned “on compliance with certain goals and proce- dures.”). A state does not comply with the IDEA, in regard to the Child-find provision, if it does not provide procedures that satisfy the Secretary.)
Therefore, in order to show that there was some sort of sub- stantive Child-find violation, Addison must identify that vio- lation in the Code of Federal Regulations or state or local procedures that were adopted pursuant to this statute. The ALJ cited 34 C.F.R. § 300.125 (2006) (currently codified at 34 C.F.R. § 300.111) in her finding that Addison prevailed on the pleadings in her cause of action. However, 34 C.F.R. § 300.125 only requires that “[t]he State must have in effect policies and procedures to ensure that (i) All children with disabilities residing in the State . . . are identified, located, and evaluated.” This mirrors the language of § 1412; it is a proce- dural requirement. Plaintiff never contended that California failed to have these procedures in place. The ALJ also cited California Education Code sections 56300 and 56301 as set- ting forth obligations that were violated by CUSD in this case. Again, because Addison did not allege any procedural viola- tions, the panel must find that these statutory sections provide a substantive standard that has been violated.
At first glance, it would appear that the California Educa- tion Code may establish a substantive standard against which we might compare CUSD’s actions. The California Education 4682 COMPTON USD v. ADDISON Code does begin with an imperative: an “agency shall actively and systematically seek out all individuals with exceptional needs.” Cal. Educ. Code § 56300. However, the following two sections of the Education Code continue on to detail the manner in which that imperative is to be achieved. It must be achieved through the creation of local plans. Cal. Educ. Code §§ 56301, 56302.
Sections 56301 and 56302 clarify that the local plans gov- ern what the Child-find process will look like. “Each special education local plan area shall establish written policies and procedures . . . for a continuous child-find system . . . .” Cal. Educ. Code § 56301(d)(1). “Identification procedures shall include systematic methods of utilizing referrals of pupils from teachers, parents, agencies, appropriate professional per- sons, and from other members of the public.” Cal. Educ. Code § 56302.
It seems apparent from sections 56301 and 56302 that the purpose of the imperative was to set the local plans as a stan- dard against which a school district’s actions are to be com- pared. Section 56205 supports such a reading by explaining the manner in which California assures compliance with IDEA requirements: “Each special education local plan area submitting a local plan to the Superintendent under this part shall ensure . . . that it has in effect policies, procedures, and programs that are consistent with state laws, regulations, and policies governing the following: . . . (3) Child-find and refer- ral. . . . (11) Compliance assurances . . . . (12)(A) A descrip- tion of the governance and administration of the plan . . . . (15) Participation in state and districtwide assessments, . . . and reports relating to assessments.” Cal. Educ. Code § 56205(a).
Given this precedent, we cannot hold that there has been a violation of the Child-find requirement without, at very least, reviewing the CUSD local plan. Further, if reviewing the local plan is not a prerequisite, local plans serve no purpose. COMPTON USD v. ADDISON 4683 The IDEA has been recognized as a model of “cooperative federalism,” see Schaffer, 546 U.S. at 52, a system where Congress set out the goals and procedures, but allows states the freedom to decide how those goals and procedures were to be implemented on a day-to-day basis. By finding that the school district has violated the Child-find provision, without even reviewing the CUSD procedures, the majority ignores the statutory complex outlined here.
III. CONCLUSION
I am sympathetic to Addison’s plight in this case and disap- pointed that more was not done to aid her while she was as student in the school district. However, I cannot find a private cause of action within the IDEA statutory structure, and I can- not harmonize the language of the statute with a private cause of action for negligence. Further, even if I were to find such things, I do not believe that the record is sufficiently devel- oped for a final judgment at this juncture. For these reasons, I must dissent. |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
LOUISE VICTORIA JEFFREDO, JOYCE JEAN JEFFREDO-RYDER, CHRISTOPHER L. RYDER, JEREMIAH S. RYDER, JONATHAN B. RYDER, MICHAEL JOHN JEFFREDO, ELIZABETH VILLINA JEFFREDO, JACKIE M. MADARIAGA, KELLY M. MADARIAGA, CARRIE MADARIAGA, LAWRENCE No. 08-55037 MADARIAGA, WILLIAM A. HARRIS, D.C. No. STERLING HARRIS, APRIL HARRIS, MINDY PHENEGER, RICHARD HARRIS; CV-07-01851-JFW Petitioners-Appellants, ORDER AND AMENDED v. OPINION MARK A. MACARRO, DONNA BARRON, MARC CALAC, MARK LUKER, ANDREW MASIEL, RUSSELL BUTCH MURPHY, KENNETH PEREZ, DARLENE AZZARELLI, CHRISTINE LUKER; Respondents-Appellees. Appeal from the United States District Court for the Central District of California John F. Walter, District Judge, Presiding
Argued and Submitted April 17, 2009—Pasadena, California
Filed December 22, 2009 Amended Opinion Filed March 22, 2010
4642 JEFFREDO v. MACARRO Before: Johnnie B. Rawlinson and N. Randy Smith, Circuit Judges, and Claudia Wilken,* District Judge.
Opinion by Judge N.R. Smith; Dissent by Judge Wilken
*The Honorable Claudia Wilken, United States District Judge for the Northern District of California, sitting by designation. 4644 JEFFREDO v. MACARRO
COUNSEL
Paul Harris and Patrick Romero Guillory, Dolores Park Law Offices, San Francisco, California, for the petitioners- appellants.
Frank Lawrence, Holland and Knight, Los Angeles, Califor- nia, and John Schumacher, Law Office of John Schumacher, LLC, Riverton, Wyoming, for the respondents-appellees. JEFFREDO v. MACARRO 4645 ORDER
The opinion and dissent filed on December 22, 2009, and reported at 590 F.3d 751 are hereby amended. An amended opinion and dissent are filed concurrently with this order.
No petition for rehearing or rehearing en banc was filed within the original time period, and that time period has now expired. No subsequent petitions for rehearing or rehearing en banc shall be filed.
IT IS SO ORDERED.
OPINION
N.R. SMITH, Circuit Judge:
The Pechanga Band of the Luiseño Mission Indians (“Pechanga Tribe”) disenrolled a number of its members (“Appellants”) for failing to prove their lineal descent as members of the Tribe. Federal courts generally lack jurisdic- tion to consider any appeal from the decision of an Indian tribe to disenroll one of its members. See Santa Clara Pueblo v. Martinez, 436 U.S. 49, 72 n.32 (1978). Appellants, there- fore, brought this petition for habeas corpus under 25 U.S.C. § 1303 of the Indian Civil Rights Act (“ICRA”), claiming their disenrollment by members of the Pechanga Tribal Coun- cil (“Appellees”) was tantamount to an unlawful detention. Despite the novelty of this approach and despite the potential injustice of this situation, we nonetheless lack subject matter jurisdiction to consider this claim, because Appellants were not detained. Therefore, Appellants cannot bring their claims under § 1303 of the ICRA and we must affirm the district court. Only Congress can aid these appellants.
I. BACKGROUND
The Pechanga Tribe is a federally-recognized Indian tribe. 72 Fed. Reg. 13648, 13650 (Mar. 22, 2007). The Tribe’s ulti- 4646 JEFFREDO v. MACARRO mate governing authority consists of all of the adult members of the Tribe (“General Membership”). On December 10, 1978, the Pechanga Tribe adopted the Constitution and Bylaws of the Temecula Tribe of Luiseño Mission Indians (“Pechanga Constitution”). Article II of the Pechanga Consti- tution provides:
Membership is an enrolled member documented in the Band’s Official Enrollment Book of 1979.
Qualifications for membership of the Temecula Band of Luiseno Mission Indians Are:
A. Applicant must show proof of Lineal Descent from original Pechanga Temecula people.
B. Adopted people, family or Band, and non-indians cannot be enrolled. Excep- tion: People who were accepted in the Indian Way prior to 1928 will be accepted.
C. If you have ever been enrolled or rec- ognized in any other reservation you cannot enroll in Pechanga.
At issue here is subsection A, requiring applicants to “show proof of Lineal Descent from original Pechanga Temecula people.” In late 2002 and early 2003, the Enrollment Commit- tee received information from its members alleging that a number of Pechanga Tribe members were not lineal descen- dants from the original Pechanga Temecula people. There- fore, according to the Pechanga Enrollment Disenrollment Procedure (“Disenrollment Procedures”), the Enrollment Committee was required to investigate the allegations. Allega- tions surrounded five lines of descent that allegedly did not qualify for membership under the Pechanga Constitution. JEFFREDO v. MACARRO 4647 According to the Pechanga Disenrollment Procedure, dis- enrollment is “revoking a person’s membership when it is found that they do not meet the requirements set forth on the enrollment application which was approved by the Band.” The Disenrollment Procedures were adopted by the Pechanga Tribe (1) to correct mistakes that resulted when tribal mem- bership was mistakenly approved and (2) to provide a process that would allow a fair hearing in the disenrollment proce- dure. Under the Disenrollment Procedures, the Enrollment Committee initiates a disenrollment process against those individuals allegedly not qualifying for membership in the Tribe. After the initiation of the disenrollment, the Enrollment Committee must provide adequate notice to the individual to be summoned to a meeting with the Enrollment Committee. The notice must (1) state that the Enrollment Committee has questions regarding enrollment; (2) stress the importance of responding to the notice; and (3) request a meeting within thirty days of the response. Unless the person receiving the notice chooses to be automatically disenrolled, he or she must respond. Once a response has been filed, the Enrollment Committee has thirty days to set up a meeting. At that meet- ing, the Enrollment Committee must show specific evidence that would prove that the documentation provided for enroll- ment does not provide evidence of lineal descent. If the Enrollment Committee provides such evidence, the individual then is allowed another thirty days to provide additional infor- mation to prove her or his lineal descent. If the individual pro- vides further evidence that satisfies the Enrollment Committee as to his lineal descent, the process is terminated and the individual keeps his or her membership status. If the Enrollment Committee is not satisfied by the further evidence, the individual will be disenrolled and the Tribal Council is notified of the disenrollment.
If the Enrollment Committee fails to follow these steps or is negligent in any way, the individual can appeal to the Tribal Council for a fair hearing. At the hearing, the Tribal Council only reviews the documentation that the Enrollment Commit- 4648 JEFFREDO v. MACARRO tee reviewed. The individual is not entitled to legal represen- tation at the hearing. If the Tribal Council finds there was an error, the Enrollment Committee reevaluates the case. If the appeal is successful, membership will be reinstated.
Disenrollment does not mean that a person is banished from the Pechanga Reservation. The Pechanga Tribe instead has specific procedures for exclusion and eviction. These requirements are set forth in the “Exclusion and Eviction Reg- ulations.” Under these regulations, the Pechanga Tribe may exclude and or evict someone from the reservation for: “(1) [v]iolating tribal laws and ordinances; (2) [c]reating condi- tions which pose a threat to the public health, safety and wel- fare; (3) [e]ngaging in criminal activities on the Pechanga Reservation, by finding of the Tribal Council, or being con- victed of one or more felony crimes; (4) [b]eing declared a public nuisance by the Tribal Council; [or] (5) [c]reating a breach of peace, including but not limited to public drunken- ness.” The Exclusion and Eviction Regulations dictate the procedure to evict and or exclude and the opportunity to appeal such exclusion.
In early 2003, the Enrollment Committee began addressing the allegations regarding the lineal descent of certain mem- bers. On March 7, 2003, the Tribal Council issued a Notice and Order regarding pending disenrollment matters. The Notice and Order mandated that the Enrollment Committee: (1) “use a fair and impartial decision by a majority of the committee to review a file;” (2) follow Robert’s Rules of Order; and (3) allow adequate time for presentation of evi- dence as required under the Disenrollment Procedures.
Sometime before March 7, 2003, the Enrollment Commit- tee determined that the first three lines of descent met the membership criteria. Then it turned its attention to those members who claimed a lineal descent through Paulina Hunter. On May 3, 2005, after a proper vote, the Enrollment Committee summoned Appellants and notified them that the JEFFREDO v. MACARRO 4649 Enrollment Committee believed there were grounds to initiate the disenrollment process. The summonses (1) notified Appel- lants that the disenrollment procedures had been initiated, (2) requested additional information concerning Appellants’ fam- ily history, and (3) notified Appellants that they were required to set up an Initial Meeting with the Enrollment Committee.
Meetings were held with Appellants in June of 2005. The Enrollment Committee provided Appellants with a copy of all factual records in its possession. The Enrollment Committee then stated its concerns about each Appellant’s claim of lineal descent. Appellants were also notified that they had thirty days to submit information supporting their claim of lineal descent. The Enrollment Committee emphasized that Appel- lants’ enrollment would be measured by the Pechanga Consti- tution’s requirements. The Enrollment Committee advised each Appellant that no decision would be made until it received all additional information.
On March 16, 2006, the Enrollment Committee (after review of the full record) disenrolled Appellants for failure to prove lineal descent from an original Pechanga Temecula per- son. Appellants exercised their right to appeal to the Tribal Council. The Tribal Council held hearings on July 21, 2006. The Tribal Council affirmed the Enrollment Committee, “finding: (1) there was no evidence of unfair or partial treat- ment of Appellants by the Enrollment Committee; (2) there was no evidence of negligence in the handling of Appellants’ case by the Enrollment Committee; and (3) there was insuffi- cient proof that the Enrollment Committee violated the disen- rollment procedures.”
Appellants then filed a petition for writ of habeas corpus in the Central District of California. Appellants moved for sum- mary judgment. Appellees filed a Motion to Dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, claiming that the district court lacked subject matter jurisdic- 4650 JEFFREDO v. MACARRO tion. The district court granted the Motion to Dismiss. Appel- lants appealed the district court decision.
II. DISCUSSION
We review de novo dismissals for lack of subject matter jurisdiction under Rule 12(b)(1). Carson Harbor Village, Ltd. v. City of Carson, 353 F.3d 824, 826 (9th Cir. 2004). We also review de novo a district court’s denial of a petition for writ of habeas corpus under the ICRA. Selam v. Warm Springs Tribal Corr. Facility, 134 F.3d 948, 951 (9th Cir. 1998).
Ordinarily, federal courts lack jurisdiction to consider an appeal from the decision of an Indian Tribe to disenroll one of its members. “A tribe’s right to define its own membership for tribal purposes has long been recognized as central to its existence as an independent political community.” Santa Clara Pueblo, 436 U.S. at 72 n.32; Cherokee Intermarriage Cases, 203 U.S. 76 (1906)). Because of this precedent, Appel- lants did not directly appeal the Tribe’s decision. Instead, they petitioned the court for a writ of habeas corpus under the ICRA to collaterally challenge their disenrollment.
[1] Section 1303 of the ICRA provides: “The privilege of the writ of habeas corpus shall be available to any person, in a court of the United States, to test the legality of his deten- tion by order of an Indian tribe.” 25 U.S.C. § 1303. The term “detention” in the statute must be interpreted similarly to the “in custody” requirement in other habeas contexts. See Moore v. Nelson, 270 F.3d 789, 791 (9th Cir. 2001) (“There is no reason to conclude that the requirement of ‘detention’ set forth in the Indian Civil Rights Act § 1303 is any more lenient than the requirement of ‘custody’ set forth in the other habeas statutes.” (citation omitted)). Further, “[g]iven the often vast gulf between tribal traditions and those with which federal courts are more intimately familiar, the judiciary should not rush to create causes of action that would intrude on these del- icate matters.” Santa Clara Pueblo, 436 U.S. at 72 n.32. JEFFREDO v. MACARRO 4651 Therefore, an ICRA habeas petition is only proper when the petitioner is in custody. Id. at 791 (explaining the custody requirement).
We have also held that a litigant must first exhaust tribal remedies before properly bringing a petition for writ of habeas corpus. Selam, 134 F.3d at 953-54 (explaining the exhaustion requirement); see also Felix S. Cohen, Handbook of Federal Indian Law § 9.09 (2005). Even when a federal court has jurisdiction over a claim, if the claim arises in Indian country, the court is required to “stay its hand” until the party has exhausted all available tribal remedies. Cohen, Handbook of Federal Indian Law § 7.04 (citing Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 16 (1987); Nat’l Farmers Union Ins. Cos. v. Crow Tribe, 471 U.S. 845, 857 (1985)). “The Supreme Court’s policy of nurturing tribal self- government strongly discourages federal courts from assum- ing jurisdiction over unexhausted claims.” Selam, 134 F.3d at 953. There is authority for relaxing the exhaustion require- ment where the party can show that exhaustion would be futile or that tribal courts offer no adequate remedy. See id. at 954.
[2] Therefore, “all federal courts addressing the issue man- date that two prerequisites be satisfied before they will hear a habeas petition filed under the IRCA: [(1)] The petitioner must be in custody, and [(2)] the petitioner must first exhaust tribal remedies.”). Cohen, Handbook of Federal Indian Law § 9.09 & § 9.09 n.280. We therefore have no jurisdiction to hear a petitioner’s claim for habeas corpus, unless both of these conditions are met. Any expansion of this jurisdiction must come from Congress, not by decision of this court. 4652 JEFFREDO v. MACARRO I. Appellants do not meet the requirements for the court to have jurisdiction under § 1303 of the ICRA.
A. Appellants were not detained/in custody.
Appellants contend that (1) the actual restraints, (2) the potential restraints, and (3) their lost Pechanga identity all amount to detention under § 1303. We do not agree.
1.
[3] Appellants contend that, because they have been denied access to the Senior Citizens’ Center, cannot go to the health clinic, and their children can no longer go to tribal school, they have been detained. We disagree. Jones v. Cunningham requires that “conditions and restrictions . . . significantly restrain [one’s] liberty” in order to invoke § 1303 jurisdiction. 371 U.S. 236, 243 (1963). The Second Circuit has said that “under Jones and its progeny, a severe actual or potential restraint on liberty” is necessary for jurisdiction under § 1303. See Poodry v. Tonawanda Band of Seneca Indians, 85 F.3d 874, 880 (2d Cir. 1996); see also Shenandoah v. Halbritter, 275 F. Supp. 2d 279, 285 (N.D.N.Y. 2003) (quoting Poodry for the same proposition). We agree with our colleagues on the Second Circuit and hold that § 1303 does require “a severe actual or potential restraint on liberty.” Poodry, 85 F.3d at 880.
[4] In the case before us, the denial of access to certain facilities does not pose a severe actual or potential restraint on the Appellants’ liberty. Appellants have not been banished from the Reservation. Appellants have never been arrested, imprisoned, fined, or otherwise held by the Tribe. Appellants have not been evicted from their homes or suffered destruc- tion of their property. No personal restraint (other than access to these facilities) has been imposed on them as a result of the Tribe’s actions. Their movements have not been restricted on the Reservation. Faced with a similar situation, the Second JEFFREDO v. MACARRO 4653 Circuit also determined that less severe restraints such as loss of one’s “voice” in the community, loss of health insurance, loss of access to tribal health and recreation facilities, loss of quarterly distributions to tribal members, and loss of one’s place on the membership roles of the tribe are simply “insuffi- cient to bring plaintiffs within [the] ICRA’s habeas provi- sion.” Shenandoah v. U.S. Dept. of Interior, 159 F.3d 708, 714 (2d Cir. 1998).
[5] Appellants contend that the denial of access to these facilities is similar to the restraint found in Poodry. This is not Poodry. In Poodry, the petitioners were convicted of treason, sentenced to permanent banishment, and permanently lost any and all rights afforded to tribal members. See Poodry, 85 F.3d at 876, 878. Appellants have not been convicted, sentenced, or permanently banished. We therefore hold that the limita- tion of Appellants’ access to certain tribal facilities does not amount to a “detention.”
2.
[6] Appellants contend that, as non-members of the tribe, they are “under a continuing threat of banishment/exclusion.” No court has held that such a threat is sufficient to satisfy the detention requirement of § 1303.
The custody requirement of the habeas corpus statute is designed to preserve the writ of habeas corpus as a remedy for severe restraints on individual liberty. Since habeas corpus is an extraordinary remedy whose operation is to a large extent uninhibited by traditional rules of finality and federalism, its use has been limited to cases of special urgency, leaving more conventional remedies for cases in which the restraints on liberty are neither severe nor immedi- ate.
Hensley v. Mun. Court, 411 U.S. 345, 351 (1973). Applying this principle, we previously held that a threat of confinement 4654 JEFFREDO v. MACARRO is not severe nor immediate enough to justify the writ. Edmunds v. Won Bae Chang, 509 F.2d 39, 40-41 (9th Cir. 1975) (denying habeas relief under 28 U.S.C. §§ 2241, 2254). In Edmunds, the petitioner was subject to a court-imposed fine, which could be enforced by jail time. Id. at 41. The court held, however, that until confinement is imminent (like the confinement in Hensley) there can be no justification for use of the habeas corpus remedy. Id. We see no reason not to analogize to the court’s construction of the criminal habeas corpus provisions in Edmunds. Therefore, we hold that the potential threat of future eviction is not sufficient to satisfy the detention requirement of § 1303.
[7] Appellants argue that, while no such procedures have been commenced to exclude or evict Appellants, there is a potential that they could be excluded. Under the Pechanga Non-Member Reservation Access and Rental Ordinance “[a]ccess to and residency within the Reservation is a privi- lege which may be granted or denied to an individual upon proper authority of the Pechanga Band.” However, the Pechanga Tribe enacted exclusion and eviction regulations that provide a process for eviction in an effort to protect law and order on the reservation and to provide uniform proce- dures for exclusion and eviction. These provisions apply equally to those who have been disenrolled and those who are current members of the tribe. Appellants admit they have never been subjected to exclusion or eviction proceedings.
3.
[8] Appellants lastly contend that disenrollment, stripping them of their Pechanga citizenship, is enough of a significant restraint on their liberty to constitute a detention. While we have the most sympathy for this argument, we find no prece- dent for the proposition that disenrollment alone is sufficient to be considered detention under § 1303. While “Congress’ authority over Indian matters is extraordinarily broad . . . the role of courts in adjusting relations between and among tribes JEFFREDO v. MACARRO 4655 and their members [is] correspondingly restrained.” Santa Clara Pueblo, 436 U.S. at 71. Further, “[a] tribe’s right to define its own membership for tribal purposes has long been recognized as central to its existence as an independent politi- cal community.” Id. at 71 n.32 (citing Roff v. Burney, 168 U.S. 218 (1897); Cherokee Intermarriage Cases, 203 U.S. 76). We have also noted that “[a]n Indian tribe has the power to define membership as it chooses, subject to the plenary power of Congress.” Williams v. Gover, 490 F.3d 785, 789 (9th Cir. 2007). Thus (while Congress may have authority in these matters) in the complete absence of precedent, we can- not involve the courts in these disputes.
[9] This court is without jurisdiction to review direct appeals of tribal decisions regarding disenrollment of mem- bers. See, e.g., Santa Clara Pueblo, 436 U.S. at 72 n.32. We cannot circumvent our lack of jurisdiction over these matters by expanding the scope of the writ of habeas corpus to cover exactly the same subject matter. At its heart, this case is a challenge to disenrollment of certain members by the tribe. It is precisely because we lack jurisdiction to hear such claims, however, that Appellants brought this case under habeas cor- pus law. We find (and the parties direct us to) nothing in the legislative history of § 1303 that suggests the provision should be interpreted to cover disenrollment proceedings. Because nothing in the legislative history suggests otherwise and because binding precedent precludes review of disenroll- ment proceedings, we cannot accept Appellants’ invitation to expand habeas corpus here.
[10] Appellants contend that their disenrollment is analo- gous to denaturalization. We disagree. Appellants cite Trop v. Dulles, 356 U.S. 86 (1958), to support this proposition. The court in Trop was confronted with the constitutionality of a statute that revoked United States citizenship for desertion during wartime even if the desertion was unrelated to any actions on behalf of a foreign government. Id. at 87-88. Trop is inapposite to this case. In Trop the statute left the defendant 4656 JEFFREDO v. MACARRO stateless. Id. Further, the statute was penal in nature. Id. at 96. Here Appellants have not been left stateless, and nothing in the record indicates that the disenrollment proceedings were undertaken to punish Appellants. Therefore, Trop is not con- trolling.
We do not wish to minimize the impact of the Tribe’s membership decision on Appellants. Indeed, we recognize that Appellants have suffered a significant loss. Nevertheless, such loss is simply not equivalent to detention. This is not the first time that we have noted that we do not have jurisdiction to review membership decisions, even when the results of such decisions appear unfair. In Lewis v. Norton, 424 F.3d 959 (9th Cir. 2005), the plaintiff-appellants likewise sought judicial review of a tribal membership decision. We stated, “[a]lthough [plaintiffs’] claim to membership appears to be a strong one, as their father is a recognized member of the tribe, their claim cannot survive the double jurisdictional whammy of sovereign immunity and lack of federal court jurisdiction to intervene in tribal membership disputes.” Id. at 960. In Lewis we further noted that our jurisdiction in these matters may prevent us from intervening even when fairness may seem to dictate otherwise. There we said, “[w]e agree with the district court’s conclusion that this case is deeply troubling on the level of fundamental substantive justice. Nevertheless, we are not in a position to modify well-settled doctrines of sover- eign immunity. This is a matter in the hands of a higher authority than our court.” Id. at 963.
B. Appellants have not exhausted their tribal remedies in order to challenge a claim of banishment from the reservation.
[11] Appellants argue that disenrollment is similar to ban- ishment and that they are therefore detained. However, Appel- lants have not been banished from the Reservation. The Pechanga Tribe has established uniform Exclusion and Evic- tion Regulations for excluding both members and nonmem- JEFFREDO v. MACARRO 4657 bers of the tribe from the Reservation. The Exclusion and Eviction Regulations also establish the procedures for appeal- ing one’s exclusion or eviction. Appellants have not been sub- jected to any exclusion or eviction proceedings. Therefore, they have not exhausted their claims for exclusion from the reservation or denial of access to it as established in the Exclusion and Eviction Regulations. We thus lack jurisdiction over any of Appellants’ claims for exclusion or eviction.
III. CONCLUSION
[12] The district court properly dismissed Appellants’ action for lack of subject matter jurisdiction. Appellants were not detained and did not exhaust their tribal remedies. There- fore, they cannot get relief under the habeas corpus provision of the ICRA. Accordingly, we affirm the district court.
AFFIRMED
WILKEN, District Judge, dissenting:
Appellants, enrolled members of the Pechanga Tribe since birth, filed a petition for a writ of habeas corpus under the Indian Civil Rights Act (ICRA) asserting that their Tribal Council violated the due process, equal protection, free speech and cruel and unusual punishment clauses of the Act when it stripped them of membership in the Tribe. The mem- bership criteria that the Tribal Council applied were not estab- lished until 1979; the procedures it used to disenroll Tribal members were not established until 1988; and the Tribal Council did not begin disenrolling large numbers of members until recently, when the Tribe’s casino profits became a major source of revenue.1 Appellants allege that they are victims of the Tribal Council’s greed associated with these casinos. At the time of Appellants’ disenrollment, every adult Pechangan received a per capita benefit of over $250,000 per year. 4658 JEFFREDO v. MACARRO The majority concludes that the district court properly dis- missed Appellants’ petition for lack of subject matter jurisdic- tion because Appellants (1) were not detained and (2) did not exhaust their Tribal remedies. I respectfully dissent and address each argument in turn.
I. Indian Civil Rights Act (ICRA)
Beginning in 1961, through hearings and surveys, Congress commenced an investigation into the conduct of tribal govern- ments due to abuses that some tribal members were enduring at the hands of tribal officials. In 1968, Congress enacted ICRA to protect against such abuses by imposing restrictions upon tribal governments similar to those contained in the Bill of Rights and the Fourteenth Amendment. The enforcement mechanism Congress provided was that of habeas corpus in federal courts. The statute at issue, 25 U.S.C. § 1303, pro- vides, “The privilege of the writ of habeas corpus shall be available to any person, in a court of the United States, to test the legality of his detention by order of an Indian tribe.” A central purpose of ICRA was to “ ‘secur[e] for the American Indian the broad constitutional rights afforded to other Ameri- cans,’ and thereby to ‘protect individual Indians from arbi- trary and unjust actions of tribal governments.’ ” Santa Clara Pueblo v. Martinez, 436 U.S. 49, 61 (1978) (quoting S. Rep. No. 841, 90th Cong., 1st Sess., 5-6 (1967)).
A. Detention
“Detention” by order of an Indian tribe is the sole jurisdic- tional prerequisite for federal habeas review. The requirement in § 1303 that an individual be “detained” is akin to the “in custody” and “detention” requirement in other habeas statutes. Poodry v. Tonawanda Band of Seneca Indians, 85 F.3d 874, 891 (2d Cir. 1996), cert. denied, 519 U.S. 1041 (1996) (“Congress appears to use the terms ‘detention’ and ‘custody’ interchangeably in the habeas context.”). The habeas statutes analogous to § 1303 refer to “detention” as well as “in custo- JEFFREDO v. MACARRO 4659 dy” throughout. See 28 U.S.C. §§ 2242, 2243, 2245, 2249, 2253 and 2255. “There is no reason to conclude that the requirement of ‘detention’ set forth in the Indian Civil Rights Act § 1303 is any more lenient than the requirement of ‘cus- tody’ set forth in the other federal habeas statutes.” Moore v. Nelson, 270 F.3d 789, 791 (9th Cir. 2001). Nor is there any reason to conclude that the requirement of “detention” in § 1303 is any more strict than the requirement of “custody” or “detention” in the other federal habeas statutes.
The custody or detention requirement may be met if the habeas petitioner is not physically confined. Jones v. Cun- ningham, 371 U.S. 236, 239-40 (1963); see Dow v. Court of the First Circuit Through Huddy, 995 F.2d 922, 923 (9th Cir. 1993) (per curiam) (holding that a requirement to attend four- teen hours of alcohol rehabilitation constituted custody; requiring petitioner’s physical presence at a particular place “significantly restrain[ed] [his] liberty to do those things which free persons in the United States are entitled to do”), cert. denied, 510 U.S. 1110 (1994).
The detention requirement is designed to limit the availabil- ity of habeas review “to cases of special urgency, leaving more conventional remedies for cases in which the restraints on liberty are neither severe nor immediate.” Hensley v. Mun. Court, 411 U.S. 345, 351 (1973). Therefore, the inquiry into whether a petitioner has satisfied the jurisdictional prerequi- site for habeas review requires a court to judge the “severity” of an actual or potential restraint on liberty.
The combination of the current and potential restrictions placed upon Appellants and the loss of their life-long Pechanga citizenship constitute a severe restraint on their lib- erty. The majority analyzes each of these grounds separately, instead of collectively, and determines that none amounts to a detention. I respectfully disagree with this approach.
When Tribal members are disenrolled, they become “non- members” of the Tribe and lose all rights associated with 4660 JEFFREDO v. MACARRO being a Pechanga citizen. One of those rights is access to the Pechanga Reservation. The Pechanga Non-Member Reserva- tion Access and Rental Ordinance (Reservation Access Ordi- nance) states, “The custom, tradition and practice of the Pechanga Band has always been, and remains, that the Pechanga Reservation is closed to non-members. Access to and residency within the Pechanga Reservation is a privilege which may be granted or denied to an individual upon proper authority of the Pechanga Band.”
Elsewhere, the Reservation Access Ordinance provides, “Use by non-members of roads within the Pechanga Reserva- tion is . . . by permission of the Tribal Council and is subject to revocation at any time and for any reason.” The Ordinance establishes that a non-member may enter the Pechanga Reser- vation only upon invitation by the Tribal Council or by an enrolled member of the Pechanga Band. Otherwise, access to the Pechanga Reservation by non-members is prohibited.
Since being disenrolled, Appellants have been excluded from the school, the health clinic and the senior citizens’ facilities on the Reservation. Some of the Appellants live on the Reservation. Although they may enter the Reservation and travel to their homes, any Tribal Ranger can take away that liberty at any moment.
Pechanga Tribal Rangers have the authority and discretion summarily to exclude non-members from the Pechanga Res- ervation for up to seven days for any of the following reasons:
(1) suspicion that a non-member has committed a violation of any applicable tribal, state or fed- eral law within the Pechanga Reservation;
(2) suspicion that a non-member is a danger to himself, herself or others;
(3) a finding by a Tribal Ranger that a non-member is a public nuisance; or JEFFREDO v. MACARRO 4661 (4) any behavior which is suspicious or not consis- tent with a legitimate visit either to a tribal enterprise for business or patronage purposes, or to the home of a resident of the Pechanga Indian Reservation by invitation and in compli- ance with the Non-Member Reservation Access and Rental Ordinance.
Thus, a parent could, without warning, be barred from going home for a week by a Tribal Ranger who observes “any behavior that is suspicious.” That Appellants have not been removed thus far does not render them free or unrestrained. Appellants may currently be able to “come and go” as they please, cf. Hensley, 411 U.S. at 351, but their current status as non-members living on the Pechanga Reservation means that at any point they may be compelled to “go,” and be no longer welcome to “come.” That is a severe restraint to which the members of the Pechanga Band are not generally subject. See id.
The majority analogizes the severe restraint Appellants confront with that in a case involving a twenty-five dollar fine. Edmunds v. Won Bae Chang, 509 F.2d 39, 41 (9th Cir. 1975). In that case, the court held that Edmunds was not sub- jected to a severe restraint because there was “no provision in the sentence for his confinement in the case of non-payment.” Id. The court generally observed that “a threat of incarceration is implicit in any court-imposed fine, for jail is one of the sanctions by which courts enforce their judgments and orders.” However, in the circumstances of Edmunds, “con- finement [was] no more than a speculative possibility — ‘the unfolding of events may render the entire controversy aca- demic.’ ” Id. (quoting Hensley, 411 U.S. at 352). Analogizing the current and potential penalties involved in this case with a twenty-five dollar fine and the speculative possibility that failure to pay the fine may result in judicial proceedings lead- ing to confinement trivializes the severity of Appellants’ situ- ation. 4662 JEFFREDO v. MACARRO Furthermore, Appellants have been stripped of their life- long Pechanga citizenship, which by itself constitutes a severe deprivation. A deprivation of citizenship is “an extraordinarily severe penalty” with consequences that “may be more grave than consequences that flow from conviction for crimes.” Klapprott v. United States, 335 U.S. 601, 611-12 (1949). The Supreme Court has found the penalty of denationalization of a natural-born citizen, sought to be imposed after conviction for military desertion, to be unconstitutional. See Trop v. Dul- les, 356 U.S. 86, 104 (1958).
It is a form of punishment more primitive than tor- ture, for it destroys for the individual the political existence that was centuries in the development.
....
This punishment is offensive to cardinal principles for which the Constitution stands. It subjects the individual to a fate of ever-increasing fear and dis- tress. He knows not what discriminations may be established against him, what proscriptions may be directed against him, and when and for what cause his existence in his native land may be terminated. He may be subject to banishment, a fate universally decried by civilized people. . . . It is no answer to suggest that all the disastrous consequences of this fate may not be brought to bear on a stateless person. The threat makes the punishment obnoxious.
Id. at 101-102. A “deprivation of citizenship does more than merely restrict one’s freedom to go or remain where others have the right to be: it often works a destruction of one’s social, cultural, and political existence.” Poodry, 85 F.3d at 897. Although with disenrollment Appellants retain their United States citizenship and will not be physically stateless, they have been stripped of their life-long citizenship and iden- tity as Pechagans. This is more than just a loss of a label, it JEFFREDO v. MACARRO 4663 is a loss of a political, ethnic, racial and social association. William C. Canby, Jr., American Indian Law in a Nut Shell §§ III.B-C (5th ed. 2009); Felix S. Cohen, Handbook of Fed- eral Indian Law § 3.03 (2005). Such a loss constitutes a restraint on liberty that, combined with the actual and poten- tial restraints described above, satisfies the detention require- ment under § 1303, in my opinion.
The majority, in dicta, implies that we may not hear Appel- lants’ ICRA claims because we generally do not have juris- diction to review tribal membership decisions. Here, Appellants are not directly challenging the merits of their dis- enrollment, i.e. whether they are direct descendants from the original Pechanga Temecula people. Rather, Appellants chal- lenge under ICRA the manner of their disenrollment. The for- mer would be barred by tribal sovereign immunity, whereas the latter is not.
B. Exhaustion
The majority concludes that we lack jurisdiction over any claims for exclusion or eviction because Appellants have not exhausted their Tribal remedies for such claims or demon- strated that exhaustion would be futile. But Appellants are not asserting jurisdiction based on any exclusion or eviction from the Pechanga Reservation. Rather, Appellants’ claim of juris- diction is based on the restraints on their liberty arising from being disenrolled and threatened with exclusion. Notably, the parties agree that Appellants have completed the internal Tribal appeal process for challenging disenrollment. Further, there does not appear to be any remedy available to Appel- lants if they were to be given a seven-day exclusion without warning. Appellants have exhausted their claims and their habeas petition is ripe for adjudication.
II. Conclusion
When viewed together, the act of stripping Appellants’ Tribal citizenship and the current and potential restrictions 4664 JEFFREDO v. MACARRO placed upon Appellants constitute a severe restraint on their liberty. Therefore, Appellants have been detained within the meaning of § 1303. Accordingly, I would reverse and remand to the district court to hear their petition for a writ of habeas corpus on its merits. |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
In re: DAVID DOUGLAS TAYLOR; LINDA SUE TAYLOR, Debtors, No. 08-60033 BAP No. USAA FEDERAL SAVINGS BANK, WW-07-1313- MkMoD Appellant, ORDER AND v. OPINION DON THACKER, Trustee, Appellee. Appeal from the Ninth Circuit Bankruptcy Appellate Panel Montali, Markell, and Dunn, Bankruptcy Judges, Presiding
Argued and Submitted August 3, 2009—Seattle, Washington
Filed March 22, 2010
Before: Harry Pregerson, John T. Noonan and Carlos T. Bea, Circuit Judges.
Opinion by Judge Bea
4620 IN RE: TAYLOR
COUNSEL
Lawrence Gary Reinhold, Weinstein & Riley, P.S., Akron, Ohio, for the defendant-appellant.
Thomas W. Stilley, Sussman Shank LLP, Portland, Oregon, for the plaintiff-appellee.
ORDER
The opinion filed on February 26, 2010, is withdrawn. A replacement opinion will be filed concurrently with this order.
OPINION
BEA, Circuit Judge:
In 2005, David and Linda Taylor bought a Toyota Camry right before declaring bankruptcy. Their lender, USAA Fed- eral Savings Bank (“USAA”), procured from the Taylors a security interest in the car as collateral for the loan. USAA IN RE: TAYLOR 4621 perfected its security interest 21 days after the Taylors pur- chased their car; USAA’s perfection was timely under Idaho law, but one day late under federal bankruptcy provisions.1 The Taylors’ conveyance of a security interest to USAA was then avoidable by the Taylors’ bankruptcy trustee, as a prefer- ential transfer.2 The trustee moved the bankruptcy court to avoid the transfer and the court granted the motion. When a debtor declares bankruptcy before paying off his debt, the creditor must “perfect” a security interest to enforce his interest and to pre- serve the priority of his claim. Perfection usually requires the creditor file documents with a State to prove when the creditor received the security interest. Under Idaho law, a creditor perfects a security interest in a vehi- cle by filing a “properly completed title application and all required sup- porting documents with the department [of transportation] or an agent of the department.” Idaho Code § 49-510(1). The application for certificate of title includes “a full description of the vehicle, including whether the vehicle is new or used, together with a statement of the applicant’s title and of any liens or encumbrances upon the vehicle, and the name and address of the person to whom the certificate of title shall be delivered, and any other information as the department may require.” Idaho Code § 49-504(1). Perfected security interests shall “take priority according to the order in which the same are noted upon the certificate of title or entered into the electronic records of the department.” Idaho Code § 49- 510(3). Under the federal Bankruptcy Code, a security interest is perfected when the creditor has satisfied the requirements of perfection under state law. See 11 U.S.C. § 547(c)(3)(B), Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211, 214 (1998) (holding a security interest is perfected for federal bankruptcy purposes if the creditor satisfies the requirements for perfection under state law). Under Idaho law, a creditor must file the title application and all sup- porting documents within 30 days after the delivery of the vehicle. Idaho Code § 49-504. At the time the Taylors purchased their vehicle, the federal Bankruptcy Code required creditors to perfect their security interests within 20 days. 11 U.S.C. § 547(c) (discussed infra note 6). Preferential transfers are usually transfers of a debtor’s interest in prop- erty to a creditor on the eve of the debtor’s bankruptcy. These transfers are preferential because the insolvent debtor chooses which creditor to repay instead of following the order of priority established by the relevant bank- ruptcy laws. See 11 U.S.C. § 547. 4622 IN RE: TAYLOR We address a recurring question in many bankruptcies: What should be the remedy when a court holds that a security interest is avoidable as a preferential transfer? When a bank- ruptcy court avoids a preferential transfer, it may award the bankrupt estate either the actual transferred property or the value of the transferred property. 11 U.S.C. § 550(a). Here, the bankruptcy court declined to award the estate the trans- ferred property: the security interest. If it had done so, then the bankruptcy trustee could simply have canceled the secur- ity interest, thus converting the auto loan into an unsecured debt owed to USAA. Instead, the bankruptcy court opted to award the estate the “value” of the security interest. Hence, because the bankruptcy court left the original transaction untouched, USAA kept its valid, enforceable secured interest in the Camry. But, the bankruptcy court also awarded the Taylors’ bankruptcy estate something more. It was that decision—to award the estate the value of the security interest by means of a new forced loan—that led the bankruptcy court down the proverbial rabbit hole.
Once the bankruptcy court decided to award the value of the security interest, it faced the question: What is the value of a security interest, once the security interest is separated from its underlying loan? The bankruptcy court determined that the value of the security interest was the full value of the initial loan. Therefore, the bankruptcy court ordered USAA to loan the estate $18,020 plus interest; this amount was in addi- tion to the $18,020 USAA initially loaned the Taylors when they purchased the Camry. Upon payment of the additional $18,020, USAA became entitled to file a non-priority unse- cured claim for the additional amount of $18,020 plus inter- est, which was loaned under the bankruptcy court’s order. The bankruptcy court’s determination of the value of the security interest was clearly erroneous. We agree that the security interest may have had some value greater than zero; there is, however, no evidence in this record to support the bankruptcy court’s finding that the value of the security interest equaled IN RE: TAYLOR 4623 the amount of the original $18,020 loan at the time USAA perfected its security interest.
Furthermore, because the value of USAA’s security interest is not readily ascertainable, the bankruptcy court erred when it awarded the estate an estimate of that value instead of the transferred property—the security interest. Therefore, we reverse the bankruptcy court’s decision and remand with instructions for the bankruptcy court to declare USAA’s security interest void. The ownership of the Camry will not be subject to the lien created by the security interest. USAA will retain an unsecured claim against the estate for $18,020, the value of the loan. For reasons discussed below, we also remand to the bankruptcy court to determine whether USAA must return the payments it received from the Taylors, and if so, to whom.
I. Factual Background
A. The Purchase
On August 30, 2005, David and Linda Taylor, a married couple, purchased and took possession of a 2006 Toyota Camry from Gresham Toyota, Inc. (“Gresham”), a dealership in Portland, Oregon. The Taylors purchased the car for $19,500.
USAA loaned the Taylors $18,020; the Taylors in turn paid the $18,020 to Gresham. The amount of the loan was equal to the purchase price of the car less the agreed trade-in value of the Taylors’ 1992 Lincoln Town Car, which the Taylors sold to Gresham as part of the purchase of the Camry. In Sep- tember 2005, the Taylors began to make monthly payments on their loan to USAA.3 The record does not show the amount of the monthly payment. Follow- ing the Taylors’ petition in bankruptcy, they arranged to continue to pay the loan from their post-petition income that was not part of the estate; therefore, they did not default. It is not clear on the record before us if any payments came from the estate itself. 4624 IN RE: TAYLOR The Taylors, as part of the loan agreement, granted USAA a “purchase money security interest” in the car.4 Under the Bankruptcy Code, a security interest is a lien created by an agreement (as opposed to by statute). 11 U.S.C. § 101(51).5 A “lien . . . means [a] charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37).
To satisfy pre-existing debts, a trustee can avoid transfers that take place within the 90 days before bankruptcy is filed. 11 U.S.C. § 547(b). There is an exception to this rule, how- ever, for creditors who perfect a security interest within 20 days after a transfer for new value. 11 U.S.C. § 547(c)(3). A security interest is perfected when the creditor has satisfied the requirements of perfection under state law. Fidelity Finan- cial Services, Inc. v. Fink, 522 U.S. 211, 214 (1998). Thus, USAA had to satisfy all the requirements set out in Idaho Code Sections 28-9-310 through 28-9-316 within 20 days after the Taylors took possession of the Camry. Idaho Code 29-9-308(a); 11 U.S.C. § 547(c). USAA, however, made the crucial mistake of being one day late in perfecting its security interest. Accordingly, USAA failed to exempt the transfer from being avoidable under the Bankruptcy Code.
USAA failed to perfect the security interest within 20 days A purchase-money security interest is: “A security interest that is cre- ated when a buyer uses the lender’s money to make the purchase and immediately gives the lender security by using the purchased property as collateral (UCC § 9-103); a security interest that is either (1) taken or retained by the seller of the collateral to secure all or part of its price or (2) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if that value is in fact so used. If a buyer’s purchase of a boat, for example, is financed by a bank that loans the amount of the purchase price, the bank’s security interest in the boat that secures the loan is a purchase- money security interest.” BLACK’S LAW DICTIONARY (9th ed. 2009). All future references to “Section” or “§” are to the Bankruptcy Code, 11 U.S.C. § 101, et seq., unless otherwise noted. IN RE: TAYLOR 4625 because it filed its initial application for title without a signed affidavit of inspection, as required under Idaho law. See Idaho Code Ann. § 49-510. On September 20, 2005, an inspection officer from the Idaho Transportation Department inspected the car and signed an affidavit of inspection. The same day, an Application for Certificate of Title and the affidavit of inspection were filed with the Idaho Transportation Depart- ment. USAA’s security interest was thus perfected under Idaho law only on September 20, 2005—21 days after the Taylors took possession of the car on August 30, 2005. Despite the fact that USAA’s security interest was perfected under state law, the bankruptcy trustee could still avoid the transfer of the security interest because USAA failed to meet the federal 20-day perfection requirement under § 547(c)(3).6
B. The Bankruptcy
On September 28, 2005, the Taylors filed a voluntary peti- tion in bankruptcy under Chapter 7. A Chapter 7 bankruptcy filing transfers title to the debtors’ nonexempt assets to a court-appointed trustee, who endeavors to manage the assets in a manner that will satisfy the creditors’ claims. 11 U.S.C. §§ 701, 704. The bankruptcy court appointed Don Thacker as the Taylors’ bankruptcy trustee.
On February 23, 2007, Thacker filed suit against USAA to avoid the transfer of the security interest under 11 U.S.C. Before the bankruptcy court, USAA contended it perfected its security interest when it filed its application with the Idaho Transportation Depart- ment on September 15, 2005 because Idaho permitted it a grace period of an additional 20 days. See Idaho Code 49-510. The bankruptcy court held the state law grace period did not apply to federal bankruptcy proceedings regarding avoidance of a preferential transfer under § 547. See Fidelity Financial Services, 522 U.S. at 221. The BAP affirmed. USAA’s briefs no longer claim its security interest was perfected on September 15, 2005; hence, USAA has waived that argument on appeal. 4626 IN RE: TAYLOR § 547(b). Thacker moved for summary judgment, which the bankruptcy court granted.7
On August 10, 2007, the bankruptcy court held the transfer was avoidable. The bankruptcy court concluded that cancel- ling the security interest or transferring it to the trustee was an insufficient remedy. Rather, the court concluded it must award the estate the value of the security interest at the time of the August 30, 2005 purchase of the car—the date the Tay- lors transferred the security interest in the car to USAA. To that end, the bankruptcy court issued judgment against USAA for $18,020, plus interest—a new $18,020 additional to the $18,020 which USAA had already loaned the Taylors—and graciously allowed USAA to file an unsecured debtor’s claim for this second $18,020 loan plus interest, once USAA paid that new loan’s proceeds to the estate.8 The net result was that (1) the bankruptcy estate was allowed to keep the car and the original loan obligation of $18,020 used to purchase the car; (2) USAA was allowed to keep its valid lien, or security inter- est, in the car; (3) USAA was ordered to loan the bankruptcy estate another $18,020; and (4) USAA received an unsecured claim against the estate for the fresh loan of $18,020. At the end of the day, USAA was both a secured creditor (against all, including the bankruptcy estate) for one loan of $18,020 (less the payments the Taylors had made) and an unsecured creditor for another, new debt of $18,020. There does not seem to be any explanation for the seventeen month delay between the date when the Taylors filed for bankruptcy and the date when Thacker sued USAA. USAA has not raised any legal contention based on this fact. The court ordered USAA to pay interest on the $18,020 from Novem- ber 21, 2005 through the date of entry of the judgment at 4.30% per annum, and at the rate of 4.82% per annum after the date of entry of judg- ment until the judgment was paid. See Acequipa, Inc. v. Clinton (In re Acequipa, Inc.), 34 F.3d 800, 818-19 (9th Cir. 1994) (holding pre- judgment interest was available on the value of property ordered paid by a creditor to a bankruptcy estate). IN RE: TAYLOR 4627 During proceedings before the bankruptcy court, USAA contended that the correct remedy was simply to cancel the security interest, i.e., to return the transferred property to the estate. The bankruptcy court held that canceling the security interest would not return the estate to the same position it would have been in if the Taylors had not made the transfer to USAA. The value of the security interest had diminished because, first, the Taylors had made monthly payments on the auto loan and, second, the car had depreciated in value between the date of the purchase and the date of summary judg- ment.9 The bankruptcy court rejected USAA’s proposed rem- edy of simply avoiding the security interest because that remedy would leave USAA with a windfall in the amount of the payments the Taylors had made since purchasing the car. In granting judgment for the trustee, the bankruptcy court found the value of the security interest at the time of the trans- fer was the full value of the secured loan. The bankruptcy court authorized the following remedy:
JUDGMENT is entered in favor of plaintiff Don Thacker and against defendant USAA Federal Sav- ings Bank for the principal sum of $18,020.00, together with interest thereon from November 21, 2005 through the date of entry of this judgment at the rate of 4.30% per annum, and after the date of entry of judgment at the rate of 4.82% per annum, until paid, and execution shall issue therefor.
Thacker v. USAA Federal Savings Bank (In re Taylors) No. 07-04025-PBS (Bankr. W.D. Wash. Aug. 10, 2007). USAA was also entitled under the judgment to file an unsecured claim against the estate for the amount of judgment. USAA does not dispute the calculation of interest payments on the principal sum. On July 2, 2007, the Kelly Blue Book value of the car was between $14,240 (trade-in) and $15,895 (private party). As of the date of Thacker’s Motion for Summary Judgment, the Taylors still possessed the car. 4628 IN RE: TAYLOR The Bankruptcy Appellate Panel (“BAP”) affirmed. USAA Federal Savings Bank v. Thacker (In re Taylors), 390 B.R. 654 (B.A.P. 9th Cir. 2008).
II. Standard of Review
This court reviews the decision of the BAP de novo. Aalfs v. Wirum (In re Straightline Invs., Inc.), 525 F.3d 870, 876 (9th Cir. 2008). We review the bankruptcy court’s decision for abuse of discretion: “The bankruptcy court’s conclusions of law are reviewed de novo, and its findings of fact are reviewed for clear error.” Id. In applying our abuse of discre- tion test, we first “determine de novo whether the [bank- ruptcy] court identified the correct legal rule to apply to the relief requested.” United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009). If the bankruptcy court identified the correct legal rule, we then determine whether its “application of the correct legal standard [to the facts] was (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record.” Id. (internal quotation marks omitted). If the bankruptcy court did not identify the correct legal rule, or its application of the correct legal stan- dard to the facts was illogical, implausible, or without support in inferences that may be drawn from the facts in the record, then the bankruptcy court has abused its discretion. Id.
III. Legal Analysis
A. Avoidance of the Lien
The bankruptcy court correctly held Thacker could avoid the transfer of the security interest under 11 U.S.C. § 547(b).10 That section is designed to prohibit insolvent debtors, on the eve of filing for bankruptcy, from paying off their debts held by “preferred” creditors—those creditors whom the soon-to- This case was filed before the October 17, 2005 effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. IN RE: TAYLOR 4629 be bankrupts wish to favor. Indeed, on appeal, USAA does not dispute the security interest was properly avoided as a preferential transfer under § 547. Nevertheless, it is useful to understand why the bankruptcy court found the transfer of the security interest (hereinafter “the transfer”) was avoidable. Pursuant to 11 U.S.C. § 547(b):
The trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the fil- ing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
[1] The trustee proved the transfer met all the requirements necessary for the bankruptcy court to avoid the preferential 4630 IN RE: TAYLOR transfer. The Taylors transferred the security interest to USAA. See § 547(b)(1). The transfer was in exchange for the $18,020 loan USAA made to the Taylors on August 30, 2005. See § 547(b)(2). Under section 547(f), debtors are presumed insolvent for the 90 days prior to filing for bankruptcy. See § 547(b)(3). The date of the transfer is the date the security interest was perfected, September 20, 2005, only 8 days before the Taylors filed for bankruptcy on September 28, 2005. See § 547(b)(4).
[2] As a result of the transfer, USAA received more than it would have received had the transfer not been made. See § 547(b)(5). When the transfer was made, USAA’s loan became secured by the car. When the Taylors declared bank- ruptcy, USAA was entitled to repossess the car if the Taylors defaulted on the loan. The car was valued at $19,500 at pur- chase and between $14,240 and $15,895 when Thacker filed the adversary action on behalf of the estate.
[3] If the transfer had not occurred, and the Taylors had defaulted on the loan when they filed for bankruptcy, then USAA would be entitled only to file a claim for the value of the unpaid principal on the loan as an unsecured creditor. In that situation, the debtors would be less likely to make their monthly payments to USAA because unlike a lender with a perfected security interest who usually has the legal right to repossess the encumbered property upon default of the loan payments, an unsecured creditor must simply hope for repay- ment from the bankrupt estate. Because the transfer met all the requirements of § 547(b), the bankruptcy court correctly held the transfer avoidable.
B. The Transfer of the Security Interest, not the Loan, was Avoidable under § 547
[4] When a creditor perfects a security interest for new value after the 20-day period provided for in § 547(c) and the debtors declare bankruptcy within 90 days, the trustee may IN RE: TAYLOR 4631 avoid the transfer of the security interest, but not the underly- ing loan. For the purpose of bankruptcy law, courts treat the perfection of the security interest after twenty days as a new transfer that does not fall within any of the exceptions to 11 U.S.C. § 547.
[5] The Supreme Court has affirmed this approach. In Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211 (1998), aff’g In re Beasley, 183 B.R. 857, 862 (Bankr. W.D. Mo. 1995), the debtor agreed to a purchase-money security interest with a creditor to purchase a car. There, as here, the lender perfected the security interest 21 days after the debtor took possession of the car and raised the enabling loan defense in response to the trustee’s adversarial action to avoid the trans- fer. Id. at 213. The Court held state law grace periods for creditors to perfect security interests were inapplicable in the bankruptcy context. Id. at 216-17. The creditor could not invoke the enabling loan defense when it perfected its security interest more than 20 days after the debtor took possession, even if state law created a grace period for the perfection of a security interest. Id. As relevant here, the Court affirmed the bankruptcy court’s order setting aside the lien only. See In re Beasley, 183 B.R. at 862. Despite avoiding the transfer of the security interest, that bankruptcy court did not set aside the underlying loan for the purchase of the car. Accord Rodriguez v. Drive Financial Services, LP (In re Bremer), 408 B.R. 355, 359 (10th Cir. BAP 2009).
[6] This approach seems well accepted by bankruptcy courts. For example, in Kelley v. General Motors Acceptance Corp. (In re Farmer), 209 B.R. 1022 (Bankr. M.D. Ga. 1997), the debtors executed a purchase-money security interest to purchase a Pontiac Grand Am. The creditor did not perfect its lien within 20 days of the debtors taking possession of the car. On appeal, the parties agreed the security interest was avoid- able as a preference, but disputed the correct remedy. See 209 B.R. at 1024. The court noted: “The ‘transfer’ at issue in this case was a lien, not the vehicle.” Id. The court ordered the 4632 IN RE: TAYLOR security interest declared void and for the creditor to return the amount of the payments it received from the debtors. Id. at 1026. That is what should have happened here.
C. However, the bankruptcy court did not abuse its discretion in holding it could award the value of the security interest.
[7] Section 550(a) gives a trustee two remedy options when the court avoids a preferential transfer. That section states:
[T]o the extent that a transfer is avoided under sec- tion . . . 547 . . . of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from — (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee.
Thus, the bankruptcy court may award the trustee (1) the actual property, or (2) the value of the property. The statute does not explain when a court should award the trustee recov- ery of the actual property and when it should, in the alterna- tive, award the trustee recovery of the value of the property. The statute states only that a court must issue a “single satis- faction.” 11 U.S.C. § 550(d). Bankruptcy courts have discre- tion whether to award recovery under § 550, even when the transferred property is a lien. E.g., Rodriguez v. Drive Finan- cial Services, LP (In re Bremer), 408 B.R. 355, 359 (B.A.P. 10th Cir. 2009). If a bankruptcy court permits the trustee recovery, the court has discretion whether to award the trustee recovery of the property transferred or the value of the prop- erty transferred. Id.
USAA contends the language “to the extent a transfer is avoided,” in § 550 limits the bankruptcy court’s choice of IN RE: TAYLOR 4633 remedy to simply canceling the security interest. Ordinarily, when a trustee successfully brings an adverse action against a creditor, 11 U.S.C. § 551 provides the default remedy. That section states:
Any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or any lien void under section 506(d) of this title, is preserved for the benefit of the estate but only with respect to property of the estate.
A trustee, however, has the discretion to seek an alternative remedy under § 550 (“the trustee may recover . . .”) (emphasis added). See In re Bremer, 408 B.R. at 358-59 (“Preservation is automatic, while recovery is not. Recovery is necessary only when the remedy of avoidance, and therefore of preser- vation, is inadequate.”). USAA’s interpretation of the statute would render the majority of § 550 meaningless surplusage in the context of a non-possessory lien or security interest. We therefore reject USAA’s contention that, because the security interest was void ab initio, the bankruptcy court lacked discre- tion to award recovery under § 550. The security interest was not void ab initio once the bankruptcy court authorized the estate to recover the value of the security interest under § 550.
[8] The next question is whether the bankruptcy court abused its discretion when it decided to award the estate the value of the security interest, instead of the security interest (the property transferred) itself. We hold it did not. The pur- pose of § 550(a) is “to restore the estate to the financial condi- tion it would have enjoyed if the transfer had not occurred.” E.g., Aalfs v. Wirum (In re Straightline Invs., Inc.), 525 F.3d 870, 883 (9th Cir. 2008) (internal citations omitted). A bank- ruptcy court ordinarily determines the value of the property to be the value at the time of the transfer, but has discretion on how to value the property so as to put the estate in its pre- transfer position. Joseph v. Madray (In re Brun), 360 B.R. 669, 674 (Bankr. C.D. Cal. 2007) (“Typically, courts equate 4634 IN RE: TAYLOR ‘value’ with the fair market value of the subject property at the time of the transfer.”). In this case, the bankruptcy court held correctly that awarding the estate the value of the secur- ity interest would more closely restore the estate to its pre- transfer position than simply avoiding the transfer.
Addressing this exact issue, the BAP held a bankruptcy court had discretion to award the property or the value of the property in order to avoid a lien. In re Bremer, 408 B.R. at 358-59. In re Bremer involved two consolidated cases whose facts were indistinguishable from the present case. The debt- ors loaned auto buyers the purchase price of their cars through purchase-money security interests from the purchasers. The security interests were avoidable under § 547 and the trustee brought adversarial actions to avoid the transfers of the secur- ities interests. Id. at 358. The bankruptcy court avoided the transfers but held that the correct remedy was to return the property—the security interest—to the estate. Id.
The BAP affirmed on the ground that the bankruptcy courts’ remedy, to return the security interest, was not an abuse of the courts’ discretion. Id. at 361. The BAP did not hold the only available remedy was to avoid the security inter- est. Id. at 360 (“[W]e decline to hold that § 550(a) relief is unavailable in every lien avoidance case.”). Instead, the BAP noted, “there are circumstances in which avoiding and pre- serving a lien under § 551 may not suffice to put the estate back to its pre-petition position . . . and awarding the trustee the value of the vehicle was the proper § 550 remedy.” Id.
The BAP went on to identify two possible situations where avoiding a lien is an insufficient remedy and recovery of the value of the security interest is necessary to restore the estate to its pre-transfer position. First, “[w]here the property is unrecoverable or its value diminished by conversion or depre- ciation, courts will permit the recovery of value.” Id. And sec- ond, “when the value is readily determinable and a monetary award would work a savings for the estate.” Id. In contrast, IN RE: TAYLOR 4635 “[w]hen the record is devoid of evidence on the property’s market value or when conflicting evidence exists on the value of the transferred property, courts have ordered the property to be returned.” Id.
Here, the bankruptcy court held the value of the security interest was diminished by depreciation and payments the Taylors had made by the time the court acted on the trustee’s motion to avoid the security interest. Hence, the bankruptcy court awarded the value of the security interest to restore the estate to the position in which it would have been had the transfer of the security interest to USAA not been made. The bankruptcy court was attempting to correct for the difference between the value of the security interest at the time of the transfer (September 20, 2005) and the value of the security interest at the time of judgment (August 10, 2007). We agree that the value of a security interest is determined in part by the value of the secured asset, in this case the value of the Tay- lors’ car. Hence, the depreciation of the value of the car low- ered the value of the security interest. Furthermore, the value of the security interest is determined in part by the outstand- ing balance of the Taylors’ debt. As the Taylors made pay- ments to reduce their debt, the value of the security interest diminished.
[9] The error here stems from the bankruptcy court’s deter- mination of the value of the security interest. The bankruptcy court attempted to make up for the diminution of the security interest’s value—for payments made and depreciation in the value of the car—in its remedy.
We understand the bankruptcy court’s reasoning to be as follows: If USAA had not received a valid security interest in the Camry when the Taylors purchased it, the Taylors could have acquired another loan, e.g. from Bank X, for an amount equal to the value of the original loan in exchange for trans- ferring the security interest in the car to Bank X. Thus, when the Taylors filed for bankruptcy, the estate would have had 4636 IN RE: TAYLOR the automobile, an unsecured debt of $18,020 owed to USAA, and a secured debt of $18,020 owed to Bank X.11 The estate would have had the automobile, an unsecured debt of $18,020 owed to USAA, and a secured debt of $18,020 owed to Bank X. The bankruptcy court tried to recreate this alternative sce- nario through its judgment, except instead of USAA holding the unsecured debt and another bank holding the secured debt, USAA was to hold both.
The bankruptcy court’s premise, which the BAP seems to have accepted without discussion, 390 B.R. at 665 n.13, that upon the purchase of the Camry, the Taylors could get a loan and that such a loan would be for $18,020, is not supported by the evidence. There is no evidence in the record to support the Trustee’s claim that the security interest was worth a loan of $18,020, which would make it more likely than not that Bank X would loan that amount on the Camry. Additionally, there is no evidence that a second bank would have loaned the Taylors $18,020 in exchange for a secured interest in the Camry when any bank with access to honest financial docu- ments would have seen that the Taylors had just incurred an $18,020 debt to USAA. Furthermore, we question the estate’s claims that the car was worth the full $18,020 when, 21 days after the Taylors took possession, USAA perfected its security interest. The estate’s motion does not contain any support or explanation why the Camry’s value would not have started to depreciate the moment the Taylors drove their vehicle off the dealer’s lot.
[10] For these reasons, we hold the bankruptcy court abused its discretion. The bankruptcy court’s finding that (1) This raises the question why the bankruptcy court thought the Taylors could only get the value of the original loan, $18,020, and not the full pur- chase price of the car, $19,500. There was no evidence whether market conditions in 2005 would have provided for a fully-financed, no down payment purchase. The bankruptcy court assumed the Bank X loan would have allowed Bank X properly to perfect its security interest. IN RE: TAYLOR 4637 another bank would loan $18,020 collateralized by a security interest, and (2) the value of the security interest was equal to an unsecured loan of $18,020 was “without support in infer- ences that may be drawn from the facts in the record.” Hink- son, 585 F.3d at 1262 (quotation marks omitted).
Ordinarily, where a trial court bases its judgment on a clearly erroneous finding of fact, we remand for further find- ings consistent with our opinion. In this case, however, no remand is necessary. It is well established that in deciding to award an estate the value of property, a bankruptcy court must decide “whether there is conflicting evidence as to the value of the property and whether the value of the property is read- ily determinable.” 5 Collier on Bankruptcy ¶ 550.02[3][a], at 550-9-10 (15th ed. re 2008).
Where the value of the property cannot be easily or readily determined—as is the case here—the correct remedy is to return the property, not award an estimate of the value of the property. Id.; accord In re Bremer, 408 B.R. at 360. For example, in In re McLaughlin, 183 B.R. 171 (Bankr. W.D. Wis. 1995), the bankruptcy court avoided the transfer of a security interest in a mobile home because the security inter- est was not perfected within the time specified under § 547(c). The bankruptcy court held the trustee could not recover the value of the property because the value was not readily deter- mined. 183 B.R. at 177 (“if the market value of the property can be readily determined and would work a savings for the estate, the trustee may recover value rather than the proper- ty.”). The court held the value of the lien was related to the market price of the mobile home, but did not specify how. Id. Nevertheless, because the value of the mobile home one month after purchase was not necessarily the same as the pur- chase price, the bankruptcy court declined to award the trustee the value of the property. Id. Here twenty-one days elapsed between the day the Taylors took possession of the Camry and when they transferred the security interest to USAA, but we see no reason why a nine day difference would change the 4638 IN RE: TAYLOR fact that the value of the security interest was not readily ascertainable.
[11] We find the value of the security interest at the time of the filing of the bankruptcy petition is not readily ascertain- able from this record. Therefore, the only available remedy is to return to the estate the property, i.e., the security interest, and not the value of the property.12
The only remaining wrinkle is what to do with the pay- ments made to USAA. The record does not include a clear description of the schedule of payments to USAA. Some, pos- sibly all, of the payments came from the Taylors’ post- petition exempt income. We do not see any reason to return those payments to the Taylors. The parties, however, have not addressed this issue so we remand to the bankruptcy court to address the payment issue in the first instance.
Some of the payments, however, may have been paid by the estate, either following the Taylors’ declaration of bank- ruptcy, or, by the Taylors during the 90 days preceding their declaration. Any such payments must be returned by USAA to the estate, either as postpetition transactions under 11 U.S.C. § 549, or, as a prepetition preferential transaction under 11 U.S.C. § 547. We remand to the bankruptcy court to determine whether the estate made any pre- or post-petition transfers to USAA in payment of the loan and, if so, whether those payments should be returned to the estate.
We note in passing that Thacker’s objection to canceling the security interest, on the grounds that if USAA returned the monthly payments made by the Taylors and then had an unse- cured claim for the original $18,020, the calculation of pre- judgment interest on the monthly payments would prove diffi- We do not reach the question whether “value” as used in § 550 may extend beyond a simple money judgment to include injunction-style reme- dies such as loans. IN RE: TAYLOR 4639 cult or complicated, lacks merit. The parties should have records of the timing of each monthly payment, and they can calculate the same 4.30% per year simple interest, as awarded by the bankruptcy court in its first remedy, on each recover- able monthly payment until USAA has satisfied the judgment.13
IV. Conclusion
[12] The Bankruptcy Appellate Panel’s decision was cor- rect to the extent it held a bankruptcy court had discretion to award a trustee the value of a security interest that was avoided under § 547. The bankruptcy court, however, clearly erred in determining the correct value of the security interest. We reverse with instructions for the bankruptcy court to avoid the security interest and to determine in the first instance how to handle the recovery of the monthly payments.
REVERSED AND REMANDED.
The bankruptcy court was correct to award prejudgment interest. See Acequipa, Inc. v. Clinton (In re Acequipa, Inc.), 34 F.3d 800, 818-19 (9th Cir. 1994). The same rate of 4.30% per year simple interest should be used. |
United States Court of Appeals for the Federal Circuit 2009-1473 (Opposition No. 91/182,173)
ODOM’S TENNESSEE PRIDE SAUSAGE, INC.,
Appellant,
v.
FF ACQUISITION, L.L.C.,
Appellee.
Marsha G. Gentner, Jacobson Holman PLLC, of Washington, DC, argued for appellant.
Scott W. Johnston, Merchant & Gould P.C., of Minneapolis, Minnesota, argued for appellee.
Appealed from: United States Patent and Trademark Office Trademark Trial and Appeal Board UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT 2009-1473 (Opposition No. 91/182,173)
ODOM’S TENNESSEE PRIDE SAUSAGE, INC.,
Appellant,
v.
FF ACQUISITION, L.L.C.,
Appellee.
Appeal from the United States Patent and Trademark Office, Trademark Trial and Appeal Board in Opposition No. 91/182,173.
______________________
DECIDED: March 19, 2010 _______________________
Before MAYER, GAJARSA, and LINN, Circuit Judges.
MAYER, Circuit Judge.
Odom’s Tennessee Pride Sausage, Inc. (“Odom’s”) appeals the decision of the
United States Patent and Trademark Office, Trademark Trial and Appeal Board
granting summary judgment in favor of FF Acquisition, L.L.C. (“FF”) and dismissing
Odom’s opposition to a trademark application filed by FF. Odom’s Tenn. Pride
Sausage, Inc. v. FF Acquisition, L.L.C., Opposition No. 91/182,173 (TTAB Apr. 17,
2009). Odom’s opposed the registration of FF’s mark, alleging likelihood of confusion
with its own marks. We affirm. BACKGROUND
Odom’s produces food items, such as sausages and breakfast sandwiches,
distributed primarily through retail grocery stores. Over the past forty years it has
obtained a number of trademark registrations depicting farm boys to designate its
products. * The farm boys in the various marks resemble the examples below.
FF does business as Farm Fresh Supermarket and operates grocery stores. In
1983, FF registered a design of the head and shoulders of a farm boy with a piece of
straw in his mouth to designate its supermarket services. See U.S. Trademark
Registration No. 1,222,958 (Jan. 4, 1983). It altered the design in a 2003 renewal of the
registration, but the mark still depicted the upper portion of a farm boy with a piece of
straw in his mouth. In 2007, FF filed an application for a new mark for use in its retail
grocery store services. See U.S. Trademark Application Serial No. 77/148,503 (Apr. 4,
* In its Notice of Opposition, Odom’s relied on eleven trademark registrations, U.S. Trademark Registration Nos. 885,136 (Jan. 27, 1970); 887,577 (Mar. 10, 1970); 1,859,824 (Oct. 25, 1994); 1,861,064 (Nov. 1, 1994); 2,653,431 (Nov. 26, 2002); 2,850,472 (June 8, 2004); 3,019,156 (Nov. 29, 2005); 3,019,210 (Nov. 29, 2005); 3,031,104 (Dec. 20, 2005); 3,200,845 (Jan. 23, 2007); and 3,200,875 (Jan. 23, 2007).
2009-1473 2 2007). The new mark uses the head and shoulders of the farm boy depicted in the
existing mark and added the remainder of the boy’s body, as reproduced here.
Odom’s opposed FF’s new mark on the ground that it resembles the marks
registered and used by Odom’s and would therefore be likely to cause prospective
consumers to be confused, mistaken, or deceived within the meaning of Section 2(d) of
the Lanham Act. 15 U.S.C. § 1052(d) (2006). FF moved for summary judgment,
arguing that there is no likelihood of confusion between the marks. The board found
that FF’s applied-for mark was so dissimilar to Odom’s pleaded marks that no likelihood
of confusion could exist as a matter of law. The board therefore granted summary
judgment in favor of FF and dismissed Odom’s opposition. Odom’s appeals. We have
jurisdiction pursuant to 28 U.S.C. § 1295(a)(4)(B).
DISCUSSION
Summary judgment is appropriate where the movant has established that there is
no genuine issue as to any material fact and that the movant is entitled to judgment as a
matter of law. Lincoln Logs Ltd. v. Lincoln Pre-Cut Log Homes, Inc., 971 F.2d 732, 734
(Fed. Cir. 1992). We review the board’s decision to grant summary judgment de novo.
Id.
As an initial matter, Odom’s argues that the board’s analysis inappropriately
considered only its registered marks and failed to consider uses of its marks that differ
2009-1473 3 in some respect from what is depicted in the registrations—in particular Odom’s
Tennessee Pride Farmboy mascot. According to Odom’s, the differences between the
registered marks and its actual uses of the marks “are highly significant” in the context
of the similarity analysis. To the extent that a use of Odom’s marks is sufficiently
distinct from the registered marks that it could cause confusion where the registered
marks do not, the use represents a separate, unregistered mark. In re Int’l Flavors &
Fragrances, Inc., 183 F.3d 1361, 1368 (Fed. Cir. 1999) (“[T]he mark, as registered,
must accurately reflect the way it is used in commerce so that someone who searches
the registry for the mark, or a similar mark, will locate the registered mark.”).
While it is correct that a mark need not be registered in order to grant its owner
trademark protection, Odom’s did not plead before the board that FF’s applied-for mark
was confusingly similar to unregistered marks owned by Odom’s. Instead, its notice of
opposition discussed only registered marks. The board was therefore not required to
consider any unregistered marks in its analysis. Odom’s argues that it relied on the
mascot in its response in opposition to FF’s motion for summary judgment and that the
board should have deemed the pleadings amended by consent of the parties. The
board’s procedures allow it to deem the pleadings to have been amended to include
unpled issues under certain circumstances, but the language is permissive and does
not require the board to do so. Trademark Trial and Appeal Board Manual of
Procedures § 528.07(b) (“[T]he Board may deem the pleadings to have been amended,
by agreement of the parties, to allege the matter.” (emphasis added)).
Sufficient distinctions exist between the registered marks considered by the
board and the applied-for mark to create a different commercial impression. The marks
2009-1473 4 differ in the size and shape of the boys’ hands and feet, the shape and style of their
hats, and the fact that FF’s boy has a piece of straw in his mouth and shoes on his feet
while Odom’s has neither. Odom’s complains that the board inappropriately dissected
the marks into these components in performing its analysis, but it is these individual
aspects that collectively create a difference in the overall impressions made by the
marks. In re Nat’l Data Corp., 753 F.2d 1056, 1058 (Fed. Cir. 1985) (“[I]n articulating
reasons for reaching a conclusion on the issue of confusion, there is nothing improper in
stating that, for rational reasons, more or less weight has been given to a particular
feature of a mark . . . .”). As the board correctly concluded, the visual distinctions
between the marks at issue here create unquestionably different commercial
impressions, thereby precluding a finding of likelihood of confusion.
Odom’s also argues that the board erred in basing its decision on the dissimilarity
of the marks alone and not giving appropriate consideration to the other factors
constituting the test for likelihood of confusion set forth in In re E. I. DuPont DeNemours
& Co., 476 F.2d 1357, 1361 (CCPA 1973). ** However, a single DuPont factor “may be
dispositive in a likelihood of confusion analysis, especially when that single factor is the
** The DuPont factors are: (1) the similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation and commercial impression; (2) the similarity or dissimilarity and nature of the goods or services as described in an application or registration or in connection with which a prior mark is in use; (3) the similarity or dissimilarity of established, likely-to-continue trade channels; (4) the conditions under which and buyers to whom sales are made; (5) the fame of the prior mark; (6) the number and nature of similar marks in use on similar goods; (7) the nature and extent of any actual confusion; (8) the length of time during and conditions under which there has been concurrent use without evidence of actual confusion; (9) the variety of goods on which a mark is or is not used; (10) the market interface between applicant and the owner of a prior mark; (11) the extent to which applicant has a right to exclude others from use of its mark on its goods; (12) the extent of potential confusion; and (13) any other established fact probative of the effect of use. DuPont, 476 F.2d at 1361.
2009-1473 5 dissimilarity of the marks.” Champagne Louis Roederer, S.A. v. Delicato Vineyards,
148 F.3d 1373, 1375 (Fed. Cir. 1998). Therefore, even if all other relevant DuPont
factors were considered in Odom’s favor, as the board stated, the dissimilarity of the
marks was a sufficient basis to conclude that no confusion was likely.
CONCLUSION
Accordingly, the decision of the board is affirmed.
AFFIRMED
2009-1473 6 |
NOTE: This order is nonprecedential.
United States Court of Appeals for the Federal Circuit 2007-5063, -5064, -5089
FRANK P. SLATTERY, JR., (on behalf of himself and on behalf of all other similarly situated shareholders of Meritor Savings Bank),
Plaintiff-Cross Appellant,
and
STEVEN ROTH, and INTERSTATE PROPERTIES,
Plaintiffs-Cross Appellants, v.
UNITED STATES,
Defendant-Appellant.
Appeal from the United States Court of Federal Claims in Case No. 93-CV-280, Senior Judge Loren A. Smith.
Before MICHEL, Chief Judge, NEWMAN, MAYER, LOURIE, RADER, BRYSON, GAJARSA, LINN, DYK, PROST, and MOORE, Circuit Judges.
PER CURIAM.
ORDER
Defendant-Appellant United States filed a combined petition for panel rehearing
and rehearing en banc. The panel requested a response from Plaintiffs-Cross
Appellants, Frank P. Slattery, Jr., Steven Roth and Interstate Properties. Responses
were filed.
The petition was considered by the panel that heard the appeal, and thereafter
by the court en banc. The court has decided that the appeal warrants en banc consideration.
Upon consideration thereof,
IT IS ORDERED THAT:
(1) The petition for panel rehearing is denied.
(2) The petition for rehearing en banc is granted.
(3) The court’s September 29, 2009 opinion is vacated, and the appeal is
reinstated.
(4) The parties are requested to file new briefs addressing only the following
issues:
(a) Is the Federal Deposit Insurance Corporation a non-
appropriated fund instrumentality, and if so, what is the effect
on the jurisdiction of the Court of Federal Claims over this
suit against the United States?
(b) What is the appropriate standard for determining whether an
entity is a non-appropriated fund instrumentality?
(5) This appeal will be heard en banc on the basis of the originally filed briefs,
additional briefing ordered herein, and oral argument. An original and
thirty copies of all originally-filed briefs shall be filed within forty-two (42)
days from the date of filing of this order. An original and thirty copies of
new en banc briefs shall be filed, and two copies of each en banc brief
shall be served on opposing counsel. The Defendant-Appellant shall file
its new en banc brief within forty-two (42) days from the date of filing of
this order. The response briefs of the Plaintiffs-Cross Appellants are due
2007-5063, -5064, -5089 2 within twenty-eight (28) days from the date of service of the Defendant-
Appellant’s brief. The Defendant-Appellant’s reply brief, if any, is due
within fourteen (14) days from the date of service of the response. Briefs
shall adhere to the type-volume limitations set forth in Federal Rule of
Appellate Procedure 32 and Federal Circuit Rule 32.
(6) Briefs of amici curiae will be entertained, and any such amicus briefs may
be filed without leave of court but otherwise must comply with Federal
Rule of Appellate Procedure 29 and Federal Circuit Rule 29.
(7) Oral argument will be held at a time and date to be scheduled later.
FOR THE COURT
March 19, 2010 /s/ Jan Horbaly Date Jan Horbaly Clerk
cc: Thomas M. Buchanan Bradley Paul Smith Jeanne E. Davidson Dorothy Ashley Doherty
2007-5063, -5064, -5089 3 |
FILED United States Court of Appeals Tenth Circuit
March 19, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court FOR THE TENTH CIRCUIT
CHARLES J. SAIN,
Plaintiff!Appellant,
v. Nos. 09-2153 & 09-2175 (D.C. No. 1:08-CV-01019-RB-LFG) CAROLYN M. SNYDER; MARY E. (D. N.M.) CHAPPELLE; L. HELEN BENNETT; RICHARD STOOPS; PATRICIA MADRID; GARY KING; BETSY SALCEDO; STANLEY WHITAKER; DEBORAH DAVIS WALKER; WILLIAM F. LANG; JUANITA DURAN; LYNN PICKARD; JAMES J. WECHSLER; MICHAEL VIGIL; MICHAEL D. BUSTAMANTE; A. JOSEPH ALARID; EDWARD L. CHAVEZ; PETRA JIMENEZ MAEZ; RICHARD C. BOSSON; BILL RICHARDSON; BERNALILLO COUNTY SHERIFF’S DEPARTMENT; ERNESTO J. ROMERO; RODERICK KENNEDY; CHARLES W. DANIELS; PATRICIO M. SERNA; ELIZABETH E. WHITEFIELD; VICKI AIKENHEAD RUIZ; JO ANNE DE HERRERA,
Defendants!Appellees.
ORDER AND JUDGMENT *
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of (continued...) Before KELLY, BALDOCK, and HOLMES, Circuit Judges.
Plaintiff-appellant Charles J. Sain filed this federal civil rights action
claiming that his constitutional rights were violated during the course of his
state-court divorce and child-custody proceedings. Exercising jurisdiction under
28 U.S.C. § 1291, we summarily AFFIRM the district court’s dismissal of this
action.
Specifically, in appeal No. 09-2153, we AFFIRM the dismissal of
Mr. Sain’s claims for substantially the same reasons set forth in the Memorandum
Opinions and Orders entered by the district court on April 2 and May 13, 2009.
See R., Docs. 176, 212. In appeal No. 09-2175, we AFFIRM the denial of
Mr. Sain’s motion for relief from judgment for substantially the same reasons set
forth in the Orders entered by the district court in July 2009. Id., Docs. 225, 230,
233.
We also DENY: (1) Mr. Sain’s motion for sanctions, filed in this court on
November 18, 2009; (2) Mr. Sain’s consolidated response to motions for
* (...continued) this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
extension of time and request for affirmative relief, filed in this court on
November 18, 2009; (3) Mr. Sain’s motion for teleconference, filed in this court
on December 1, 2009; (4) Mr. Sain’s supplemental motion for sanctions, filed in
this court on December 1, 2009; (5) Mr. Sain’s emergency motion for order of
contempt and for further affirmative relief, filed in this court on December 11,
2009; (6) Mr. Sain’s motion for refund of filing fee and for other relief, filed in
this court on January 8, 2010; and (7) the request in Mr. Sain’s opening brief for
en banc adjudication and an award of fees and costs.
Finally, “[t]his court has the . . . inherent power to impose sanctions that
are necessary to regulate the docket, promote judicial efficiency, and most
importantly in this case, to deter frivolous filings.” Christensen v. Ward,
916 F.2d 1462, 1469 (10th Cir. 1990) (citing Van Sickle v. Holloway, 791 F.2d
1431, 1437 (10th Cir. 1986)). Further, we have recognized that it is permissible
to sanction a pro se appellant by directing him or her to make a monetary payment
directly to this court. See Christensen, 916 F.2d at 1469 (ordering pro se
appellant to show cause why sanction of $500 payment should not be imposed);
Van Sickle, 791 F.2d at 1437 (ordering pro se appellant to show cause why
sanction of $1,500 payment should not be imposed). Accordingly, because we
have determined that these appeals are frivolous, and because Mr. Sain has
burdened this court with numerous motions and other filings that are likewise
without any merit, we order Mr. Sain to show cause within ten days of the entry
of this order and judgment why he should not be ordered to pay $3,000 to the
Clerk of the United States Court of Appeals for the Tenth Circuit as a limited
contribution to the United States for the cost and expenses of this action.
Mr. Sain’s response shall not exceed five pages. If the response is not received
by the Clerk within the specified ten days, the sanction will be imposed.
The judgment entered by the district court on May 13, 2009, is
AFFIRMED. Mr. Sain is ORDERED to SHOW CAUSE why he should not be
sanctioned as set forth herein.
Entered for the Court
Paul J. Kelly, Jr. Circuit Judge |
FILED United States Court of Appeals Tenth Circuit
March 19, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court FOR THE TENTH CIRCUIT
CONSTANTINE TANJANG TAKWI,
Petitioner,
v. No. 09-9534 (Petition for Review) ERIC H. HOLDER, JR., United States Attorney General,
Respondent.
ORDER AND JUDGMENT *
Before HARTZ, McKAY, and ANDERSON, Circuit Judges.
Constantine Tanjang Takwi, a native and citizen of Cameroon representing
himself before this court, petitions for review of the Board of Immigration
Appeals’ (BIA) denial of his second motion to reopen his immigration
proceedings. Exercising jurisdiction under 8 U.S.C. § 1252, we deny the petition
for review.
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. Background
Mr. Takwi was ordered removed in 2002, after he represented himself at his
hearing because his counsel failed to appear. In November 2002, represented by a
new attorney, he filed a motion to reopen, arguing his prior counsel was
ineffective because he abandoned Mr. Takwi. The BIA denied the motion in
January 2003 because Mr. Takwi failed to show he was prejudiced by his
attorney’s performance. The second attorney subsequently withdrew the petition
for review before this court. On June 12, 2008, represented by a third attorney,
Mr. Takwi filed his second motion to reopen, which is the subject of this appeal.
The motion argued that both his first and second attorneys were ineffective, and
that he was entitled to adjust his status based on his marriage to a United States
citizen. On January 9, 2009, he supplemented his motion, offering additional
documents and arguing that conditions in Cameroon had changed for the worse.
On January 13, 2009, the BIA denied the motion to reopen without mentioning
the supplemental materials. Mr. Takwi moved to reconsider, and the BIA did so.
It vacated the January 13 decision and further addressed the motion to reopen in
light of the supplemental materials. The result did not change, however, as the
BIA again declined to reopen the case.
The BIA noted that the motion was a second motion, exceeding the limit of
one motion to reopen, and that it was untimely by a matter of years. As grounds
for excusing these deficiencies, the motion complained of ineffective assistance
of counsel. See Riley v. INS, 310 F.3d 1253, 1258 (10th Cir. 2002) (concluding
that ineffective assistance may warrant equitable tolling). The BIA held that the
issue of the first attorney’s performance had been decided in 2003 and was final.
Further, citing In re Compean, 24 I. & N. Dec. 710 (A.G. 2009), vacated, 25 I. &
N. Dec. 1 (A.G. 2009), the BIA concluded that Mr. Takwi had not shown
prejudice or due diligence with regard to his issues with his second attorney.
The BIA also considered whether to apply the exception that allows
reopening to file applications for asylum, restriction on removal, and CAT relief
based on changed country conditions in the country of nationality. See 8 U.S.C.
§ 1229a(c)(7)(C)(ii); 8 C.F.R. § 1003.2(c)(3)(ii). It concluded that the majority
of Mr. Takwi’s evidentiary submissions were not new and could have been
presented earlier, and it identified factors undermining the materials’ authenticity
and reliability. Finally, it concluded that the supplemental reports did not show
changed country conditions. The BIA therefore denied the motion to reopen.
Analysis
Our review of the denial of a motion to reopen is only for abuse of
discretion. See Infanzon v. Ashcroft, 386 F.3d 1359, 1362 (10th Cir. 2004). “The
BIA abuses its discretion when its decision provides no rational explanation,
inexplicably departs from established policies, is devoid of any reasoning, or
contains only summary or conclusory statements.” Id. (quotation omitted). There
is no abuse of discretion when, “although the BIA’s decision is succinct, its
rationale is clear, there is no departure from established policies, and its
statements are a correct interpretation of the law.” Id.
Noting Compean was vacated, Mr. Takwi argues the BIA applied incorrect
law in requiring him to show prejudice and due diligence. But in vacating
Compean, the Attorney General directed the BIA to “apply the pre-Compean
standards to all pending and future motions to reopen based on ineffective
assistance of counsel.” 25 I. & N. Dec. at 3. Both prejudice and due diligence
are integral parts of pre-Compean precedent. See In re Lozada, 19 I. & N.
Dec. 637, 638 (BIA 1988) (requiring a showing of prejudice); Riley, 310 F.3d at
1258 (noting that in considering equitable tolling, the BIA must review the
movant’s diligence); Akinwunmi v. INS, 194 F.3d 1340, 1341 n.2 (10th Cir. 1999)
(per curiam) (holding “an alien must show that his counsel’s ineffective
assistance so prejudiced him that the proceeding was fundamentally unfair”).
Thus, the BIA’s citation to Compean does not require us to grant the petition for
review.
Further, we need not address Mr. Takwi’s argument concerning the proper
measure for establishing prejudice in this circuit, because he did not establish his
diligence in pursuing his issues regarding his second attorney. He argues he only
learned of his second counsel’s errors in 2008, but he offers no explanation why
he did not seek information about his immigration proceedings between 2002 and
2008. And given he is unable to attack his second counsel’s performance and
thereby undermine the 2003 determination regarding his first counsel, the 2003
decision stands.
The BIA also considered the exception that allows reopening based on
changed country conditions. Mr. Takwi argues the BIA did not adequately
consider his supplemental evidence, particularly the State Department and
Amnesty International reports. To the contrary, the BIA discussed the
supplemental documents and gave rational reasons for rejecting them as grounds
for reopening the proceedings. At bottom, the BIA was not persuaded to revisit
the agency’s prior determination that Mr. Takwi had failed to show he was
member of the relevant political groups. Under these circumstances, we cannot
conclude the refusal to reopen was an abuse of discretion even if the supplemental
reports showed worsening conditions for members of those groups in Cameroon. 1
Mr. Takwi’s out-of-time reply brief is accepted for filing. The petition for
review is DENIED.
Entered for the Court
Monroe G. McKay Circuit Judge
Mr. Takwi’s opening brief does not challenge the BIA’s rejection of his argument that he was entitled to adjustment of status based on his marriage to a United States citizen, and thus the issue is waived. See Stump v. Gates, 211 F.3d 527, 533 (10th Cir. 2000). |
FILED United States Court of Appeals Tenth Circuit
March 19, 2010 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 08-4091 & 08-4122 v. (D. Utah) CARLOS A. GAMEZ-ACUNA, (D.C. No. 2:07-CR-00156-DAK-1)
Defendant - Appellant.
ORDER AND JUDGMENT *
Before HENRY, Chief Judge, MURPHY, and O’BRIEN, Circuit Judges.
I. INTRODUCTION
During a traffic stop, police officers discovered methamphetamine in a car
driven by Carlos Gamez-Acuna. Gamez-Acuna was charged with possession with
intent to distribute fifty grams or more of methamphetamine, in violation of
21 U.S.C. § 841(a)(1), and illegal reentry by a previously deported alien, in
violation of 8 U.S.C. § 1326(a)(2). He moved to suppress the methamphetamine,
arguing the search of his vehicle was not based on voluntary and intelligent
* This order and judgment is not binding precedent except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. consent. After the district court denied the motion to suppress, the case
proceeded to trial. A jury found Gamez-Acuna guilty of both the drug-possession
and illegal-reentry charges. Gamez-Acuna appeals, challenging his convictions
on the following four grounds: (1) the district court erred in finding he voluntarily
consented to the search of his vehicle; (2) his § 841(a)(1) conviction is not
supported by sufficient evidence; (3) the district court erred in refusing to sever
the drug possession charge from the illegal reentry charge; and (4) trial counsel
provided ineffective assistance. This court has jurisdiction pursuant to 28 U.S.C.
§ 1291.
We dismiss without prejudice Gamez-Acuna’s claim of ineffective
assistance of trial counsel. United States v. Galloway, 56 F.3d 1239, 1240 (10th
Cir. 1995) (en banc) (“Ineffective assistance of counsel claims should be brought
in collateral proceedings, not on direct appeal. Such claims brought on direct
appeal are presumptively dismissible, and virtually all will be dismissed.”).
Gamez-Acuana’s remaining claims of error are without merit. Accordingly, this
court affirms his convictions.
II. ANALYSIS
A. Denial of Suppression Motion
1. Background
In reviewing a district court’s ruling on a motion to suppress, this court
considers the evidence in the light most favorable to the prevailing party. United
States v. Reeves, 524 F.3d 1161, 1163-64 (10th Cir. 2008). The district court
denied Gamez-Acuna’s motion to suppress, finding he freely and voluntarily
consented to the search of his car. The facts taken in the light most favorable to
the government are as follows. 1
On February 4, 2007, a Utah Highway Patrol Trooper was on patrol in San
Juan County, Utah, when he stopped a white Nissan Sentra for speeding. The
entire stop was recorded by a video recording machine in the Trooper’s vehicle. 2
After the Nissan pulled over to the side of the road, the Trooper approached the
vehicle from the driver’s side. He immediately observed a Nebraska temporary
tag affixed to the rear license plate holder. The Trooper initiated a conversation
with Gamez-Acuna. The Trooper spoke in English and Gamez-Acuna spoke in
both English and Spanish. As set out more fully below, Gamez-Acuna provided
relevant responses to the Trooper’s questions and the Trooper understood what
Gamez said.
In reviewing the denial of a motion to suppress, this court is “permitted to consider evidence introduced at the suppression hearing, as well as any evidence properly presented at trial.” United States v. Jones, 523 F.3d 1235, 1239 (10th Cir. 2008) (quotation omitted). Consistent with Jones, this background section summarizes relevant evidence presented at both the suppression hearing and Gamez-Acuna’s trial. The video recording and a transcript of the verbal exchanges contained in the recording were introduced at the suppression hearing and trial. Both the video recording and the transcript are part of the record before this court on appeal.
Gamez-Acuna gave the Trooper a Mexican driver’s license, a sales receipt
for the Nissan, and the Nissan’s insurance information. 3 The Trooper noticed
Gamez-Acuna’s hands were shaking uncontrollably; Gamez-Acuna was quite
nervous and continued to shake throughout the entire encounter. The Trooper
observed a cell phone on Gamez-Acuna’s lap and another cell phone on the
passenger seat. The Trooper testified at trial that in his training and experience,
the presence of multiple cell phones was indicative of drug trafficking.
The Trooper asked Gamez-Acuna to exit his vehicle, accompany him back
to the patrol vehicle, and sit in the front passenger seat of the patrol car. The
video of the encounter shows that, consistent with the Trooper’s directions,
Gamez-Acuna went to the patrol vehicle and sat in the front passenger seat.
Gamez-Acuna initiated a conversation with the Trooper regarding the speed limit,
asking if the speed limit was forty miles per hour. The Trooper indicated the
speed limit was thirty miles per hour and asked Gamez-Acuna about his driver’s
license and vehicle. The Trooper asked if Gamez-Acuna had a license from either
Colorado or Arizona. Gamez-Acuna responded that he only had a Mexican
driver’s license, but that it was good for driving in Colorado. When Gamez-
Acuna asked whether the Trooper was going to ticket him, the Trooper indicated
The district court found that Gamez-Acuna “responded without question to [the Trooper’s] request for documentation on the vehicle, license, and insurance by handing him a Mexico driver’s license . . . , a sales receipt for the vehicle, and proof of insurance.”
he had not yet decided and first wanted to “check some things out” before getting
Gamez-Acuna “down the road.”
The Trooper asked Gamez-Acuna to clarify where and when he purchased
the Nissan. Consistent with the information on the sales receipt he previously
gave the trooper, Gamez-Acuna indicated he purchased the vehicle approximately
one month earlier in Nebraska for $2500.00. 4 Gamez-Acuna answered “no” when
the Trooper asked if he had paid cash for the Nissan. Finally, for purposes of
completing a warning citation, the trooper asked how many doors the Nissan had;
Gamez-Acuna responded that the vehicle had four doors.
The Trooper then turned the conversation to Gamez-Acuna’s travel plans.
Gamez-Acuna stated he had recently moved from Nebraska to the Aspen/Basalt
area. He further indicated he had left Aspen the previous night, had driven to
Flagstaff, Arizona, to visit his mother, and was returning to Aspen because he had
to work. 5 During this conversation, Gamez-Acuna was unable to tell the Trooper
The Nebraska insurance certificate for the Nissan showed the policy took effect on January 10, 2007, the day after Gamez-Acuna purchased the vehicle, and was set to expire on February 10, 2007, less than a week after the instant traffic stop. The Trooper testified it is uncommon to see an insurance policy with a term of only one month. At trial, the Trooper explained why Gamez-Acuna’s story regarding his travels was suspicious. The Trooper noted that the distance between Aspen and Flagstaff was approximately 550 miles and that it would take an average driver nine hours to make the trip one way. Gamez-Acuna’s statement he had left the Aspen area the previous evening, coupled with the fact he was already halfway back to Aspen at 7:20 p.m. the next evening, meant he would have had very little (continued...)
his mother’s address or telephone number, stating he did not “know the [address]
number” and did not “know the names for the streets.” Likewise, Gamez-Acuna
indicated he did not know his own address in Aspen/Basalt.
The Trooper also asked Gamez-Acuna a series of questions about his
background and physical characteristics. In response to the Trooper’s questions
about his name and birth date, Gamez-Acuna stated his name was “Boby Conejo”
and he was born on 12/04/1969. This information corresponded to the
information on the driver’s license Gamez-Acuna had previously provided to the
Trooper. The Trooper also asked Gamez-Acuna his telephone number, place of
birth, whether he had a social security number, his height and weight, mother’s
name, marital status, and the age and name of his son. The transcript of the
exchange reveals that Gamez-Acuna understood the questions and was able to
respond appropriately in English.
At this point, the Trooper gave Gamez-Acuna a warning citation and his
documents and told him he was free to go. 6 After Gamez-Acuna exited the patrol
(...continued) time to visit with his mother. Instead, according to the Trooper, the trip fit the profile of a narcotics trafficker in that Gamez-Acuna traveled to Flagstaff, “a known drug area,” and quickly turned around and was headed home. The transcript of this part of the encounter reads as follows: Trooper: Alrighty man, here’s the paperwork on your vehicle, ah, your Mexico driver’s license, ah this is just a . . . . Gamez-Acuna: A ticket? Trooper: No, no ticket. Written warning. (continued...)
car with his documents, the Trooper approached him again and reinitiated
conversation. 7 The Trooper asked Gamez-Acuna if he could ask him some
additional questions. When Gamez-Acuna said “Yeah. Okay,” the Trooper asked
him if he was engaged in any illegal activity. Gamez-Acuna answered no, and the
Trooper proceeded to ask permission to search the Nissan:
Trooper: Can I search the car? Gamez-Acuna: Yeah. Trooper: Is that okay with you? Gamez-Acuna: Okay.
(...continued) Gamez-Acuna: Okay. Trooper: Okay. Just a written warning. No you don’t have to pay. Okay? Gamez-Acuna: Okay. Trooper: You need to slow down and just be more observant when you come into town. Gamez-Acuna: Okay. Trooper: And when you’re leaving town, just make sure you follow the speed limit sign. Okay? Gamez-Acuna: Okay. Trooper: Okay, you’re free to go. Drive careful. Have a good evening, okay? Gamez-Acuna: Okay, thanks. As noted by the district court in its order denying Gamez-Acuna’s motion to suppress, the Trooper had noted multiple indicators, which considered together, made him suspicious Gamez-Acuna was involved in illegal activity. These included, inter alia, the following: (1) Gamez-Acuna was traveling on State Road 191, a well-known drug corridor; (2) the Nissan fit the profile of a vehicle used for drug trafficking in that it was newly purchased with temporary tags, thus avoiding frequent trips smuggling drugs in the same vehicle; (3) Gamez-Acuna was exceedingly nervous for the entire duration of the stop; (4) multiple cell phones were present in the Nissan; (5) Gamez-Acuna’s story of travel plans was very unlikely, especially given the time-line and his inability to identify his mother’s address in Arizona.
Trooper: Comprende? You understand what I’m saying? Gamez-Acuna: A little bit. Trooper: Can I search your car? Is that okay? Gamez-Acuna: Okay. Trooper: Me go through and search it, okay? Gamez-Acuna: I guess so. Trooper: Is that okay with you? Gamez-Acuna: That’s okay. Trooper: No problem? Gamez-Acuna: No problem.
The video recording of the encounter shows Gamez-Acuna repeatedly nodding
and answering the questions without hesitation. At trial, the Trooper testified he
believed Gamez-Acuna understood he was consenting to a search of the Nissan.
During a search of the Nissan, the Trooper became suspicious there were
drugs in the spare tire. The Trooper advised Gamez-Acuna he wanted to cut the
tire open to examine its contents; Gamez-Acuna’s responded “okay, no problem.”
The Trooper cut the spare tire open and discovered a package that contained
769.1 grams of methamphetamine. At trial, the Trooper testified Gamez-Acuna
did not look surprised when he observed the drugs in the tire; instead, he simply
stated the spare tire was in the Nissan when he purchased it. At booking, Gamez-
Acuna disclosed to the Trooper in English that his real name was Carlos Gamez-
Acuna and his actual date of birth was April 12, 1969. Gamez-Acuna further
stated he had an Arizona driver’s license and recited the license number from
memory.
Prior to trial, Gamez-Acuna filed a motion to suppress the evidence found
during the search of the Nissan. He argued his consent to search was invalid
because he did not speak enough English to understand the Trooper’s requests to
search. In response, the government argued the evidence relating to the traffic
stop showed Gamez-Acuna understood enough English to freely and intelligently
consent to the search. At a hearing on the suppression motion, the government
called the Trooper as its sole witness and introduced the recording and transcript
of the stop. Gamez-Acuna called a certified Spanish interpreter as his sole
witness. The interpreter testified that, based on his review of the recording of the
traffic stop, he believed Gamez-Acuna possessed a novice level ability to speak
and understand English. The interpreter qualified his opinion as “provisional,”
however, because he did not conduct an in-person interview to determine Gamez-
Acuna’s English language skills.
The district court denied Gamez-Acuna’s suppression motion, finding as
follows:
[T]he government has met its burden of proving valid consent. First, the evidence revealed that [Gamez-Acuna] understood and was responsive to [the Trooper’s] statements and questions in English throughout the sixteen and one-half minute traffic stop. The conversation ranged from topics about the speeding violation and information about the Nissan, to topics including [Gamez-Acuna’s] documents, family, personal information, personal characteristics, and travel plans. When [Gamez-Acuna] was confused or did not hear the [Trooper], he had no difficulty expressing his confusion by asking for clarification, repeating a part of the question, or declaring “I don’t understand, a little bit for English.” At those times, [the
Trooper] followed-up by rephrasing or clarifying his statements or questions until he was satisfied that [Gamez-Acuna] had understood him and that he had understood [Gamez-Acuna].
After the initial detention ended, and the encounter became consensual, [the Trooper] asked [Gamez-Acuna] seven times for permission to search the Nissan, asking, “Can I search the car?,” “Is that okay with you?,” “Comprende?,” “Can I search your car? Is that okay?,” “Me go through and search it, okay?,” “Is that okay with you?,” “No problem?” and each time, [Gamez-Acuna] responded positively. Given the totality of the circumstances surrounding the encounter between [the Trooper] and [Gamez-Acuna], it is clear that [Gamez-Acuna] understood [the Trooper’s] requests. [Gamez- Acuna] did not appear confused, and indicated he understood what the trooper was requesting. [Gamez-Acuna] did not repeat [the Trooper’s] requests or hesitate, but rather answered affirmatively each time. [Gamez-Acuna] understood [the Trooper’s] requests and gave unequivocal, specific, free, and intelligent consent for him to search the Nissan.
Further, [Gamez-Acuna] did not express any surprise when [the Trooper] approached the Nissan and began his search, and he did not object to the search. Accordingly, although the language barrier rendered the situation less than ideal, when considered under the totality of the circumstances, the evidence is sufficient to find that the government has met its burden to show that [Gamez-Acuna’s] consent was unequivocal, specific and intelligently given.
Dist. Court Order at 9-11 (citations omitted).
2. Discussion
“[W]arrantless searches violate the Fourth Amendment unless they fall
within a specific exception to the warrant requirement.” United States v. Zubia-
Melendez, 263 F.3d 1155, 1162 (10th Cir. 2001). Voluntary consent is a well-
recognized exception to the Fourth Amendment’s warrant requirement. Id.
(“[T]his court has . . . held . . . a vehicle may be searched if a person in control of
the vehicle has given his voluntary consent to the search.”). Whether consent was
voluntary is determined by the totality of the circumstances, utilizing the
following two-part test: “First, the government must proffer clear and positive
testimony that consent was unequivocal and specific and freely given.
Furthermore, the government must prove that this consent was given without
implied or express duress or coercion.” Id. (quotations omitted).
The district court applied this two-part test and determined Gamez-Acuna’s
consent was both free and unequivocal and without coercion. On appeal, Gamez-
Acuna limits his challenge to the district court’s determination his consent was
unequivocal, specific and freely given, asserting he does not understand enough
English to give a valid consent. The district court’s determination that Gamez-
Acuna freely and voluntarily consented to the Trooper’s search of the Nissan is a
finding of fact which this court reviews for clear error. United States v.
Rosborough, 366 F.3d 1145, 1149 (10th Cir. 2004). “A finding is clearly
erroneous when, although there is evidence to support it, the reviewing court on
the entire evidence is left with the definite and firm conviction that a mistake has
been committed.” United States v. Weed, 389 F.3d 1060, 1071 (10th Cir. 2004)
(quotation omitted). This court’s “role on clear error review is not to re-weigh
the evidence; rather, our review of the district court’s finding is significantly
deferential.” Id. at 1071-72 (quotations omitted).
The district court’s finding that Gamez-Acuna understood enough English
to provide valid consent is fully supported by the record. Gamez-Acuna’s ability
to provide a wide range of information to the Trooper and follow the Trooper’s
directions supports the district court’s conclusion Gamez-Acuna understood the
Trooper’s request for consent to search the Nissan. Gamez-Acuna was able to
understand and respond appropriately to most of the Trooper’s questions during
the traffic stop. He accurately followed the Trooper’s directions to provide the
vehicle documents and a driver’s license, exit the Nissan, and enter the Trooper’s
patrol car. Gamez-Acuna likewise left the patrol car without question when the
Trooper said he was free to leave. He was able to communicate with the Trooper
about numerous topics, including the reason for the stop, whether the Trooper was
giving him a ticket, details about the Nissan, as well as his name, date of birth,
travel plans, employment, family situation, and biographical information. When
Gamez-Acuna did not understand, he said so and the Trooper followed up with
additional questions until Gamez-Acuna registered his understanding. This
evidence fully supports the district court’s finding that Gamez-Acuna understood
sufficient English to freely and unequivocally consent to the search of the
Nissan. 8 See, e.g., Zubia-Melendez, 263 F.3d at 1162-63 (holding consent valid
Gamez-Acuna asserts this court should reverse because the district court disregarded his linguistics witness in denying the motion to suppress. “Judging the credibility of the witnesses, determining the weight to be given to evidence, and drawing reasonable inferences and conclusions from the evidence are within (continued...)
despite the defendant’s difficulty speaking and understanding English); United
States v. Corral, 899 F.2d 991, 994-95 (10th Cir. 1990) (same). Thus, the district
court did not err in denying Gamez-Acuna’s motion to suppress.
B. Sufficiency of the Evidence
This court reviews de novo challenges to the sufficiency of the evidence to
support a conviction. United States v. Jameson, 478 F.3d 1204, 1208 (10th Cir.
2007). “We ask whether taking the evidence—both direct and circumstantial,
together with the reasonable inferences to be drawn therefrom—in the light most
favorable to the government, a reasonable jury could find the defendant guilty
beyond a reasonable doubt.” Id. (quotation omitted). In undertaking that
analysis, this court “will not weigh conflicting evidence or second-guess the fact-
finding decisions of the jury.” United States v. Summers, 414 F.3d 1287, 1293
(10th Cir. 2005).
Gamez-Acuna asserts the government failed to adduce sufficient evidence
at trial that he knowingly possessed the methamphetamine with intent to
distribute. He appears to recognize the government provided ample evidence at
(...continued) the province of the district court.” United States v. Hunnicutt, 135 F.3d 1345, 1348 (10th Cir. 1998). It was certainly not clearly erroneous for the district court to rely on evidence other than that presented by Gamez-Acuna in resolving whether Gamez-Acuna had a sufficient grasp of English to give a valid consent to search.
trial from which a jury could conclude he had a guilty state of mind. 9 He argues,
however, that the vast bulk of this evidence is equally attributable to his status as
an illegal alien and that the government is under some kind of heightened burden
to demonstrate the jury relied on that evidence for the purpose of convicting him
of the drug charge. 10 The problem with this argument is that it has already been
made to, and rejected by, the jury. At trial, Gamez-Acuna admitted he was in the
United State illegally and testified to the jury that his status as an illegal
explained his nervousness and evasiveness. The jury chose to disbelieve Gamez-
Acuna’s testimony, and concluded instead that the extreme nervousness,
evasiveness, and false documentation was attributable to the presence of drugs in
the Nissan, not to his status as an illegal alien. This court cannot re-weigh the
conflicting evidence or second-guess the jury’s determination. The evidence here
was more than sufficient for a reasonable jury to conclude Gamez-Acuna
The government adduced the following evidence at trial relevant to the question whether Gamez-Acuna knowingly possessed the methamphetamine with intent to distribute it: he was extremely nervous, and that extreme nervousness persisted throughout the entire encounter; his implausible travel plans; his lack of surprise when the Trooper discovered the methamphetamine in the spare tire; his use of a driver’s license and vehicle documents in another name; the short one- month term of the vehicle insurance; the presence of two cell phones in the vehicle; and the large value of the methamphetamine, making it unlikely anyone would abandon it. According to Gamez-Acuna, “Absent proof that the jury relied on such circumstances as evidence of the ‘knowingly or intentionally’ mental state of the drug charge, the attendant circumstances did nothing more than buttress the illegal reentry of a deported alien charge.” Appellant’s Opening Brief at 21.
knowingly possessed the methamphetamine secreted in his spare tire with the
intent to distribute.
C. Denial of Severance
Before the district court, Gamez-Acuna asserted the drug possession and
illegal reentry charges were misjoined because they were not “of the same or
similar character,” “based on the same act or transaction,” or “parts of a common
scheme or plan.” Fed. R. Crim. P. 8(a). Alternatively, he requested that the
district court exercise its discretion to sever the charges, even if properly joined,
to avoid the possibility the jury would hold his immigration status against him in
resolving the drug charge. Fed. R. Crim. P. 14(a) (granting district court
discretion to sever charges if necessary to avoid prejudice to the parties). The
district court denied the motion to sever. On appeal, Gamez-Acuna does not
contest the district court’s determination that the charges were properly joined
pursuant to Rule 8. Instead, he asserts the district court abused its discretion
when it refused to sever the charges pursuant to Rule 14(a).
“We have long recognized that the decision to grant severance under Rule
14 rests within the discretion of the district court and the burden on [the]
defendant to show an abuse of discretion in this context is a difficult one.”
United States v. Olsen, 519 F.3d 1096, 1102 (10th Cir. 2008) (quotation omitted).
To demonstrate the district court abused its broad discretion the defendant must
make a “strong showing of prejudice.” United States v. Jones, 213 F.3d 1253,
1260 (10th Cir. 2000) (quotation omitted). To establish “real prejudice, the
defendant must demonstrate . . . the alleged prejudice he suffered outweighed the
expense and inconvenience of separate trials. United States v. Martin, 18 F.3d
1515, 1518 (10th Cir. 1994) (quotation omitted). Mere allegations a defendant
“would have a better chance of acquittal in a separate trial is not sufficient to
warrant severance.” United States v. Colonna, 360 F.3d 1169, 1178 (10th Cir.
2004) (quotation omitted).
Gamez-Acuna has not satisfied his heavy burden of showing real prejudice
flowing from the district court’s refusal to sever his illegal-reentry and drug-
possession charges. On appeal, Gamez-Acuna argues that although the two
charges contain different elements, the same evidence is relevant to both charges.
In particular, he argues that evidence of his extreme nervousness is potentially
attributable both to his status as an illegal alien and to his knowing possession of
illegal drugs. According to Gamez-Acuna, the “inability to distinguish between
how the jury perceived the evidence,” Appellant’s Brief at 22, satisfies his burden
of demonstrating real and substantial prejudice.
Gamez-Acuna’s argument is without merit. Gamez-Acuna’s strategy at
trial was clear. In an effort to negate the prosecution’s argument that his extreme
nervousness demonstrated his knowledge of the methamphetamine in his spare
tire, Gamez-Acuna testified and argued that his nervousness flowed exclusively
from his fear that officials would discover he was in the United States illegally.
The jury disbelieved Gamez-Acuna’s testimony and convicted him on the drug-
possession charge. We see nothing about the course of these proceedings that
prejudiced, in any way, Gamez-Acuna’s right to a fair trial. Indeed, as noted by
the government, even if the charges had been severed, there is absolutely nothing
in the record to indicate Gamez-Acuna would have altered his trial strategy in any
way. That is, Gamez-Acuna would have defended the knowledge element of the
drug charges in exactly the same way whether or not the charges were severed.
Accordingly, he has completely failed to establish the alleged prejudice he
suffered, assuming there was any, “outweighed the expense and inconvenience of
separate trials.” Martin, 18 F.3d at 1518. Thus, the district court did not abuse
its broad discretion when it denied Gamez-Acuna’s Rule 14 motion to sever the
illegal-reentry and drug-possession charges.
D. Ineffective Assistance of Trial Counsel
On appeal, Gamez-Acuna asserts his trial counsel provided constitutionally
ineffective assistance when he failed to call a linguistics expert to testify at trial.
As the government correctly notes, however, “[i]neffective assistance of counsel
claims should be brought in collateral proceedings, not on direct appeal. Such
claims brought on direct appeal are presumptively dismissible, and virtually all
will be dismissed.” Galloway, 56 F.3d at 1240. This court has noted that the
reasoning behind the Galloway rule is “self-evident”:
A factual record must be developed in and addressed by the district court in the first instance for effective review. Even if evidence is not necessary, at the very least counsel accused of deficient performance can explain their reasoning and actions, and the district court can render its opinion on the merits of the claim.
An opinion by the district court is a valuable aid to appellate review for many reasons, not the least of which is that in most cases the district court is familiar with the proceedings and has observed counsel’s performance, in context, firsthand. Thus, even if the record appears to need no further development, the claim should still be presented first to the district court in collateral proceedings (which can be instituted without delay) so the reviewing court can have the benefit of the district court’s views.
Id. (footnote omitted). Accordingly, pursuant to the dictates of Galloway, we
dismiss Gamez-Acuna’s ineffective assistance claim without prejudice to the
bringing of such a claim in a timely 28 U.S.C. § 2255 motion.
III. CONCLUSION
Gamez-Acuna’s ineffective assistance of trial counsel claim is
DISMISSED WITHOUT PREJUDICE. The remaining claims on appeal are all
without merit. Accordingly, Gamez-Acuna’s convictions are hereby
AFFIRMED.
ENTERED FOR THE COURT
Michael R. Murphy Circuit Judge |
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ________________________ ELEVENTH CIRCUIT MAR 19, 2010 No. 09-13277 JOHN LEY ________________________ CLERK
D. C. Docket No. 08-02755-CV-RLV-1
FAYE COFFIELD, JASON CROWDER, BEATRICE WILLIAMS,
Plaintiffs-Appellants,
versus
KAREN C. HANDEL, in her official capacity as Georgia Secretary of State and Chairperson of the Georgia State Election Board,
Defendant-Appellee.
________________________
Appeal from the United States District Court for the Northern District of Georgia _________________________
(March 19, 2010) Before EDMONDSON and MARCUS, Circuit Judges, and BARBOUR,* District Judge.
PER CURIAM:
Appellant-Plaintiff Coffield sought access to the 2008 general election ballot
as an independent candidate to represent Georgia’s Fourth Congressional District
in the United States House of Representatives. She was not on the ballot. Briefly
stated, she was unable to collect a sufficient number of signatures to satisfy
Georgia’s requirement that an independent candidate submit a nomination petition
signed by at least 5% of the total number of registered voters eligible to vote in the
last election for the position the candidate seeks. G A. C ODE A NN. § 21-2-170. This
appeal presents one issue: whether the district court erred when it dismissed
Coffield’s constitutional challenge for failure to state a claim under Rule 12(b)(6).
We conclude it did not.
Coffield claims that Georgia’s 5% rule is too burdensome; she alleges no
independent candidate for the House of Representations in Georgia has met the
requirement since 1964 and that no minor party candidate has ever met it. But she
does not allege how many candidates have tried. According to the Complaint,
Coffield’s own petitioning effort resulted in about 2000 signatures, less than 1% of
* Honorable William Henry Barbour, Jr., United States District Judge for the Southern District of Mississippi, sitting by designation.
the eligible pool and about 13,000 signatures short of what the rule required.
Our Court and the Supreme Court have upheld Georgia’s 5% rule before.
See Jenness v. Fortson, 91 S. Ct. 1970, 1974-76 (1971) (stressing lack of
restrictions on write-in candidates and on the obtaining of signatures for
nominating petitions); Cartwright v. Barnes, 304 F.3d 1138, 1140-42 (11th Cir.
2002); see also Swanson v. Worley, 490 F.3d 894, 910 (11th Cir. 2007) (upholding
Alabama’s 3% requirement where no independent or minor party candidate had
obtained ballot access when nothing indicated that similar potential candidates had
sought ballot access). The pertinent laws of Georgia have not changed materially
since the decisions in Jenness and Cartwright were made.
AFFIRMED. |
08-1330-cv(L) Kinneary v. City of New York
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT _____________________
August Term, 2008 (Argued: April 3, 2009 Decided: March 19, 2010) Docket No. 08-1330-cv(L); 08-1630-cv(XAP) _____________________
JOSEPH KINNEARY,
Plaintiff-Appellee-Cross-Appellant, v.
CITY OF NEW YORK, MARSHA ROTHEM, individually, ZOE ANN CAMPBELL, individually, and LOUIS TAZZI, individually.
Defendants-Appellants-Cross-Appellees. _______________________ Before: CABRANES and HALL Circuit Judges, SULLIVAN, District Judge 1
Appeal from the October 1, 2007 judgment of the United States District Court for the
Southern District of New York (Marrero, Judge) following a jury verdict for Joseph Kinneary
(“Kinneary”) finding discrimination under the Americans with Disabilities Act (42 U.S.C. §
12101 et seq.), New York State Human Rights Law (N.Y. Exec. Law § 296 et seq.) and New
York City Human Rights Law (N.Y. Admin. Code § 8-107). We hold that because Kinneary was
offered, but failed to qualify for, his captain’s license under the accommodation to which he
claims he was entitled, Kinneary became unqualified to perform the essential functions of his job
and there was no violation of the Americans with Disabilities Act. Further, the Appellants did
Judge Richard J. Sullivan of the United States District Court for the Southern District of New York, sitting by designation.
not violate state or local discrimination laws by implementing federal regulations. We reverse
and remand.
________________________
VICTORIA SCALZO (Stephen McGrath, on the brief) for Michael A. Cardozo, Corporation Counsel of the City of New York, New York, N.Y., for Defendants- Appellants-Cross-Appellees.
STEPHEN BERGSTEIN , Bergstein & Ullrich, Chester, N.Y, for Plaintiff-Appellee- Cross-Appellant.
________________________
HALL, Circuit Judge:
Defendants-Appellants-Cross-Appellees City of New York (“City”), Marsha Rothem,
individually, Zoe Ann Campbell, individually, and Louis Tazzi, individually (collectively,
“Appellants”) appeal the October 1, 2007 judgment of the United States District Court for the
Southern District of New York (Marrero, Judge) following a jury verdict for Joseph Kinneary
(“Kinneary”) finding discrimination under the Americans with Disabilities Act (42 U.S.C. §
12101 et seq.) (“ADA”), New York State Human Rights Law (N.Y. Exec. Law § 296 et seq.)
(“NYSHRL”) and New York City Human Rights Law (N.Y. Admin. Code § 8-107)
(“NYCHRL”). We hold that because Kinneary was offered, but failed to qualify for, his
captain’s license under the accommodation to which he claims he was entitled (i.e., the
opportunity to have his drug test cancelled based upon a physician’s evaluation), Kinneary
became unqualified to perform the essential functions of his job under the ADA. In addition, in
implementing the federal regulations, the Appellants could not have violated the state and local
laws that were also asserted as bases for Kinneary’s claims of discrimination. Accordingly, we
reverse and remand.
I. BACKGROUND
Kinneary, who previously served as a sludge boat captain with the New York City
Department of Environmental Protection (“DEP”), claims discrimination under the ADA,
NYSHRL, and NYCHRL. He contends that: he suffers from paruresis, also known as “shy
bladder syndrome;” this condition qualifies as a disability; and Appellants failed to meet their
obligation to reasonably accommodate it. Kinneary asserts that he was terminated because of his
paruresis.
Kinneary prevailed at a jury trial on each of his claims of discrimination. The jury
awarded him $100,000 in back pay and $125,000 in non-economic damages. Appellants’ Rule
50 motion for entry of judgment as a matter of law was denied. The district court, however,
granted Appellants’ Rule 59 motion for a new trial on the issue of non-economic damages unless
Kinneary accepted a remittur of the award, reducing it to $25,000, which he did. The court
denied Kinneary’s motion for equitable relief, but it did award him attorneys’ fees and costs as
well as pre-judgment interest on back pay. Before our court, Appellants challenge the district
court ruling denying their Rule 50 motion for judgment as a matter of law. Kinneary cross-
appeals, contending that the court should have granted his motion for equitable relief.
The facts that are critical to this case relate to Kinneary’s employment with and
termination from the DEP, and the random drug tests that he was required to take in order to
maintain his Captain’s license. Kinneary started working for the DEP as a provisional full-time
employee in 1988. He became a civil service employee in 1992, when he was appointed sludge
boat captain.
It is undisputed that, because of his position as a captain, under federal regulations,
Kinneary was subject to random drug testing. Kinneary had his first random drug test in late
1992. At that time, he discovered that he could not urinate on command — even after staying at
the site from 9:15 a.m. to 4 p.m. and drinking water. Kinneary was directed to return to the lab
the next morning but, when he did so, he could not provide a urine sample after approximately
two and a half hours. Kinneary was informed that there was no other test option and, after trying
to void for an additional two and a half hours, Kinneary eventually passed urine.
Kinneary had no similar troubles with drug tests between 1992 and 1996. In 1996,
Kinneary was again given a random drug test. He was able to pass urine after approximately a
half-hour but was told that he had not provided a sufficient quantity and that he needed to fill the
cup immediately. Kinneary could not do so. He topped the cup off with tap water and returned
it. The next year, Kinneary was again unable to provide a urine sample when tested, so he filled
the cup with tap water. In contrast, however, at a 1998 test during which Kinneary was informed
that there was a three hour limit to produce a urine sample, he was able to void within the
required time period.
In December 2001, Kinneary was subject to another random drug test. He found that,
despite “drinking water like crazy,” he could not provide a sample within the three- hour time
limit. He then was transported to a medical clinic. According to Kinneary, as he approached the
clinic, he felt an urgent need to urinate. Kinneary was not allowed to give a urine sample at the
clinic, although he offered to do so.
Immediately thereafter, Kinneary spoke with Peter Brucas, executive vice president at
NEDPC, which does drug testing for the City. Kinneary told Brucas that he “had trouble with
these tests all through the years” and asked if he could take a blood test. Brucas told Kinneary
that he had to get a doctor’s note, provided Kinneary with instructions to be given to his doctor
(entitled “INFORMATION AND INSTRUCTIONS TO EXAMINING PHYSICIAN”), and told
Kinneary to call him when he had the note. The instructions stated that: 1) Kinneary had to
obtain an evaluation from a physician within five working days, 2) the physician had to make a
determination of whether or not a medical condition had, or with a high probability could have,
precluded Kinneary from providing a sufficient amount of urine for the test, and 3) the physician
had to provide a written statement of recommendations and a basis for review by the City’s
Medical Review Officer (“MRO”).
The next day, Kinneary’s doctor wrote a note saying, “This man has ‘Shy Bladder
Syndrome’ — this is a chronic condition that can be helped by using an [alpha] blocker (flomax)
which I have given him. He is not a substance abuser.” Kinneary read the note to Brucas.
Brucas indicated that the note would not be accepted, but he set up an appointment for Kinneary
with the MRO. Kinneary brought the note to the MRO the next day. The following day, at a
meeting with the Office of Disciplinary Counsel, Kinneary was served with misconduct charges
for refusing to take a drug test.
At this point, Kinneary took a number of proactive steps. He passed a blood test and a
hair test. Kinneary twice wrote a City equal employment opportunity officer about the situation,
but he never received a response to his inquiries.
In January of 2002, NEDPC informed the Coast Guard that Kinneary was “unable to
provide a urine sample during a three-hour time period as per 49 CFR Part 40.193(b)(4) for a
federally mandated random drug test on December 27, 2001.” It also told the Coast Guard that:
Mr. Kinneary was given a letter allowing him five days to produce [an] independent medical opinion as to his inability . . . . On January 3, 2002, Mr. Kinneary brought a medical note (see attached) to the Sanitation clinic. This note was then sent to Dr. Horowitz, the MRO for DEP. He reviewed the note and found no medical reason to explain the inability to void.
The Coast Guard then filed a complaint against Kinneary essentially alleging that he refused to
submit to the December 2001 drug test.
In the meantime, Kinneary was unable to provide a urine sample at another drug test
administered by NEDPC, but NEDPC then administered a saliva test, which came back negative.
On his own accord, Kinneary also took another hair test, which he passed. Soon thereafter, the
City allowed Kinneary to perform “land-based duties.” Kinneary would not admit, however, that
he had refused to take the December 2001 drug test, and the City’s Disciplinary Counsel served
him with a set of charges that stated that “[s]ince March 25, 2002, your inability to perform the
duties of your title of ‘Captain’ have rendered you incompetent.”
In July 2002, a neuropsychiatrist and a urologist both submitted medical notes to the City
relating to Kinneary having shy-bladder syndrome. That same month, Kinneary unsuccessfully
attempted a NEDPC urine test for three hours, but he then passed a saliva test. In August of that
year, Kinneary returned to captain’s duties.
The Coast Guard proceeding moved forward, and an administrative law judge ruled that
Kinneary had refused to take a drug test. The Coast Guard ordered a 12-month suspension of
Kinneary’s license, followed by a 12-month probationary period. According to Kinneary, the
City’s Disciplinary Counsel told him that he could return to work at the conclusion of his
suspension if he acknowledged refusing to take a random drug test. Kinneary refused to do so.
He was fired on June 2, 2003.
Kinneary appealed the Coast Guard ruling and, pending resolution of that appeal, he
received a temporary license. He was then re-hired by the City. The temporary license was
scheduled to expire, and Kinneary asked the City’s Marine Superintendent to help him with his
license renewal. The temporary license subsequently expired (a fact which the Marine
Superintendent knew) and for a period of time Kinneary captained a boat without a license.
Kinneary’s appeal of the Coast Guard’s ruling was denied as untimely. A twelve month
suspension, consequently, went into effect. The City terminated Kinneary for a final time on
March 4, 2004. A termination letter sent from the Assistant Commissioner of the DEP to
Kinneary explained that, “I have been made aware of the suspension of your License issued by
the United State[s] Coast Guard, which is a requirement of your title . . . Because you do not
possess the required license for your position as Captain, you are hereby terminated from your
position of Captain with the Agency, effective March 4, 2004.”
Appellants argue, inter alia, that the district court erred in denying their motion for
judgment as a matter of law because Kinneary failed to demonstrate that he is disabled within the
meaning of the ADA and to show that he was otherwise qualified to perform the duties of ship
captain. They also contend that judgment as a matter of law should have been granted because
Kinneary did not show that he was terminated based upon his alleged disability. Indeed, they
state that Kinneary was terminated because he lacked a captain’s license.
Kinneary, on the other hand, contends that urinating is a “major life activity” under the
ADA and that the jury properly found that he was substantially limited in this major life activity.
He argues that he was otherwise qualified to perform the essential functions of his job with a
reasonable accommodation. He asserts that it was because of the Appellants’ failure to provide
him with a reasonable accommodation that he lost his license — and that Appellants’ failure to
provide him with a reasonable accommodation “cannot render [him] unqualified to work for the
City.” Kinneary further contends that the court should have granted his motion for equitable
relief.
II. DISCUSSION
We review the district court’s denial of Appellants’ Rule 50 motion for judgment as a
matter of law de novo. Brady v. Wal-Mart Stores, Inc., 531 F.3d 127, 133 (2d Cir. 2008). We
have explained that:
Such a motion may only be granted if there exists such a complete absence of evidence supporting the verdict that the jury’s findings could only have been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so overwhelming that reasonable and fair minded [persons] could not arrive at a verdict against [it]. In reviewing such a motion, this Court must give deference to all credibility determinations and reasonable inferences of the jury, and may not weigh the credibility of witnesses or otherwise consider the weight of the evidence.
Id. (internal citations and quotation marks omitted).
The ADA prohibits discrimination against a “qualified individual on the basis of
disability” in the “terms, conditions, and privileges of employment.” 42 U.S.C. § 12112(a). A
plaintiff must prove that: “(1) the defendant is covered by the ADA; (2) plaintiff suffers from or
is regarded as suffering from a disability within the meaning of the ADA; (3) plaintiff was
qualified to perform the essential functions of the job, with or without reasonable
accommodation; and (4) plaintiff suffered an adverse employment action because of his disability
or perceived disability.” Capobianco v. City of New York, 422 F.3d 47, 56 (2d. Cir. 2005). For
purposes of this appeal, we assume arguendo that Kinneary is disabled under the ADA and
examine whether Kinneary was qualified to perform the essential functions of his job, with or
without the accommodation to which he claims entitlement.
This Court has said that, “[t]he term ‘essential functions,’ which is not defined in the
statutes themselves, is generally defined in ADA regulations promulgated by the Equal
Employment Opportunity Commission (‘EEOC’) to mean the ‘fundamental’ duties to be
performed in the position in question, but not functions that are merely ‘marginal.’” Stone v. City
of Mount Vernon, 118 F.3d 92, 97 (2d Cir. 1997) (citing 29 C.F.R. § 1630.2(n)(1)). An essential
function of Kinneary’s job as a sludge boat captain was, by definition, acting as a captain, which
he could only do if he held the proper license.
Kinneary argues that he would not have lost his captain’s license if the Appellants had
offered him a reasonable accommodation. He contends that he should have received the
opportunity to have his test cancelled based upon a physician’s evaluation. According to
Kinneary:
The regulations governing drug testing provide for an accommodation for employees with Shy-Bladder Syndrome. Under 49 C.F.R. § 40.193(c), the employee “must obtain, within five days, an evaluation from a licensed physician, acceptable to the MRO, who has expertise in the medical issues raised by the employee’s failure to provide a sufficient specimen.” The referral physician may advise the MRO that “A medical condition has, or with a high degree of probability could have, precluded the employee from providing a sufficient amount of urine.” 49 C.F.R. § 40.193(d)(1).
It is true that “[t]erminating a disabled employee . . . who can perform the essential
functions of the job but cannot return to work because the employer has denied his request for
reasonable accommodation, is disability discrimination under the ADA.” Parker v. Columbia
Pictures Indus., 204 F.3d 326, 338 (2d. Cir. 2000). The record, however, reflects that the City
provided Kinneary with the accommodation he sought. As Appellants’ counsel argued to the
district court, “within the federal regulations is an accommodation that the plaintiff could have
taken advantage of and he failed to do it.” Cf. Tsombanidis v. W. Haven Fire Dep’t, 352 F.3d
565, 579 (2d Cir. 2003) (holding that the accommodation plaintiffs ultimately sought was
provided).
After Kinneary could not produce a urine sample at the December 2001 test, the City
gave him the instructions to his examining physician that stated that Kinneary had to obtain an
evaluation within five working days and that the referral physician had to make one of two
determinations, namely, that either “(1) [a] medical condition has or with a high probability
could have, precluded [Kinneary] from providing a sufficient amount of urine (45) ml.” or “(2)
[t]here is not an adequate basis for determining that a medical condition has, or with a high
probability could have, precluded [Kinneary] from providing a sufficient amount of urine.” The
instructions further stated that “as the referral physician you must provide a written statement of
your recommendations and basis for review by the MRO.” The instructions are consistent, but
not co-extensive, with the evaluation requirements set by the applicable regulation. See 49
C.F.R. § 40.193.
The note that Kinneary’s physician provided did not constitute a basis for his test to be
cancelled because it did not say that Kinneary had a medical condition that did, or with a high
probability could have, precluded Kinneary from providing a sufficient amount of urine for the
test. Instead, the note simply stated the name of the condition, noted it was chronic and could be
helped by an alpha blocker that Kinneary had been given, and indicated that Kinneary was not a
substance abuser. 2
The U.S. Coast Guard, the agency with authority over Kinneary’s licensing, agreed that
the proffered note did not meet the requirements for his test to be cancelled under the applicable
regulations. The administrative law judge determined that the note did not give “an adequate
basis for determining that a medical condition precluded or with a high degree of probability,
could have precluded Mr. Kinneary from providing a sufficient amount of urine at the
collection.” The judge also noted that “[w]hen [the Medical Review Officer] contacted
[Kinneary’s physician] to obtain documentation for this diagnosis [of shy bladder syndrome], no
supporting data was available.”
Thus, it was the Coast Guard that definitively decided that the information provided by
Kinneary’s physician was insufficient under the applicable regulations to allow his drug test to be
cancelled. The Coast Guard thus revoked Kinneary’s license and that revocation resulted in
Kinneary’s termination by the City. That the City terminated Kinneary because he was not
properly licensed as a captain is borne out by the sequence of events. When Kinneary’s license
was first suspended, the City terminated his employment, but when he received a temporary
license (pending his appeal of the Coast Guard’s decision) the City re-hired him within days.
Only after the Coast Guard’s administrative proceedings had concluded, resulting in a twelve-
month suspension of his license, was Kinneary then terminated for a second (and final) time.
The neuropsychiatrist’s and urologist’s notes that were submitted to the City in July 2002 do not alter our analysis of whether Kinneary obtained an adequate statement from a referral physician. Regardless of their substance, these notes could not form the basis for the cancellation of Kinneary’s December 2001 test under the applicable regulation because they were given to the City far too late — around a half-year after the regulatory time limit had expired.
Giving deference to all reasonable inferences the jury could draw, see Brady, 531 F.3d at
133, the evidence unequivocally demonstrates that the City gave Kinneary the accommodation he
sought (the opportunity to have his drug test cancelled based upon a physician’s evaluation
pursuant to 49 CFR § 40.193), but that Kinneary failed to comply with the regulatory
requirements that would have allowed him successfully to cancel his test and save his license.
Because Kinneary failed to retain his captain’s license despite receiving the accommodation to
which he claims he was entitled, he was not otherwise qualified to perform the essential
functions of his job and cannot make out a successful claim under the ADA. 3
Kinneary concedes that the same elements that must be proven to establish an ADA claim
must be also demonstrated to prove claims under NYSHRL and NYCHRL. This Court has held
that § 292(21) of the NYSHRL is parallel to the “otherwise qualified” requirement of the ADA
and we have noted that “[w]e have not had occasion to decide whether the analogous provision
of the NYCHRL is also parallel, but we see no reason to think that the NYCHRL and the ADA
differ in this requirement.” Shannon v. New York City Transit Auth., 332 F.3d 95, 103-04 (2d
Cir. 2003). In any case, we hold that Kinneary’s claims under the NYSHRL and NYCHRL must
fail, because Appellants cannot have violated state or local discrimination laws by implementing
Because Kinneary fails to make out this element of his claim, we need not and do not resolve here whether “shy bladder syndrome” can be a disability under the ADA. We did not reach this issue in Buckley v. Consol. Edison Co. of N.Y., because the plaintiff in that case had conceded that his bladder condition was not a disability under the ADA. 155 F.3d 150, 152 (2d. Cir. 1998). We note that a U.S. District Court has said that, on the record before it, there was no evidence that shy bladder syndrome limited a plaintiff’s “ability to care for himself, perform manual tasks, or engage in other major life activities” and that the plaintiff before it, in opposing summary judgment, did not contend that the condition was an ADA disability. Balistrieri v. Express Drug Screening, LLC, No. 04-C-0989, 2008 WL 906236, at *5 (E.D. Wis. Mar. 31, 2008).
federal regulations that determine, here, whether Kinneary is eligible to serve as a captain. See
id. at 104-05.
The district court erred in denying Appellants’ motion for judgment as a matter of law. In
addition, because we hold that there was no violation of the ADA or the other asserted statutes,
the denial of Kinneary’s motion for equitable relief is moot.
III. CONCLUSION
For the foregoing reasons, we REVERSE the judgment of the district court. The case is
remanded to the district court with directions to enter judgment for the Appellants. |
08-5801-cv Clark v. Astrue 3 UNITED STATES COURT OF APPEALS 5 FOR THE SECOND CIRCUIT 9 August Term, 2009 11 (Argued: October 19, 2009 Decided: March 19, 2010) 13 Docket No. 08-5801-cv 17 ELAINE CLARK, RAYMOND GIANGRASSO, TONY GONZALES, JOHNNY L. 18 HEATHERMAN, MONELL WHITE, individually, on behalf of themselves, and on behalf of all 19 similarly situated, 21 Plaintiffs-Appellants, 23 – v. – 25 COMMISSIONER MICHAEL J. ASTRUE, of the Social Security Administration, in his official 26 capacity, SOCIAL SECURITY ADMINISTRATION, 28 Defendants-Appellees. 32 Before: NEWMAN, CALABRESI, KATZMANN, Circuit Judges. 34 Plaintiffs in this putative class action challenge the Social Security Administration’s 35 interpretation of two provisions of the Social Security Act, which permit the Administration to 36 suspend certain benefits of an individual who “is violating” the terms of her probation or parole. 37 The Administration has interpreted these provisions to mean that a warrant alleging a probation 38 or parole violation is sufficient and irrebuttable evidence that the party who was served with such 39 a warrant is violating the terms of her probation or parole. The United States District Court for 40 the Southern District of New York (Stein, J.) granted Defendants’ motion for summary 41 judgment. We hold that the Administration’s interpretation is contrary to the plain meaning of 42 the Act. Accordingly, we vacate the District Court’s decision and remand for further 43 proceedings consistent with this opinion. 1 STEVEN E. OBUS, Bettina B. Plevan, Brian S. Rauch, 2 Russel L. Hirschhorn, Proskauer Rose LLP, New York, 3 N.Y.; Gerald A. McIntyre, National Senior Citizens Law 4 Center, Los Angeles, CA; Jennifer J. Parish, Urban Justice 5 Center, New York, NY, for Plaintiffs-Appellants. 7 JOHN E. GURA, JR., Assistant United States Attorney 8 (David S. Jones, Assistant United States Attorney, of 9 counsel), for Lev L. Dassin, Acting United States Attorney 10 for the Southern District of New York, New York, NY, for 11 Defendants-Appellees. 13 Catherine M. Callery, Lynda J. Fisher, Louise M. 14 Tarantino, Empire Justice Center, Rochester, N.Y.; Linda 15 Landry, Disability Law Center Inc., Boston, MA, for Amici 16 Curiae Empire Justice, et al., in support of Plaintiff- 17 Appellants. 21 CALABRESI, Circuit Judge:
22 Plaintiffs below appeal from the decision of the United States District Court for the
23 Southern District of New York (Stein J.) granting Defendants’ motion for summary judgment
24 and denying Plaintiffs’ motion for summary judgment. The District Court’s decision is
25 VACATED and REMANDED for further proceedings consistent with this opinion.
26 BACKGROUND
27 Plaintiffs-Appellants Elaine Clark, Raymond Giangrasso, Tony Gonzales, Johnny L.
28 Heatherman, and Monell White brought suit in the United States District Court for the Southern
29 District of New York (Stein, J.) against Defendants-Appellees the Social Security
30 Administration and its Commissioner, Michael J. Astrue, alleging that the Administration has
31 suspended Old-Age, Survivor, and Disability Insurance and Supplemental Security Income
32 benefits in a manner inconsistent with the authorizing statute. The District Court granted
33 Defendants’ motion for summary judgment and denied Plaintiffs’ motion for summary judgment.
1 I.
2 A.
3 Title XVI and Title II of the Social Security Act provide benefits for qualifying
4 individuals. 42 U.S.C. §§ 402, 1382. Title XVI’s Social Security Income (SSI) program
5 provides benefits to “each aged, blind, or disabled individual who does not have an eligible
6 spouse” and whose income and resources fall below a certain level. 42 U.S.C. § 1382(a). Title
7 II’s Old-Age, Survivor, and Disability Insurance (OASDI) program provides benefits to insured
8 individuals, independent of need, who are, among other things, at least 62 years of age. 42
9 U.S.C. § 402.
10 Congress has passed two provisions authorizing the Social Security Administration to
11 suspend the benefits of an individual who is violating the terms of her probation or parole
12 (hereinafter “suspension provisions”). As part of the Personal Responsibility and Work
13 Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193, § 202, 110 Stat. 2105, 2185-86,
14 Congress passed the SSI program’s suspension provision, which states:
15 No person shall be considered an eligible individual or eligible spouse for 16 purposes of this subchapter with respect to any month if during such month the 17 person is— 19 (i) fleeing to avoid prosecution, or custody or confinement after conviction, 20 under the laws of the place from which the person flees, for a crime, or an 21 attempt to commit a crime, which is a felony under the laws of the place from 22 which the person flees, or, in jurisdictions that do not define crimes as 23 felonies, is punishable by death or imprisonment for a term exceeding 1 year 24 regardless of the actual sentence imposed; or 26 (ii) violating a condition of probation or parole imposed under Federal or 27 State law.
1 42 U.S.C. § 1382(e)(4)(A) (emphasis added). Congress passed a similar provision for the
2 OASDI program in the Social Security Protection Act of 2004, Pub. L. No. 108-203, § 203, 118
3 Stat. 493, 509:
4 (1)(A) Notwithstanding any other provision of this subchapter, no monthly 5 benefits shall be paid under this section or under section 423 of this title to any 6 individual for any month ending with or during or beginning with or during a 7 period of more than 30 days throughout all of which such individual— 9 (i) is confined in a jail, prison, or other penal institution or correctional facility 10 pursuant to his conviction of a criminal offense, 12 (ii) is confined by court order in an institution at public expense in connection 13 with— 15 (I) a verdict or finding that the individual is guilty but insane, with respect 16 to a criminal offense, 18 (II) a verdict or finding that the individual is not guilty of such an offense 19 by reason of insanity, 21 (III) a finding that such individual is incompetent to stand trial under an 22 allegation of such an offense, or 24 (IV) a similar verdict or finding with respect to such an offense based on 25 similar factors (such as a mental disease, a mental defect, or mental 26 incompetence), 28 (iii) immediately upon completion of confinement as described in clause (i) 29 pursuant to conviction of a criminal offense an element of which is sexual 30 activity, is confined by court order in an institution at public expense pursuant 31 to a finding that the individual is a sexually dangerous person or a sexual 32 predator or a similar finding, 34 (iv) is fleeing to avoid prosecution, or custody or confinement after 35 conviction, under the laws of the place from which the person flees, for a 36 crime, or an attempt to commit a crime, which is a felony under the laws of 37 the place from which the person flees, or, in jurisdictions that do not define 38 crimes as felonies, is punishable by death or imprisonment for a term 39 exceeding 1 year regardless of the actual sentence imposed, or 41 (v) is violating a condition of probation or parole imposed under Federal or 42 State law.
1 42 U.S.C. § 402(x)(1)(A) (emphasis added).
2 In 2004, Congress also provided for circumstances in which suspended benefits should be
3 reinstated (hereinafter “good-cause provisions”). See Social Security Protection Act of 2004,
4 Pub. L. 108-203, § 203, 118 Stat. at 509. The good-cause provision as it applies to the OASDI’s
5 suspension provision reads as follows:
6 (iii) Notwithstanding subparagraph (A), the Commissioner shall, for good cause 7 shown, pay the individual benefits that have been withheld or would otherwise be 8 withheld pursuant to clause (iv) or (v) of subparagraph (A) if the Commissioner 9 determines that— 11 (I) a court of competent jurisdiction has found the individual not guilty of the 12 criminal offense, dismissed the charges relating to the criminal offense, 13 vacated the warrant for arrest of the individual for the criminal offense, or 14 issued any similar exonerating order (or taken similar exonerating action), or 16 (II) the individual was erroneously implicated in connection with the criminal 17 offense by reason of identity fraud. 19 42 U.S.C. § 402(x)(1)(B)(iii) (emphasis added). The SSI program’s good-cause provision is to
20 the same effect:
21 (B) Notwithstanding subparagraph (A), the Commissioner shall, for good cause 22 shown, treat the person referred to in subparagraph (A) as an eligible individual or 23 eligible spouse if the Commissioner determines that— 25 (i) a court of competent jurisdiction has found the person not guilty of the 26 criminal offense, dismissed the charges relating to the criminal offense, 27 vacated the warrant for arrest of the person for the criminal offense, or issued 28 any similar exonerating order (or taken similar exonerating action), or 30 (ii) the person was erroneously implicated in connection with the criminal 31 offense by reason of identity fraud. 33 42 U.S.C. § 1382(e)(4)(B) (emphasis added).
34 B.
35 On June 30, 2000, the Social Security Administration enacted a regulation implementing
36 the 1996 suspension provision. 65 Fed. Reg. 40,493-94. That regulation states:
1 (1) Suspension of benefit payments because an individual is a fugitive as 2 described in paragraph (a)(1) or (a)(2) of this section or a probation or parole 3 violator as described in paragraph (a)(3) of this section is effective with the first 4 day of whichever of the following months is earlier— 6 (i) The month in which a warrant or order for the individual's arrest or 7 apprehension, an order requiring the individual's appearance before a court or 8 other appropriate tribunal (e.g., a parole board), or similar order is issued by a 9 court or other duly authorized tribunal on the basis of an appropriate finding 10 that the individual— 12 (A) Is fleeing, or has fled, to avoid prosecution as described in paragraph 13 (a)(1) of this section; 15 (B) Is fleeing, or has fled, to avoid custody or confinement after 16 conviction as described in paragraph (a)(2) of this section; 18 (C) Is violating, or has violated, a condition of his or her probation or 19 parole as described in paragraph (a)(3) of this section[.] 21 20 C.F.R. § 416.1339(b). The Administration has not adopted an analogous implementing
22 regulation for the OASDI suspension provision.
23 C.
24 The Social Security Administration further construed Congress’s suspension provisions
25 in its sub-regulatory Program Operations Manual System (POMS). The POMS states that SSI
26 benefits should be suspended under the following circumstances:
27 The month in which a warrant, a court order or decision, or an order or decision 28 by an appropriate agency in the United States (e.g. parole board) is issued which 29 finds that the individual is wanted in connection with a crime that is a felony or 30 for attempting to commit a crime that is a felony or is violating a condition of his 31 or her probation or parole[.] 33 POMS § SI 00530.010(A). Suspended SSI benefits may be reinstated “effective with the first
34 month throughout which the individual does not have an active warrant pending for a . . .
35 violation of a condition of his or her parole or probation.” Id. at § 00530.020(A).
36 With respect to the OASDI suspension provision, the POMS states:
1 Unless good cause is found . . . payment is prohibited for any month in which a 2 beneficiary (including juveniles) has an unsatisfied warrant for more than 30 3 continuous days for: . . . [v]iolation of a condition of Federal or State 4 probation/parole. 6 POMS § GN 02613.010(A)(1). And as is the case for SSI benefits, OASDI benefits may be
7 reinstated “effective with the first month throughout which the individual does not have: . . . a
8 warrant pending for violation of a condition of parole or probation.” POMS § GN
9 02613.500(A)(1).
10 D.
11 Defendant Michael J. Astrue explains in his brief to this Court the process by which the
12 Administration suspends SSI and OASDI benefits based on a determination that an individual is
13 violating the terms of her probation or parole. The Administration first collects warrant data
14 from federal, state, and local law enforcement agencies. Using the Federal Bureau of
15 Investigation’s National Crime Information Center uniform offense codes, the Administration
16 identifies those warrants issued on the basis of an alleged parole or probation violation. Next,
17 the Administration verifies the identities of the individuals against whom the warrants were
18 issued and, once verified, matches those names with individuals receiving SSI and OASDI
19 benefits. The names are forwarded to the Office of the Inspector General (OIG). The OIG then
20 sends to the law enforcement agencies a form that requests verification (1) of the code offense,
21 (2) that “reasonable measures” were used in the warrant’s issuance to avoid identity fraud, and
22 (3) that the warrant remains open.
23 After the Administration verifies a warrant, it sends a notice to the benefits recipient. For
24 OASDI recipients, the notice states that the recipients have 30 days to advise the Administration
25 that they wish to protest the suspension by showing good cause why benefits should not be
26 suspended. For SSI beneficiaries, the notice states that recipients have 10 days to advise the
1 Administration that they wish to show good cause why their benefits should not be suspended.
2 As to both OASDI and SSI benefits, if the recipients do not respond, the Administration
3 suspends their benefits. If the recipients do respond, they have 90 days to show “good cause.”
4 POMS §§ GN 002613.025(B)(3)(c), GN 02613.030, SI 00530.015(B)(3)(c). Benefits will
5 continue for 90 days or until the Administration determines that the recipient has failed to show
6 good cause to keep benefits from being suspended. Although recipients may appeal the initial
7 good-cause determination through multiple levels of administrative review, and ultimately to a
8 federal court, see 42 U.S.C. § 405(g), 1383(c)(3); 20 C.F.R. § 404.981, 416.1481, benefits
9 remain suspended throughout the appeal process.
10 Individuals with an arrest warrant for an alleged parole or probation violation can also
11 have their benefits reinstated by showing good cause.
12 Two types of good cause exist: mandatory and discretionary. A recipient can establish
13 mandatory good cause by showing, among other things, a document from the issuing court or
14 tribunal indicating that a warrant was issued in error or that the warrant was vacated. POMS §§
15 GN 02613.025(B), SI 00530.015(B). Discretionary good cause, in contrast, does not require
16 showing that the warrant has been vacated or quashed. To be eligible, recipients must first
17 demonstrate (1) that the underlying offense and the subsequent parole or probation violation
18 were nonviolent and not drug related; and (2) that they have not committed any felony crimes
19 since the warrant was issued. In addition, they have to satisfy one of two other sets of
20 requirements. Recipients can either provide evidence that the law enforcement agency that
21 issued the warrant is unwilling to act on the warrant, or recipients can show (a) that the warrant
22 is the only existing warrant and is at least 10 years old; and (b) that the beneficiary lacks the
23 mental capacity to resolve a warrant, is incapable of managing payments, is legally incompetent,
1 has appointed a representative payee to handle his payments, or is residing in a long-term care
2 facility. Id.
3 II.
4 Plaintiffs are all SSI or OASDI benefits recipients whose benefits were suspended on the
5 basis of an arrest warrant asserting that they were violating a term of their probation or parole.
6 Three of the five plaintiffs were ultimately found not to have been violating a condition of their
7 probation or parole. One plaintiff’s case remains unresolved. The fifth plaintiff died during the
8 course of these proceedings, also with her case unresolved. 1
9 III.
10 Plaintiffs filed this suit in the United States District Court for the Southern District of
11 New York (Stein, J.) on December 28, 2006. Shortly after the filing of the complaint, two
12 plaintiffs moved for a temporary restraining order and all the plaintiffs moved for a preliminary
13 injunction. The District Court denied the motions and concluded with respect to the latter
14 motion that Plaintiffs were not likely to succeed on the merits.
15 Following discovery, the parties cross-moved for summary judgment, which the District
16 Court granted to Defendants. See Clark v. Astrue, No. 06 Civ. 15521, 2008 WL 4387709
17 (S.D.N.Y. Sept. 22, 2008). The Court concluded that “[t]he suspension provisions themselves
18 are silent as to how the [Administration] is to determine whether a Social Security recipient ‘is
19 violating’ probation or parole.” Id. at *7. But it found support for Defendants’ position in the
20 2004 good-cause provisions. The Court reasoned that because Congress enacted the good-cause
21 provisions, which authorize the Administration to reinstate suspended benefits when the warrant
22 for a criminal offense is vacated, “it follows that Congress also contemplated that a warrant
The plaintiffs’ stories are provided in greater detail in the District Court’s decision. Clark v. Astrue, No. 06 Civ. 15521, 2008 WL 4387709 (S.D.N.Y. Sept. 22, 2008).
1 constitutes a sufficient basis on which to suspend benefits in the first instance.” Id. The District
2 Court rejected Plaintiffs’ argument that because the good-cause provisions apply only to
3 warrants for a “criminal offense,” they do not apply to suspensions on the basis of a parole or
4 probation violation, as these do not constitute an independent criminal offense. The District
5 Court stated that “there is . . . no indication in the statute that Congress intended to draw a
6 distinction between warrants for criminal offenses and warrants for probation and parole
7 violations.” It also stated that under Plaintiffs’ reading, the good-cause provisions would be
8 almost entirely inapplicable to benefits suspended on the basis of parole or probation violations.
9 Id.
10 The District Court further found that this Court’s decision in Fowlkes v. Adamec, 432
11 F.3d 90 (2d Cir. 2005), somewhat paradoxically, supported Defendants’ interpretation of the
12 suspension provisions. Fowlkes addressed a different ground on which the Administration can
13 suspend SSI and OASDI benefits: when a recipient is fleeing prosecution, custody, or
14 confinement for a felony criminal offense. Prior to Fowlkes, the Administration had a policy of
15 suspending benefits solely on the basis of the issuance of an arrest warrant for a felony offense.
16 In Fowlkes, we held that the Administration’s practice, as embodied in its POMS, is contrary to
17 the plain meaning of the Act because the Act’s use of the word “fleeing” “is understood to mean
18 the conscious evasion of arrest or prosecution.” Id. at 96. Because an arrest warrant can issue
19 without a finding that one has such intent, the fact of a warrant is an insufficient basis on which
20 to suspend benefits. See id. at 97. In contrast with Plaintiffs’ reliance on Fowlkes, the District
21 Court distinguished the case on the ground that the warrant here is not over-inclusive, and that in
22 Fowlkes, “the Second Circuit gave no indication that it would take issue with the
1 [Administration’s] suspension of benefits on the basis of a warrant that did indicate that the
2 recipient was fleeing to avoid prosecution.” Clark, 2008 WL 4387709, at *10.
3 The District Court additionally held that even if the Administration’s interpretation is not
4 compelled by the plain language of the Act, its interpretation of the Act, whether embodied in a
5 regulation or in its POMS, is entitled to “substantial deference.” Id. at *8. Because the Court
6 found that the Administration’s practice is consistent with its POMS and implementing
7 regulation, both of which reasonably interpret the Act, it concluded that Plaintiffs’ claims must
8 fail. Id. at *9-11.
9 DISCUSSION
10 I.
11 The Administration’s current practice takes a warrant alleging a probation or parole
12 violation as sufficient and irrebuttable evidence that one is violating the conditions of probation
13 or parole. We review an agency’s interpretation of its own authorizing statute according to the
14 two-step framework from Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837
15 (1984). We recently explained this analysis as follows:
16 At step one, we consider whether Congress has directly spoken to the precise 17 question at issue. If the intent of Congress is clear, that is the end of the matter; 18 for the court, as well as the agency, must give effect to the unambiguously 19 expressed intent of Congress. To ascertain Congress’s intent, we begin with the 20 statutory text because if its language is unambiguous, no further inquiry is 21 necessary. Only if we determine that Congress has not directly addressed the 22 precise question at issue will we turn to canons of construction and, if that is 23 unsuccessful, to legislative history to see if those interpretative clues permit us to 24 identify Congress’s clear intent. 26 If, despite these efforts, we still cannot conclude that Congress has directly 27 addressed the precise question at issue, we will proceed to Chevron step two, 28 which instructs us to defer to an agency’s interpretation of the statute it 29 administers, so long as it is reasonable.
1 Snell Island SNF LLC v. NLRB, 568 F.3d 410, 415 (2d Cir. 2009) (quoting N.Y. State Office of
2 Children & Family Servs. v. U.S. Dep’t of Health & Human Servs. Admin. for Children &
3 Families, 556 F.3d 90, 97 (2d Cir. 2009)).
4 In the suspension provisions, Congress authorizes the Social Security Administration to
5 suspend SSI and OASDI benefits upon certain factual triggers. But what are those factual
6 triggers and upon what showing can one determine that the facts underlying those triggers exist?
7 Two triggers are relevant to this case. The trigger we addressed in Fowlkes requires a
8 determination that one is, among other things, “fleeing to avoid prosecution . . . for a crime . . .
9 which is a felony” (hereinafter “fugitive felon provision”). 42 U.S.C. §§ 1382(e)(4)(A)(i),
10 402(x)(1)(A)(iv). The trigger at issue here requires a determination that one “is violating a
11 condition of probation or parole” (hereinafter “probation or parole violation provision”). 42
12 U.S.C. §§ 1382(e)(4)(A)(ii), 402(x)(1)(A)(v). The issue before us is whether the fact of a
13 warrant, issued on the basis of “probable cause” or “reasonable suspicion” to believe that one is
14 violating a condition of probation or parole, is equivalent to a determination that one is in fact
15 violating a condition of probation or parole. We find that it is not and therefore that the
16 Administration’s practice is contrary to the plain meaning of the Act.
17 The law often speaks of facts, but it usually operates on probabilities. In the civil
18 context, a finding that X is more likely than not true is the equivalent to a finding that X is true.
19 See, e.g., Pulsifier v. Walker, 159 A. 426, 427 (N.H. 1932) (“The court . . . found that ‘the
20 probabilities are that the option of renewal clause was in the original draft as appears in the
21 document as signed.’ In legal effect this is equivalent to a definite finding that the proviso was
22 in the original draft.”). By contrast, “probable cause is a lower standard than preponderance of
23 the evidence.” United States v. Juwa, 508 F.3d 694, 701 (2d Cir. 2007); cf. Illinois v. Gates, 462
1 U.S. 213, 243 n.13 (1983) (“[P]robable cause requires only a probability or substantial chance of
2 criminal activity, not an actual showing of such activity. By hypothesis, therefore, innocent
3 behavior frequently will provide the basis for a showing of probable cause[.]”).
4 The Administration argues that, in the context before us, it may treat something as true
5 based on a factual probability below a preponderance of the evidence. Specifically, it asserts that
6 pursuant to these statutes, Congress’s requirement that X be true can be reduced to a requirement
7 that one have probable cause to believe, or a reasonable suspicion that, X is true. While
8 Congress may in some instances set a lower probabilistic threshold, 2 we disagree that it has done
9 so here. And we hold, more generally, that unless it specifies clearly to the contrary, when
10 Congress provides that a fact triggers civil legal consequences, it is requiring a finding that the
11 fact is more likely than not true.
12 When Congress has intended a lower probabilistic showing to trigger legal consequences,
13 it has done so explicitly. For example, in a revocation-of-parole provision in the Parole
14 Commission Phaseout Act of 1996, Pub. L. No. 104-232, 110 Stat. 3055, Congress expressly
15 conditioned legal consequences on a determination of “probable cause to believe that [one] has
16 violated a condition of [one’s] parole.” 18 U.S.C. § 4214(a)(1)(A) (expires in 2011); see also id.
17 (stating that the Commission shall prepare a digest “upon a finding of probable cause”). Courts
18 have tended to do the same. See, e.g., Morrissey v. Brewer, 408 U.S. 471, 483-88 (1972)
19 (distinguishing “an appropriate determination that the individual has in fact breached the
20 conditions of parole” from the “‘preliminary hearing’ to determine whether there is probable
21 cause or reasonable ground to believe that the arrested parolee has committed acts that would
22 constitute a violation of parole conditions”); Calhoun v. N.Y. State Div. of Parole Officers, 999
See infra n.5.
1 F.2d 647, 652-54 (2d Cir. 1993) (finding it a violation of due process to detain a defendant based
2 on a “finding of probable cause for a parole violation” but before a final revocation hearing).
3 The Administration does not argue that, in practice, warrants, like those before us, are
4 generally based on evidence sufficient to satisfy a more-likely-than-not probabilistic threshold.
5 As a result, we do not address what relevance, if any, such a showing would have. Plaintiffs,
6 moreover, provide evidence to the contrary. They cite to the statements of several attorneys
7 from various jurisdictions to support their claim that warrants are issued on the basis of “nothing
8 more than an allegation.” Appellants’ Brief at 17-18 (discussing procedures in New York, Ohio,
9 Florida, and California). And, Amici Curiae Empire Justice, et al., proffer numerous
10 explanations for why a warrant, although perhaps adequately supported by probable cause, 3
11 might not satisfy the higher more-likely-than-not evidentiary burden: A recipient might receive
12 permission from her probation or parole officer to leave the state, but that permission might
13 never have been properly recorded; probation- or parole-related documents might have been sent
14 to the wrong address; fees duly paid by a recipient might not have been properly recorded; or the
15 recipient might have qualified for a fee waiver. See Brief for Empire Justice, et al., as Amici
16 Curiae Supporting Plaintiffs-Appellants, at 16-17, 20. Under any of these circumstances, the
17 warrant might well be valid but the Administration would not be justified in suspending benefits.
For conceptual clarity, it is worth distinguishing situations in which a warrant wrongly issued from those in which although the warrant correctly issued, the preponderance of the evidence does not support a finding that the recipient is violating a condition of probation or parole. The Administration’s POMS recognizes situations in which a warrant was wrongly issued because it was “erroneously issued in the beneficiary’s name.” POMS § GN 02613.025(B)(4)(c). Under those circumstances, there was never probable cause to believe that the recipient had violated the conditions of her probation or parole. In other cases, however, there might have been probable cause to believe a violation had been committed, but upon further investigation, it might appear that the preponderance of the evidence does not support a finding that the recipient in fact violated probation or parole.
1 It is nonetheless possible that a warrant, coupled with adequate procedural safeguards,
2 could satisfy a more-likely-than-not probabilistic showing, and therefore constitute a “finding”
3 within the meaning of the Act. A warrant might, in some circumstances, be sufficient to create a
4 presumption of an actual violation, in which case the burden of showing no violation might shift
5 to the recipient. The recipient, having been informed of the basis for the warrant and given an
6 opportunity to present evidence, might then be required to demonstrate that, despite the warrant,
7 she is not violating the conditions of her probation or parole. We do not address the sufficiency
8 or necessity of these procedures here. We mention them only in response to the Administration’s
9 argument that, pursuant to Plaintiffs’ interpretation of the Act, benefits may only be suspended
10 after a final revocation hearing. Today’s holding does not go so far.
11 II.
12 Defendants make several arguments why the Social Security Act should not be read to
13 require a finding that it is more likely than not that one is violating a condition of probation or
14 parole before benefits can be suspended: (1) such a requirement is more difficult to administer;
15 (2) the suspension provisions’ language suggests that Congress desired the Administration to act
16 promptly; (3) Congress approved of the Administration’s current practice in the 2004 good-cause
17 provisions; and (4) we approved of the Administration’s current practice in Fowlkes. We
18 address these arguments in turn.
19 A.
20 Defendants argue that “the most objective and clearly ascertainable indication that a
21 beneficiary ‘is violating’ applicable conditions is the issuance of a violation warrant” and that the
22 Social Security Administration is “not equipped to independently investigate and adjudicate
23 whether each beneficiary . . . ‘is violating’ any applicable conditions.” Appellees’ Br. at 29-30.
1 We do not doubt that a warrant may be the most easily ascertainable indication that one is
2 violating the conditions of her probation or parole. But if, as discussed above, that indication is
3 insufficient, then the fact that it is easily ascertainable does not cure its insufficiency. And while
4 it may be the case that the Administration is not equipped to determine on a case-by-case basis
5 whether an individual is violating a condition of probation or parole, that is precisely what, we
6 conclude, Congress has required it to do before it may suspend benefits. That Congress requires
7 the Administration to do something it cannot easily do does not change the fact that Congress
8 requires it. 4
9 B.
10 Defendants further argue that Congress’s use of the present tense “is” contemplates
11 prompter suspension than our interpretation of the suspension provisions permits. This argument
12 is circular. True enough, as soon as one knows that a recipient is in violation, benefits should be
13 suspended. But the question before us is at what point does one know that a violation has
14 occurred? If under the relevant statute, read in an ordinary way, one cannot know that a
15 violation has occurred until there is a determination that it is more likely than not that a violation
16 has occurred, then to act sooner is to act prematurely. Once one determines that a recipient is
17 more likely than not violating a condition of probation or parole, benefits can be suspended
We also note that many of the same reasons that the Social Security Administration is not readily equipped to make this determination apply to the benefits recipients and make them, as compared to the Agency, even less qualified to defend their benefits. The warrants that provide the bases for benefits suspensions are often issued decades earlier by far flung jurisdictions. While it may be expensive for the Administration to investigate such warrants, it is frequently impossible for the often-poor benefits recipients to travel to these jurisdictions and, once there, to navigate the legal bureaucracies and have their warrants quashed.
1 retroactively as of the date that the recipient began violating probation or parole. But prompter
2 action is not appropriate. 5
3 C.
4 The District Court relied heavily on Congress’s 2004 good-cause provisions, 42 U.S.C.
5 §§ 402(x)(1)(B)(iii), 1382(e)(4)(B). These provisions require the Administration to reinstate
6 benefits suspended on the basis of the fugitive felon provision or the probation or parole
7 violation provision when certain conditions are met. Significantly, the good-cause provisions do
8 not specify which “good causes” apply to benefits suspended on the basis of the fugitive felon
9 provision and which apply to benefits suspended on the basis of the probation or parole violation
10 provision. The good causes requiring reinstatement of benefits are:
11 (I) a court of competent jurisdiction has found the individual not guilty of the 12 criminal offense, dismissed the charges relating to the criminal offense, 13 vacated the warrant for arrest of the individual for the criminal offense, or 14 issued any similar exonerating order (or taken similar exonerating action), or 16 (II) the individual was erroneously implicated in connection with the criminal 17 offense by reason of identity fraud. 19 Id. Defendants argue that by including among the good causes situations in which a court has
20 “vacated the warrant for arrest of the individual for the criminal offense,” it necessarily approved
21 of the Administration’s practice of suspending benefits on the basis of a warrant that alleged a
22 probation or parole violation. We disagree.
23 First, as discussed above, a warrant is certainly evidence that one is violating a condition
24 of probation or parole. And in some circumstances a warrant might even be sufficient (although
25 not irrebuttable) evidence. Because a warrant is relevant evidence of a violation, benefits may,
26 in appropriate circumstances, be suspended based, either entirely or in part, on the existence of a As stated earlier, Congress could, of course, have clearly provided that suspension take place on mere suspicion that a violation occurred, or when probable cause of a violation exists, but it has not done so. We intimate no view about the constitutionality of such provisions.
1 warrant. The subsequent vacatur of such a warrant would of course undermine the ground on
2 which the benefits were suspended. And this both explains and justifies Congress’s decision to
3 allow reinstatement of benefits upon the vacatur of the warrant. It does not follow from this,
4 however, that Congress meant that all warrants are sufficient bases on which to suspend benefits.
5 Second, it is far from clear that the language on which Defendants and the District Court
6 seize applies to probation or parole violations. Violating a condition of probation or parole is not
7 generally an independent criminal offense. 6 As the Supreme Court has stated:
8 [R]evocation of parole is not part of a criminal prosecution and thus the full 9 panoply of rights due a defendant in such a proceeding does not apply to parole 10 revocations. Parole arises after the end of the criminal prosecution, including 11 imposition of sentence. Supervision is not directly by the court but by an 12 administrative agency, which is sometimes an arm of the court and sometimes of 13 the executive. Revocation deprives an individual, not of the absolute liberty to 14 which every citizen is entitled, but only of the conditional liberty properly 15 dependent on observance of special parole restrictions. 17 Morrissey, 408 U.S. at 480 (internal citation omitted); see also United States v. Aspinall, 389
18 F.3d 332, 342 (2d Cir. 2004) (finding that “it has long been established that probation revocation,
19 like parole revocation, is not a stage of a criminal prosecution” (internal quotation marks
20 omitted)), abrogated on other grounds by United States v. Booker, 543 U.S. 220 (2005).; Knight
21 v. Estelle, 501 F.2d 963, 964 (5th Cir. 1974) (“A parole revocation hearing is not a criminal
22 proceeding. Its purpose is not to assess guilt or to assign blameworthy acts to the various
23 discrete pigeonholes of the criminal laws. Rather it is held to determine whether the attempt by
24 parole to restore the parolee to the ranks of the carriers and remove him from those of the carried
25 has failed.” (footnote omitted)).
Of course, it may be a condition of one’s probation or parole that one not commit crimes. But conduct that is not otherwise criminal, such as drinking alcohol, does not become criminal simply because the conduct constitutes a violation of one’s probation or parole.
1 For this reason, the warrants referred to in the good-cause provisions are probably best
2 read to refer to warrants for felony criminal offenses, thereby providing the basis for reinstating
3 benefits suspended under the fugitive felon provision. 7 The District Court disagreed, noting,
4 “Under plaintiffs’ reading, the good-cause provisions would either be entirely inapplicable to
5 persons who violated their probation or parole because the provisions refer exclusively to
6 ‘criminal offenses’ throughout, or else would apply only in the rare instances in which such
7 persons were able to have their underlying convictions vacated.” 2008 WL 4387709, at *8. We
8 agree that the nearly exclusive concern of the good-cause provisions with fugitive felons is odd.
9 But it is not so odd that it justifies reading out of the statute the word “criminal,” which Congress
10 used repeatedly in the relevant parts of the statutes.
11 D.
12 Finally, our decision in Fowlkes does not support Defendants’ interpretation of the
13 suspension provisions. Defendants argue, and the District Court reasoned, that because the
14 defect in the warrant that this Court pointed out in Fowlkes does not apply to probation or parole
15 violations, Fowlkes can be read as implicitly approving of Defendants’ use of warrants as
16 sufficient and irrebuttable evidence in such cases. This logic is problematic for two reasons.
17 First, just because Fowlkes is distinguishable from this case does not mean that it supports
18 Defendants’ position. A court is not obligated to identify every problem in a problematic agency
19 practice, nor every defect in a problematic warrant.
20 Second, the factual trigger in Fowlkes is significantly different from the factual trigger in
21 this case. The trigger for the probation or parole violation provision is the actual violation of a
22 condition of one’s probation or parole. The trigger for the fugitive felon provision is, among
After Fowlkes, however, such a warrant, without evidence of intent, would not be a sufficient ground on which to suspend benefits.
1 other things, the act of fleeing a felony prosecution; it is not the act of committing the felony.
2 Because of this difference, a warrant means something quite different in the two contexts. In the
3 probation or parole violation context, a warrant is evidence—amounting perhaps to probable
4 cause—that one is in fact violating a condition of one’s probation or parole. In the fugitive felon
5 context, an outstanding arrest warrant for a felony is effectively an element of the offense; it is
6 arguably direct evidence that the recipient is in fact “wanted in connection with a crime that is a
7 felony.” POMS § SI 00530.010. We of course need not address whether, but for the defect in
8 the Administration’s interpretation of the provisions noted in Fowlkes, such an outstanding arrest
9 warrant would always constitute more-likely-than-not evidence that one is in fact fleeing a
10 felony prosecution. We simply note that the Administration, and this Court, might reasonably
11 treat warrants differently in the two contexts.
12 III.
13 Because we find that the Social Security Administration’s practice is contrary to the plain
14 meaning of the Social Security Act, we do not address whether the Administration’s practice is
15 consistent with its own implementing regulation. We similarly do not need to address what
16 degree of deference would be accorded to an agency’s interpretation of an act when that
17 interpretation is, as is arguably true in this case, expressed only in its operations manual and not
18 in regulations implementing the act.
19 CONCLUSION
20 For the foregoing reasons, we hold that the Social Security Administration’s practice of
21 treating a warrant alleging that a recipient is violating a condition of probation or parole as
22 sufficient and irrebuttable evidence that the recipient is in fact violating a condition of probation
23 or parole is inconsistent with the plain meaning of the Social Security Act. We therefore vacate
1 the District Court’s grant of summary judgment for Defendant and its denial of summary
2 judgment for Plaintiffs and remand for further proceedings consistent with this opinion. |
09-1496-ag Robinson Knife Mfg. Co. v. Comm’r 2 UNITED STATES COURT OF APPEALS 4 FOR THE SECOND CIRCUIT 6 ____________________________________ 8 August Term, 2009 10 (Argued: December 16, 2009 Decided: March 19, 2010) 12 Docket No. 09-1496-ag 13 ____________________________________ 15 ROBINSON KNIFE MANUFACTURING COMPANY, INC. AND SUBSIDIARY, 17 Petitioner-Appellant, 19 v. 21 COMMISSIONER OF INTERNAL REVENUE, 23 Respondent-Appellee. * 25 ____________________________________ 27 Before: CALABRESI, CABRANES, and PARKER, Circuit Judges. 28 ____________________________________ 30 Appeal from a judgment of the United States Tax Court holding that, pursuant to 26 31 U.S.C. § 263A and the corresponding Treasury regulations, Petitioner-Appellant could not 32 immediately deduct its sales-based trademark royalty payments, but was instead required to 33 capitalize such costs. We REVERSE the decision below. 35 ROBERT J. LANE, JR., Hodgson Russ LLP, Buffalo, N.Y., for 36 Petitioner-Appellant.
* The Clerk of the Court is directed to amend the official caption as set forth above.
1 JOHN A. DUDECK, JR. (Richard Farber, on the brief) for John A. 2 DiCicco, Acting Assistant Attorney General, Tax Division, U.S. 3 Department of Justice, Washington, D.C., for Respondent- 4 Appellee. 6 ____________________________________ 10 CALABRESI, Circuit Judge:
11 Petitioner-Appellant Robinson Knife Manufacturing Company (“Robinson”) sells kitchen
12 tools labeled with trademarks licensed from third parties to whom Robinson pays royalties. In
13 Robinson’s income tax returns for its taxable years ending March 1, 2003, and February 28,
14 2004, Robinson deducted these royalty payments as ordinary and necessary business expenses
15 under 26 U.S.C. § 162. The Commissioner disagreed and issued a notice of deficiency stating
16 that, under 26 U.S.C. § 263A, the royalties are required to be capitalized and made part of
17 Robinson’s inventory costs. The Tax Court, T.C. Memo 2009-9, 2009 Tax Ct. Memo LEXIS 10,
18 upheld the Commissioner. Robinson appeals. We hold that where, as here, a producer’s royalty
19 payments (1) are calculated as a percentage of sales revenue from inventory and (2) are incurred
20 only upon the sale of that inventory, they are immediately deductible as a matter of law because
21 they are not “properly allocable to property produced” within the meaning of 26 C.F.R. §
22 1.263A-1(e). We therefore REVERSE the decision below.
23 Facts
24 I. Robinson Knife
25 Robinson is a corporation whose business is the design, manufacture and marketing of
26 kitchen tools such as spoons, soup ladles, spatulas, potato peelers, and cooking thermometers. In
27 the process by which Robinson typically turns an idea into a saleable finished product, someone
1 at Robinson comes up with an idea for a product. Robinson then decides which brand name
2 would be best for that product, and if Robinson does not already have a licensing agreement that
3 would permit it to use that trademark on the proposed product, it tries to negotiate one. Once
4 Robinson has a licensing agreement in hand, it hires an industrial designer to design the product,
5 and the trademark licensor is consulted “to make sure that they agree that [the designer’s plans]
6 are appropriate for the brand that’s involved.” Robinson next contracts out the manufacturing,
7 usually to firms in China or Taiwan, and the products are shipped to Robinson in the United
8 States. With the products in hand, Robinson markets them under the previously selected brand
9 name to customers, who are generally large retailers such as Wal-Mart or Target.
10 Robinson’s products are functionally the same as its competitors’, so it largely relies on
11 trademarks and design to differentiate its products. One particular subset of those trademarks is
12 at issue here: famous trademarks licensed by Robinson from third parties who own the
13 trademarks. 1 Often Robinson makes and sells, at the same time, products that are identical, but
14 only some of which bear the relevant trademarks, while others do not. Robinson does not
15 advertise the Robinson name or feature it prominently on its products’ packaging.
16 During the taxable years at issue, Robinson used, inter alia, two well-known licensed
17 trademarks: Pyrex, which is owned by Corning, Inc., and Oneida, which is owned by Oneida
18 Ltd. The owners of these two trademarks have for many years conducted substantial and
19 continuous advertising and marketing activities to develop trademark awareness and goodwill.
20 As a result, it is much easier for Robinson to place a Pyrex or Oneida product at a major retailer
21 than it is to place an otherwise identical house-brand product.
Robinson also makes and sells some products labeled with “house” trademarks owned by Robinson, as well as store-brand products for sale to particular retail store chains that own these store brands.
1 In all respects relevant to this case, the Pyrex and Oneida licensing agreements were the
2 same. The agreements gave Robinson the exclusive right to manufacture, distribute, and sell
3 certain types of kitchen tools using the licensed brand names. In return, Robinson agreed to pay
4 each trademark owner a percentage of the net wholesale billing price of the kitchen tools sold
5 under that owner’s trademark. 2 Robinson was not required to make any minimum or lump-sum
6 royalty payment, nor did royalties for any kitchen tools accrue at any time before the tools were
7 sold. Thus, Robinson could design and manufacture as many Pyrex or Oneida kitchen tools as it
8 wanted without paying any royalties unless and until Robinson actually sold the products. 3
9 Robinson did sell a significant volume of Pyrex- and Oneida-branded products, and during the
10 taxable years at issue it paid royalties both to Corning and to Oneida, of $2,184,252 and
11 $1,741,415, respectively.
12 II. The Tax Controversy
13 On Robinson’s Forms 1120, U.S. Corporation Income Tax Return, for taxable years
14 ending March 1, 2003, and February 28, 2004, Robinson deducted the above-mentioned
15 payments to Corning and Oneida as ordinary and necessary business expenses under 26 U.S.C. §
16 162. The IRS determined instead that under 26 U.S.C. § 263A and the accompanying Treasury
17 Regulations the royalty payments, rather than being immediately deductible, must be added to
18 Robinson’s capital and deducted only over time, in line with complex accounting principles. As
The percentage in the Pyrex agreement was 8%. The Oneida agreement provided that Robinson would pay 11% on net sales up to $1 million, and then 8% on net sales above $1 million. A later Oneida agreement changed the 8% to 9% before the end of the taxable period at issue. Robinson also agreed to contractual provisions designed to protect the value of the licensed trademarks, as is typical in trademark licensing agreements. Before selling a branded product, Robinson had to get the trademark owner’s approval of the product’s design, its packaging, and any promotional materials. Robinson further agreed not to engage in conduct that would damage the goodwill or value of the licensed trademarks.
1 a result, the IRS denied the deduction and issued a notice of deficiency to Robinson.
2 Robinson petitioned the Tax Court for a redetermination of the deficiency. Robinson
3 there argued, as it does here, that the royalty payments were not required to be capitalized under
4 the § 263A regulations. The Tax Court rejected Robinson’s arguments. It held that, within the
5 meaning of the Treasury Regulations, the royalties directly benefited Robinson’s production
6 activities and/or were incurred by reason of those activities. It also held that the royalties were
7 not “marketing” costs exempt from § 263A capitalization under those regulations. Robinson
8 timely appealed to this Court.
10 Discussion
11 I. Standard of Review
12 We review the Tax Court’s legal conclusions de novo and its factual findings for clear
13 error. Wright v. Comm’r, 571 F.3d 215, 219 (2d Cir. 2009). The parties dispute the standard of
14 review applicable to mixed questions of law and fact decided by the Tax Court. The
15 Commissioner notes that we have thrice held that clear error review applies to such Tax Court
16 decisions. Id.; Merrill Lynch & Co. v. Comm’r, 386 F.3d 464, 469 (2d Cir. 2004); Bausch &
17 Lomb Inc. v. Comm’r, 933 F.2d 1084, 1088 (2d Cir. 1991). Yet Robinson points out that we
18 apply de novo review to mixed questions decided by a district court after a bench trial. See, e.g.,
19 Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., 588 F.3d 97, 105 (2d Cir. 2009); Design
20 Strategy, Inc. v. Davis, 469 F.3d 284, 300 (2d Cir. 2006); Phansalkar v. Andersen Weinroth &
21 Co., 344 F.3d 184, 199 (2d Cir. 2003). And the relevant statute commands us to review Tax
22 Court decisions “in the same manner and to the same extent as decisions of the district courts in
23 civil actions tried without a jury.” 26 U.S.C. § 7482(a)(1). We need not resolve this apparent
1 inconsistency here. In our view, the case presents a pure question of law—the interpretation of a
2 Treasury Regulation—and we therefore apply de novo review. 4
3 II. Legal Framework
4 A. Capitalization and Deduction
5 The income tax law distinguishes between business expenses and capital expenditures.
6 Under 26 U.S.C. § 162(a), taxpayers may deduct “all the ordinary and necessary expenses paid
7 or incurred during the taxable year in carrying on any trade or business.” By contrast, under 26
8 U.S.C. § 263(a)(1), no immediate deduction is allowed for capital expenditures, which are “[a]ny
9 amount paid out for new buildings or for permanent improvements or betterments made to
10 increase the value of any property or estate.” As the Supreme Court has explained in the leading
11 case on this distinction, immediate deduction of a cost is more favorable to the taxpayer than is
12 capitalization:
13 The primary effect of characterizing a payment as either a business expense or a 14 capital expenditure concerns the timing of the taxpayer's cost recovery: While 15 business expenses are currently deductible, a capital expenditure usually is 16 amortized and depreciated over the life of the relevant asset, or, where no specific 17 asset or useful life can be ascertained, is deducted upon dissolution of the 18 enterprise. 20 INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 83-84 (1992).
21 The significance of the distinction is only slightly different where, as here, the expense
22 would be capitalized to inventory. For inventory—especially inventory held for sale—the
23 taxpayer usually does not have to rely on depreciation or wait for dissolution of the enterprise in
24 order to obtain cost recovery. Instead, the taxpayer has to follow complex inventory accounting
25 rules in order to get deductions over time. See 26 C.F.R. § 1.263A-1(c)(4) (“Costs that are
We note, however, that Wright, Merrill Lynch, and Bausch & Lomb do not cite the above- mentioned statute, and their application of clear error review to mixed questions does appear to be in tension with the statute’s text.
1 capitalized under section 263A are recovered through depreciation, amortization, cost of goods
2 sold, or by an adjustment to basis at the time the property is used, sold, placed in service, or
3 otherwise disposed of by the taxpayer.”). These rules are designed to achieve a result that is as
4 similar as possible to what would happen if it were administratively feasible to keep track of
5 each individual inventory item, so that whenever an item were sold its cost basis would be
6 known, and the taxpayer would pay income tax on the gain (or deduct the loss) from the sale of
7 that inventory item. In other words, “costs of merchandise and produced goods are capitalized
8 and held in abeyance until they can be matched against sales revenues.” Bittker & Lokken,
9 Federal Taxation of Income, Estates and Gifts ¶ 105.8.1 (2009); see also 26 U.S.C. § 471(a)
10 (giving the Secretary authority to prescribe inventory accounting rules to “clearly reflect[] . . .
11 income”); INDOPCO, 503 U.S. at 84 (“[T]he Code endeavors to match expenses with the
12 revenues of the taxable period to which they are properly attributable, thereby resulting in a more
13 accurate calculation of net income for tax purposes.”).
14 With ideal matching, a taxpayer would be permitted to deduct the costs of producing an
15 inventory item no earlier, and no later, than the taxable year in which that particular inventory
16 item is sold. Unfortunately, when a company has, say, 100,000 identical spatulas on hand at any
17 given time and it is constantly creating and selling such spatulas (along with any number of other
18 products), perfect matching may be difficult and the costs of producing an inventory item are
19 sometimes recovered earlier or later than they ought to be. A distortion of income results.
20 B. Section 263A
21 As part of the most recent major revisions to the Internal Revenue Code, Congress, in the
22 Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085, enacted 26 U.S.C. § 263A to
23 address what it perceived as two significant problems concerning the expense/capital expenditure
1 boundary with respect to inventory:
2 First, the existing rules may allow costs that are in reality costs of producing, 3 acquiring, or carrying property to be deducted currently, rather than capitalized 4 into the basis of the property and recovered when the property is sold or as it is 5 used by the taxpayer. This produces a mismatching of expenses and the related 6 income and an unwarranted deferral of taxes. Second, different capitalization 7 rules may apply under present law depending on the nature of the property and its 8 intended use. These differences may create distortions in the allocation of 9 economic resources and the manner in which certain economic activity is 10 organized. . . . [I]n order to more accurately reflect income and make the income 11 tax system more neutral, a single, comprehensive set of rules should govern the 12 capitalization of costs of producing, acquiring, and holding property . . . . 14 S. Rep. No. 99-313, at 140 (1986), reprinted in 1986-3 C.B. (Vol. 3) 1, 140; see also Suzy’s Zoo
15 v. Comm’r, 273 F.3d 875, 879 (9th Cir. 2001) (“The legislative history of § 263A indicates that
16 Congress intended a single comprehensive set of rules to govern determination of whether costs
17 should be capitalized, from the moment of acquisition through production and disposition of
18 property.”).
19 The statute provides that, in the case of “[r]eal or tangible personal property produced by
20 the taxpayer,” 26 U.S.C. § 263A(b)(1), both “the direct costs of such property, and . . . such
21 property’s proper share of those indirect costs (including taxes) part or all of which are allocable
22 to such property,” id. § 263A(a)(2), shall be included in inventory costs if it is inventory in the
23 hands of the taxpayer, id. § 263A(a)(1)(A). Where, as here, a taxpayer does not manufacture
24 kitchen tools itself, but instead contracts the manufacturing out, it still “produces” the kitchen
25 tools within the statutory definition of that term. Id. § 263A(g)(2).
26 C. The § 263A Regulations
27 Treasury is authorized to make regulations to carry out the purposes of § 263A. Id. §
28 263A(i). And, several years after the statute’s enactment, Treasury issued final § 263A
29 regulations, T.D. 8482, 1993-2 C.B. 77. The preamble to the 1993 final regulations contains an
1 explanation of the purpose of § 263A and of the regulations that is substantially identical to the
2 statement found in the legislative history. See id. at 78. 5 Two parts of these uniform
3 capitalization regulations are central in this case. The first is the determination of whether a
4 particular cost must be capitalized; the second explains how, once a cost is capitalized, it is
5 allocated to particular units of inventory.
6 1. Whether To Capitalize
7 Under the regulations, “[t]axpayers subject to section 263A must capitalize all direct
8 costs and certain indirect costs properly allocable to property produced . . . .” 26 C.F.R. §
9 1.263A-1(e)(1). Direct costs consist primarily of materials and labor, id. § 1.263A-1(e)(2), and
10 the Commissioner does not claim that Robinson’s royalty payments are direct costs. As to
11 indirect costs, the regulation states the following:
12 Indirect costs are defined as all costs other than direct material costs and direct 13 labor costs (in the case of property produced) . . . . Taxpayers subject to section 14 263A must capitalize all indirect costs properly allocable to property 15 produced . . . . Indirect costs are properly allocable to property produced . . . when 16 the costs directly benefit or are incurred by reason of the performance of 17 production . . . activities. Indirect costs may be allocable to . . . other activities 18 that are not subject to section 263A. Taxpayers subject to section 263A must 19 make a reasonable allocation of indirect costs between production . . . and other 20 activities. 22 Id. § 1.263A-1(e)(3)(i).
23 Paragraphs (ii) and (iii) contain lists of “[e]xamples of indirect costs required to be
24 capitalized,” and “[i]ndirect costs not capitalized,” respectively. Id. § 1.263A-1(e)(3).
25 Paragraph (ii) states that the items on its list “are examples of indirect costs that must be
26 capitalized to the extent they are properly allocable to property produced.” Id. § 1.263A-
27 1(e)(3)(ii). One of the items on the list is:
The preamble to the original 1987 temporary regulations does the same. See T.D. 8131, 1987-1 C.B. 98, 98-99.
1 (U) Licensing and franchise costs. Licensing and franchise costs include fees 2 incurred in securing the contractual right to use a trademark, corporate plan, 3 manufacturing procedure, special recipe, or other similar right associated with 4 property produced . . . . These costs include the otherwise deductible portion (e.g., 5 amortization) of the initial fees incurred to obtain the license or franchise and any 6 minimum annual payments and royalties that are incurred by a licensee or a 7 franchisee. 9 Id. § 1.263A-1(e)(3)(ii)(U). Conversely, paragraph (iii) states that the items on its list “are not
10 required to be capitalized under section 263A.” Id. § 1.263A-1(e)(3)(iii). The first item on that
11 list is: “(A) Selling and distribution costs. These costs are marketing, selling, advertising, and
12 distribution costs.” Id. § 1.263A-1(e)(3)(iii)(A).
13 2. How To Allocate
14 Although the dispute in this case is about whether Robinson’s royalties must be
15 capitalized and not about how they must be allocated, some discussion of the relevant allocation
16 methods is necessary to an understanding of why the parties care whether Robinson’s royalties
17 are deducted or capitalized. The regulations provide for two methods of allocating costs to
18 inventory. The first is the “facts and circumstances” method, see 26 C.F.R. § 1.263A-1(f), which
19 most taxpayers use. This method acknowledges that it is often impossible to tell the cost of a
20 particular item sold, and so it uses one of several complicated and administratively expensive
21 processes to approximate that cost and allocate it to particular goods. See id.; see also Leslie J.
22 Schneider, Federal Income Taxation of Inventories § 5.01[1], [6][d] (2010) (noting that the
23 various forms of the facts-and-circumstances method are expensive to administer because they
24 differ from financial accounting rules and the pre-§ 263A rules).
25 The other method, the “simplified production method,” was created to help
26 manufacturers who, in 1986, would have had to make substantial modifications to their cost
27 accounting methods in order to comply with the new § 263A. See W. Eugene Seago, Inventory
1 Tax Accounting and Uniform Capitalization § 2:47 (2009). Such companies were given the
2 option of grandfathering themselves out of the facts and circumstances method and thereby
3 avoiding the associated administrative costs. The simplified production method, using a ratio
4 found in the regulations, allocates a pool of costs between ending inventory and cost of goods
5 sold. See 26 C.F.R. § 1.263A-2(b). The simplified production method is administratively
6 cheaper than the facts and circumstances method, but it may result in distortions of income
7 unfavorable to the taxpayer because it can force the taxpayer to allocate costs to ending (i.e.,
8 ongoing) inventory when a more accurate method would have permitted much quicker cost
9 recovery by allocating most or all of those same costs to inventory that was sold. 6 Robinson
10 elected the simplified production method.
11 If the allocation methods in the regulations worked perfectly, this case would never have
12 been litigated. Under a perfect allocation system, every cent Robinson paid in sales-based
13 royalties would be allocated to exactly those inventory items whose sale triggered Robinson’s
As one treatise explains: Although the simplified production method does reduce the difficulty and expense that otherwise would result from determining inventoriable costs under Section 263A, it is not clear whether a taxpayer actually benefits by employing the simplified procedure. It is clear that accounting costs are reduced, but application of the method may result in an increase in the amount of inventoriable costs as compared to what the increase would be under a more precise computation. Because the increase to ending inventory is based on the ratio of additional Section 263A costs incurred during the year to Section 471 costs incurred during that year, for some businesses a significant portion of the additional Section 263A costs would not be associated with goods in ending inventory if precise computations were made. For example, additional Section 263A costs incurred during the year may be 10 percent of total Section 471 costs incurred during the year. Yet, the nature of the additional Section 263A costs may be attributable to producing only a very small portion of items actually in ending inventory. Thus, these additional costs might have only a slight impact on ending inventory under a precise computation. However, under the simplified production method, 10 percent of these additional Section 263A costs will be allocated to ending inventory. Stephen F. Gertzman, Federal Tax Accounting ¶ 6.07[4][a] (2009).
1 obligation to pay. Because it is the sale of kitchen tools that triggers Robinson’s obligation to
2 pay royalties, all Robinson’s royalties would be allocated to those inventory items that are sold,
3 at the same time as, and therefore during the same taxable year as, the royalties are incurred.
4 The result would be that Robinson would recover the cost of the royalties immediately—just as it
5 would if, as Robinson claims, the royalties were deductible rather than subject to capitalization.
6 In reality, the allocation methods do not work perfectly. And Robinson, presumably to
7 save administrative costs, elected the least accurate of the permissible methods. A significant
8 amount of money, therefore, rides on whether Robinson can deduct its royalty payments. If
9 Robinson cannot deduct the payments immediately, then a substantial portion of them will be
10 allocated to ending inventory, and Robinson will have to wait until a later taxable year to recover
11 those costs.
12 III. Deductibility of the Royalty Payments
13 Robinson presents three arguments that the royalty payments are not required to be
14 capitalized under § 263A: (1) that the royalty payments are deductible as “marketing, selling,
15 advertising, [or] distribution costs,” 26 C.F.R. § 1.263A-1(e)(3)(iii)(A); (2) that royalty payments
16 which are not “incurred in securing the contractual right to use a trademark, corporate plan,
17 manufacturing procedure, special recipe, or other similar right associated with property
18 produced,” id. § 1.263A-1(e)(3)(ii)(U), are always deductible; and (3) that the royalty payments
19 were not “properly allocable to property produced,” id. § 1.263A-1(e)(3)(i). 7 All of these
20 arguments present questions of first impression. We are the first court of appeals to address the
21 treatment of intellectual property royalties under the uniform capitalization regulations. Apart
22 from the decision below, the only other case concerning these issues is another Tax Court
Notably, Robinson does not challenge the validity of the applicable Treasury regulations. Robinson only disputes the Commissioner’s and the Tax Court’s interpretations of them.
1 memorandum decision. See Plastic Eng’g & Tech. Servs., Inc. v. Comm’r, T.C. Memo. 2001-
2 324, 2001 Tax Ct. Memo LEXIS 360.
3 We reject Robinson’s first two arguments as addressing situations that go far beyond the
4 case presented here, but we are persuaded that the third argument is correct. We conclude that
5 royalty payments which are (1) calculated as a percentage of sales revenue from certain
6 inventory, and (2) incurred only upon sale of such inventory, are not required to be capitalized
7 under the § 263A regulations.
8 A. Marketing, Selling, Advertising, and Distribution Costs
9 According to Robinson, its royalty payments are “marketing, selling, advertising, [or]
10 distribution costs.” Although Robinson is correct that “marketing, selling, advertising, and
11 distribution costs” are deductible, 26 C.F.R. § 1.263A-1(e)(3)(iii)(A), we are not persuaded by
12 Robinson’s two arguments that all trademark royalty payments are such costs.
13 First, Robinson emphasizes that its object in licensing the trademarks is to entice
14 customers to buy products that are otherwise identical to Robinson’s competitors’ products. But
15 Robinson’s argument proves too much. All trademarks may serve that purpose. And the
16 regulations specifically list “fees incurred in securing the contractual right to use a trademark,”
17 id. § 1.263A-1(e)(3)(ii)(U) (emphasis added), as an “example[] of indirect costs that must be
18 capitalized to the extent they are properly allocable to property produced or property acquired for
19 resale,” id. § 1.263A-1(e)(3)(ii). If we were to accept Robinson’s view, we would effectively
20 read the word “trademark” out of the relevant regulation.
21 Second, Robinson argues that Rev. Rul. 2000-4, 2000-1 C.B. 331, compels the
22 conclusion that trademark royalties are “marketing, selling, advertising, and distribution costs.”
23 This Court has not decided on the proper level of deference owed to revenue rulings after United
1 States v. Mead Corp., 533 U.S. 218 (2001). See Reimels v. Comm’r, 436 F.3d 344, 347 n.2 (2d
2 Cir. 2006). We need not do so here, for the ruling does not help Robinson no matter how much
3 deference we accord to it. In the revenue ruling, a taxpayer was permitted to deduct the costs of
4 obtaining ISO 9000 certification, which differentiated it from non-certified competitors and
5 allowed it to do businesses with customers who required certification. The IRS determined that
6 ISO 9000 certification, like advertising or training expenses, “does not result in future benefits
7 that are more than incidental.” Rev. Rul. 2000-4, 2000-1 C.B. at 331. But, in contrast to
8 trademarks, there is nothing in the 26 C.F.R. § 1.263A-1(e)(3)(ii) list that suggests that fees for
9 certifications such as ISO 9000 must ever be capitalized. Since trademarks instead are on the
10 capitalization list, the revenue ruling is wholly distinguishable.
11 Moreover, Robinson’s argument is at odds with the intent of both § 263A and the
12 regulations. If all trademark royalties were “marketing, selling, advertising, [or] distribution
13 costs,” then they would be deductible regardless of the terms of the contracts under which they
14 were paid. As a result, a lump-sum minimum royalty payment (i.e., a royalty payment of a
15 specified amount which does not vary regardless of the number of trademarked items
16 manufactured or sold) would be immediately deductible. So would a manufacturing-based
17 royalty paid whenever the manufacturer produced an inventory item bearing the licensed
18 trademark—and this would be so even if the trademarked items were not sold until a later taxable
19 year. But the point of § 263A and its regulations is precisely to make sure that trademark
20 royalties are not deducted during a taxable year which precedes the year in which the
21 corresponding trademarked items are sold. To hold otherwise would be to “allow costs that are
22 in reality costs of producing, acquiring, or carrying property to be deducted currently, rather than
23 capitalized into the basis of the property and recovered when the property is sold or as it is used
1 by the taxpayer. This [would] produce[] a mismatching of expenses and the related income and
2 an unwarranted deferral of taxes.” S. Rep. No. 99-313, at 140; accord T.D. 8482, 1993-2 C.B. at
3 78. For these reasons, we reject the contention that all trademark royalties are immediately
4 deductible.
5 B. Incurred in Securing the Contractual Right
6 Robinson next argues that its royalty payments are deductible because they are not
7 described in § 1.263A-1(e)(3)(ii)(U), that is, because they are not “incurred in securing the
8 contractual right to use a trademark, corporate plan, manufacturing procedure, special recipe, or
9 other similar right associated with property produced.” But Robinson’s conclusion does not
10 follow from its premise. Assuming arguendo that Robinson’s royalty payments are not described
11 in § 1.263A-1(e)(3)(ii)(U), that “description” does not include all costs, or even all trademark
12 costs, that must be capitalized. The costs incurred by Robinson are still indirect costs, and they
13 are, therefore, required to be capitalized to the extent they are properly allocable to property
14 produced. As § 1.263A-1(e)(3)(i) explains, “[i]ndirect costs are defined as all costs other than
15 direct material costs and direct labor costs (in the case of property produced).” (emphasis added).
16 The royalties are costs. They are not direct costs. Hence, they are indirect costs, and such costs
17 are not exempt from the capitalization requirement merely because they are absent from the list
18 of “examples of indirect costs that must be capitalized to the extent they are properly allocable to
19 property produced” found in § 1.263A-1(e)(3)(ii).
20 Robinson’s second argument, like its first, moreover, is too broad. According to
21 Robinson, the above-cited language in § 1.263A-1(e)(3)(ii)(U) requires capitalization only of
22 lump-sum minimum royalties. Assuming, contrary to what we have said above, that costs not
23 described in subclause (U) are necessarily deductible, then any manufacturing-based royalty
1 would be deductible. But it would be contrary to the purpose of § 263A to permit taxpayers to
2 manufacture inventory and deduct royalties immediately, even if that inventory were not sold or
3 otherwise disposed of until a later taxable year.
4 C. Properly Allocable to Property Produced
5 Robinson’s third argument is that the Tax Court’s view that Robinson’s royalties were
6 “properly allocable to property produced” was based on an erroneous interpretation of 26 C.F.R.
7 § 1.263A-1(e)(3)(i). We agree.
8 The Tax Court stated:
9 The Corning and Oneida license agreements gave petitioner the right to 10 manufacture the Pyrex- and Oneida-branded kitchen tools, and without the license 11 agreements, petitioner could not have legally manufactured them. In addition to 12 securing the licenses for the trademarks, obtaining approval from the licensors to 13 use the Pyrex and Oneida trademarks on new kitchen tools was also an integral 14 part of developing and producing the Pyrex- and Oneida-branded kitchen tools. 15 For example, the industrial designers that petitioner hired conferred with the 16 licensors to ensure that the new kitchen tools were appropriate for a particular 17 trademark. After the new kitchen tools were manufactured, Corning and Oneida 18 had the right to inspect and approve the finished kitchen tools before petitioner 19 marketed and sold them to customers. We conclude that acquiring the right to use 20 the Pyrex and Oneida trademarks was part of petitioner's production process. 21 Consequently, the royalties paid to Corning and Oneida directly benefited 22 petitioner's production activities and/or were incurred by reason of petitioner's 23 producing the Pyrex- and Oneida-branded kitchen tools and are therefore indirect 24 costs properly allocable to the Pyrex- and Oneida-branded kitchen tools petitioner 25 produced. 27 Robinson, 2009 Tax Ct. Memo LEXIS 10, at *16-*17.
28 But, as Robinson points out, the Tax Court’s reasoning confuses the license agreements
29 with the royalty costs. The Treasury regulations provide that “[i]ndirect costs are properly
30 allocable to property produced . . . when the costs directly benefit or are incurred by reason of
31 the performance of production . . . activities.” 26 C.F.R. § 1.263A-1(e)(3)(i) (emphasis added).
32 The Tax Court did not ask whether the royalty costs “directly benefit[ed] or [were] incurred by
1 reason of the performance of production . . . activities.” Instead, the Tax Court asked whether
2 the license agreements did so. But that is not what the regulation’s language (and sensible
3 intent) goes to.
4 Royalties like Robinson’s in this case do not “directly benefit,” and are not “incurred by
5 reason of[,] the performance of production . . . activities.” The Tax Court is clearly right that
6 “without the license agreements, petitioner could not have legally manufactured” the Pyrex and
7 Oneida kitchen tools, Robinson, 2009 Tax Ct. Memo LEXIS 10, at *16. It is equally clear,
8 however, that Robinson could have manufactured the products, and did, without paying the
9 royalty costs. None of the product approval terms of the license agreements referenced by the
10 Tax Court relates to Robinson’s obligation to pay the royalty costs. Robinson could have
11 manufactured exactly the same quantity and type of kitchen tools—that is, it could have
12 “perform[ed]” its “production . . . activities” in exactly the same way it did—and, so long as
13 none of this inventory was ever sold bearing the licensed trademarks, Robinson would have
14 owed no royalties whatever. Robinson’s royalties, therefore, were not “incurred by reason of”
15 production activities, and did not “directly benefit” such activities. In other words, while we
16 may agree with the Tax Court’s implicit conclusion that “directly benefit or are incurred by
17 reason of” boils down to a but-for causation test, we hold that under the plain text of the
18 regulation it is the costs, and not the contracts pursuant to which those costs are paid, that must
19 be a but-for cause of the taxpayer’s production activities in order for the costs to be properly
20 allocable to those activities and subject to the capitalization requirement.
21 Our interpretation of § 1.263A-1(e)(3)(i) is corroborated by the regulatory and legislative
22 history, as well as by a related regulation. 26 C.F.R. § 1.263A-2(a)(2)(ii)(A)(1), a regulation that
23 distinguishes between tangible personal property (for which production costs must be
1 capitalized) and intangible property (to which § 263A generally does not apply) states: “[T]he
2 costs of producing and developing books include prepublication expenditures incurred by
3 publishers, including payments made to authors (other than commissions for sales of books that
4 have already taken place), as well as costs incurred by publishers in writing, editing, compiling,
5 illustrating, designing, and developing the books.” Id. (emphasis added). 8 As a result, if a
6 publishing company enters into an agreement with an author whereby royalties (or some portion
7 thereof) are paid for each copy of the book that is sold, and are not due to the author unless and
8 until such sales occur, those royalties are not to be capitalized. By contrast, if the author is paid a
9 royalty for every book that is printed, or receives a lump-sum royalty, then capitalization is
10 required.
11 It would be contrary to the purpose of § 263A and the regulations if commissions for
12 sales of books that have already taken place were treated differently from similar royalties for
13 sales of other types of goods. The position taken by the Tax Court and the Commissioner in this
14 case would give rise to exactly the problem Congress crafted § 263A to fix, for then “the
15 treatment of indirect costs [would] vary depending on the type of property produced.” S. Rep.
16 No. 99-313, at 133. The preamble to the uniform capitalization regulations confirms that
17 capitalization ought not to “depend[] on the nature of the underlying property and its intended
18 use,” as it did under the pre-§ 263A laws. T.D. 8482, 1993-2 C.B. at 78. And, the uniform
19 capitalization rules would not be very uniform if they were to treat books and spatulas
20 differently.
As discussed below, the regulatory history explains that “commissions for sales of books that have already taken place” refers to commissions for books that, having already been sold, do not remain on hand for future sale.
1 Moreover, the Treasury’s reasoning in adding the parenthetical about “commissions for
2 sales of books that have already taken place” to the final version of 26 C.F.R. § 1.263A-
3 2(a)(2)(ii)(A)(1) is also applicable here. The parenthetical was absent from the temporary
4 regulations, but in a 1988 Notice the IRS stated the following:
5 Section 1.263A-1T(a)(5)(iii) of the regulations requires the prepublication 6 expenditures of books publishers (and publishers of similar properties) to be 7 capitalized under section 263A. Under the regulations, prepublication 8 expenditures include payments made to authors of literary works. 10 Commentators have inquired as to whether this requirement to capitalize 11 payments made to authors would apply to commissions or royalties that were paid 12 to authors where such commissions were based on contemporaneous sales of the 13 books. Commentators have noted that it would be inappropriate for a publisher to 14 capitalize commissions where such commissions related only to books that had 15 been sold by the publishers, and not to any books (or copyrights pertaining to 16 such books) that were still on hand. 18 In response to these comments, forthcoming regulations will not require the 19 capitalization of payments made to authors where such payments are commissions 20 for sales of books that have already taken place. If, in contrast, payments are 21 made to authors as pre-paid commissions for future sales of books, such payments 22 shall be capitalized and deducted by the publisher as such future sales occur. 23 Moreover, payments made to authors of literary works that pertain to the use, by 24 the publisher, of the author's rights in the literary works, and that are not based on 25 particular sales of the books, shall be capitalized and amortized as prepublication 26 expenditures under section 167 of the Code. In determining whether payments 27 made to authors are described in the preceding sentence, the substance of the 28 transaction, and not its form, shall control. 30 I.R.S. Notice 88-86, 1988-2 C.B. 401, 409. It would similarly be “inappropriate” for a kitchen-
31 tool manufacturer to capitalize trademark royalties where such royalties are based only on those
32 kitchen tools that have been sold by the manufacturer, and not on any kitchen tools that are still
33 on hand.
34 Although the 1988 Notice does not explicitly state the reason why capitalization should
35 not be required for “commissions for sales of books that have already taken place,” the
36 distinction drawn by the IRS is guided by the principles underlying inventory accounting. The
1 purpose of inventory accounting is—as we have previously said—to reflect income clearly, by
2 matching income with the costs of producing that income in the same taxable year. See Part
3 II.A, supra. When a publisher incurs the obligation to pay a commission only for books that
4 have already been sold, or when Robinson incurs the obligation to pay a royalty only for kitchen
5 tools that have already been sold, it is necessarily true that the royalty costs and the income from
6 sale of the inventory items are incurred simultaneously. 9 The Commissioner’s position in the
7 case before us would, instead, distort Robinson’s income by denying it deductions until some
8 subsequent year, potentially long after the inventory items to which those deductions should
9 attach have been sold.
10 Had Robinson’s licensing agreements provided for non-sales-based royalties, such as
11 manufacturing-based or minimum royalties, then under the reasoning of Notice 88-86
12 capitalization would be required. And this, too, follows from inventory accounting principles.
13 Suppose SpoonCo, another kitchen tool manufacturer, has a licensing agreement with Corning
14 under which royalties are paid for each Pyrex spoon manufactured. SpoonCo makes 500 Pyrex
15 spoons in Year 1, and pays Corning a royalty for all 500, as is required by their agreement.
16 SpoonCo doesn’t sell any of the spoons until Year 2, when it sells all 500. SpoonCo should have
17 to wait until Year 2 to take the deduction, because otherwise SpoonCo would be getting its
18 deduction in the year before it got the corresponding income.
Since Robinson is an accrual-method taxpayer, the “all events” test found elsewhere in the Treasury regulations prohibits Robinson from deducting (or capitalizing) its royalty payments before the corresponding kitchen tools are sold. See 26 C.F.R. § 1.461-1(a)(2)(i) (“Under an accrual method of accounting, a liability . . . is incurred, and generally is taken into account for Federal income tax purposes, in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability.”). Taxpayers are generally required to use the accrual method for inventory. See 26 U.S.C. § 471; 26 C.F.R. § 1.471-1.
1 In the instant case, however, the record is clear that Robinson’s royalties were sales-
2 based. They were calculated as a percentage of net sales of kitchen tools, and they were incurred
3 only upon the sale of those kitchen tools. 10 They are therefore immediately deductible. 11
The language of Notice 88-86 reflects a justified concern about the possibility of abuse. We agree with the IRS that “the substance of the transaction, and not its form, shall control,” 1988-2 C.B. at 409, in determining whether royalty payments are deductible. The two requirements we have set forth—that the royalties must be calculated based on sales, and that the royalties must be incurred only upon those sales—should prevent most abusive deductions in this context. For example, “payments . . . made to authors as pre-paid commissions for future sales of books,” id., would be incurred before the sales took place. Similarly, if a manufacturer entered an agreement whereby no royalties were to be paid unless at least one unit of licensed-trademark inventory were sold, but the amount of royalties would then be a specified lump sum, this agreement would fail the requirement that the royalties be calculated based on sales. We do not, however, rule out the possibility that, in a future case, a taxpayer might structure a licensing transaction in such a way that it formally meets our two requirements, while in economic substance the royalties are for inventory items that have not yet been sold. Under those circumstances, deduction should not be permitted. But there is no suggestion that Robinson’s royalty payments are, in economic substance, anything other than true sales-based royalties. One might consider whether some level of deference ought to be given to the Commissioner’s interpretation of the Treasury’s own regulations. See Auer v. Robbins, 519 U.S. 452, 461 (1997) (holding that an agency’s interpretation of its own regulations is “controlling unless plainly erroneous or inconsistent with the regulation” (internal quotation marks omitted)); Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945) (same). But we need not decide whether Auer deference applies here or in tax cases generally, for at least two reasons. First, the Commissioner has not argued Auer deference, so any such argument is forfeited. See Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998). Second, and more important, even if we were to apply Auer, we would not reach a different result. The Commissioner’s reading of the regulation is contrary to the plain meaning of its text. In this respect, we note that the Commissioner’s brief is not the only agency interpretation of the regulation before us; we also have the preamble, the related regulation concerning copyright royalties paid by book publishers, and Notice 88-86. Thus, unlike Auer, there are abundant “reason[s] to suspect that the interpretation [in the agency’s brief] does not reflect the agency's fair and considered judgment on the matter in question,” 519 U.S. at 462. Cf. Pierre v. Comm’r, 133 T.C. ___, ___ , 2009 U.S. Tax Ct. LEXIS 21, at *34-*36 (2009) (Cohen, J., concurring) (similarly rejecting Auer deference to the Commissioner’s litigating position). The Treasury has for the past two-and-one-half years indicated that it intends to issue “[g]uidance under § 263A regarding the treatment of post-production costs, such as sales-based royalties.” See I.R.S. 2009-2010 Priority Guidance Plan (Nov. 24, 2009); I.R.S. 2008-2009 Priority Guidance Plan (Sept. 10, 2008); I.R.S. 2007-2008 Priority Guidance Plan (Aug. 13, 2007). Because we are interpreting the § 263A regulations and not § 263A itself, the Treasury remains free to issue guidance contrary to our holding in the form of new regulations or of amendments to existing regulations. Such regulations would, of course, be subject to judicial
1 IV. Conclusion
2 For these reasons, we hold that taxpayers subject to 26 U.S.C. § 263A may deduct royalty
3 payments that are (1) calculated as a percentage of sales revenue from certain inventory, and (2)
4 incurred only upon sale of such inventory. Accordingly, we REVERSE the judgment of the Tax
5 Court and REMAND with instructions to enter judgment for Robinson.
review to determine whether they conform to the underlying statute. Cf. Gen. Elec. Co. v. Comm’r, 245 F.3d 149, 154 n.8 (2d Cir. 2001) (noting that the appropriate deference standard for Treasury Regulations is “arguably unsettled” in this Circuit). In any event, under the regulations as they now stand, sales-based royalties are deductible provided that they satisfy the requirements set forth in this opinion. |
PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 09-1165
UNITED STATES OF AMERICA
v.
MARIA LIANIDIS,
Appellant
On Appeal from the United States District Court for the District of New Jersey (D.C. No. 07-cr-00665-001) District Judge: Honorable Garrett E. Brown, Jr.
Argued December 2, 2009 Before: FISHER, HARDIMAN and STAPLETON, Circuit Judges.
(Filed: March 19, 2010 ) Anna M. Durbin Peter Goldberger (Argued) 50 Rittenhouse Place Ardmore, PA 19003-2276 Counsel for Appellant
George S. Leone Office of United States Attorney 970 Broad Street, Room 700 Newark, NJ 07102
Glenn J. Moramarco (Argued) Office of United States Attorney Camden Federal Building & Courthouse 401 Market Street, 4th Floor P.O. Box 2098 Camden, NJ 08101 Counsel for Appellee
OPINION OF THE COURT
FISHER, Circuit Judge.
Maria Lianidis pled guilty to three counts of bribery of a federal employee in violation of 18 U.S.C. § 201. On appeal, Lianidis contends that the District Court erred at sentencing by imposing a 16-level increase based on its determination that the “benefit received” under U.S.S.G. § 2C1.1(b)(2) was between $1,000,000 and $2,500,000. To resolve this issue, we must
define the proper calculation of “benefit received” in cases where illegal bribes are used to obtain what would otherwise be legal contracts. Following the Fifth Circuit’s approach in United States v. Landers, 68 F.3d 882 (5th Cir. 1995), we hold that “benefit received” under § 2C1.1(b)(2) is the net value, minus direct costs, accruing to the entity on whose behalf the defendant paid the bribe. Because the District Court did not properly articulate and apply this standard, we will vacate and remand for re-sentencing.
I.
A.
From 1992 through 2001, Lianidis worked as a computer specialist for the Federal Aviation Administration (“FAA”) at the Atlantic City International Airport. During this period, Steven Lianidis, Maria Lianidis’s husband, founded Digital Management Systems, Inc. (“DMS”), a family-owned computer services engineering company located in Absecon, New Jersey. DMS designed and supported computer applications for aviation systems through contracts with the FAA. In 2001, Lianidis left the FAA to serve as DMS’s president, a position she held through 2007.
Darrell Woods, an FAA employee at the Atlantic County Technical Center from 1996 through 2005 and a long time friend of Lianidis, was in charge of overseeing the DMS contracts. From July 9, 2001, through December 26, 2004, Lianidis made a series of about 19 cash payments, totaling
approximately $155,000,1 to Woods. In return, Woods improperly steered contracts supporting the FAA’s “Service Movement Advisor” computer system (“SMA contracts”) to DMS and, once the contracts were awarded, improperly authorized increases on those contracts.
The SMA Statement of Work (“SOW”) specified certain award conditions, including the following:
“As a condition of award the Contractor shall perform the work activities described in this SOW primarily at the [FAA Technical Center] and shall maintain an office within 5 miles of that site.”
(App. at SA59 & SA142, § 1.2.) To comply with this office requirement, DMS initially rented a small facility, presumably from a third party. Then, in June 2003, Lianidis’s husband formed a real estate company named DESFO, LLC and used it to purchase a larger facility within five miles of the Technical Center, which DESFO then rented to DMS. In addition to its rent, DMS incurred a litany of costs at the DESFO office, including, inter alia, salaries, payroll taxes, and costs associated with computer equipment, supplies, cleaning, insurance, legal and professional assistance, and meals and entertainment. (Id. at 72-79.)
Although the Presentence Investigation Report states that the total was $159,000, the parties agreed at the Sentencing Hearing that the total was closer to $155,000. (App. at 12.)
The SMA contracts were in effect for a total of six years. Although the contracts were procured with bribes, DMS’s actual work on the contracts was legitimate. (PSR ¶ 37.) Overall, the FAA paid DMS a total of $6,783,877.33 under the SMA contracts. During the six-year period, Lianidis received a total salary of $445,298, and her husband received a total salary of $601,525.2
From September 2004, through March 11, 2005, the FAA prepared a competitive solicitation for work related to a separate computer system, Surface Management Systems (“SMS”). On November 23, 2004, after asking for Lianidis’s suggestions, Woods inserted a provision in the SMS solicitation that excluded larger qualified bidders and restricted competition to smaller businesses closer to DMS in size. However, the solicitation was canceled – apparently due to the bribery investigation – prior to any contract award.
B.
On August 9, 2007, a grand jury charged Lianidis with one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371; seventeen counts of bribery of a federal employee, in violation of 18 U.S.C. § 201; and eight counts of money laundering, in violation of 18 U.S.C. § 1957. On February 6, 2008, Lianidis pled guilty to three counts of bribery of a federal employee in the United States District Court
Any minor discrepancies as to the exact figures do not affect this appeal.
for the District of New Jersey. The Plea Agreement expressly stated that the parties were unable to agree on the calculation of value, benefit, and loss pursuant to U.S.S.G. § 2C1.1(b)(2). (App. at 88.)
The Presentence Investigation Report (“PSR”) recommended that the District Court impose a 16-level increase based on its conclusion that the “benefit received” under § 2C1.1(b)(2) and the reference table in § 2B1.1 was between $1,000,000 and $2,500,000. (PSR ¶¶ 37-38.) At the December 23, 2008 Sentencing Hearing, the District Court agreed, based on what appears to be two, alternate theories.
First, citing the Fifth Circuit’s decision in United States v. Landers, 68 F.3d 882 (5th Cir. 1995), the District Court held that the proper calculation of “benefit received” under § 2C1.1(b)(2) deducts direct costs, but not indirect costs, from the gross proceeds of the illegally obtained contracts. (App. at 14.) In applying the Landers rule, the District Court refused to include Lianidis’s proposed additional costs as direct costs:
“Now, the defendant also asserts that she had costs of purchasing a building within five miles of the FAA site with a security system, a lab, computer equipment, backup equipment, additional landscaping, trash removal, pest control, dues and subscriptions, cleaning services, and rent which was paid by DMS, the defendant’s corporation, to the defendant who purchased the building and [that] this should be considered a direct cost and deducted. [The] Government
disputes that. I do not find that that is direct cost.”
(Id. at 15.) The District Court reiterated shortly thereafter,
“As far as the deduction for the overhead of the building as a direct cost to the contract, building that they purchased and they received rent from the corporation, I don’t think that is a direct cost and I will not consider it as such under the guidelines.”
(Id. at 16.) In so holding, the District Court evidenced its agreement with the Government, which estimated the “benefit received” to be $3,287,192 by subtracting as direct costs only “direct labor costs and other salary and wages paid, payroll taxes, [and] employee benefits.” (Id. at 13.)
As an alternative theory, the District Court used Lianidis’s and her husband’s salaries as a proxy for “benefit received”:
“As far as the alternative theory, . . . [Lianidis] was able to enjoy the lifestyle provided by [her and her husband’s] salaries which totaled over a million dollars. And although she says that she worked for it, that’s not the point. The point is that we have these bribes paid in connection with this work.
...
The defendant and her husband were not the only employees, but this was their company and they obtained over a million dollars in cash salaries. What would have happened had they competed fairly for the contract is not before me. There’s no good work exception to the bribery laws.”
(Id. at 15-16.) Finding that the salaries also warranted a 16-level increase, the Court adopted the PSR’s recommendation.3
Counsel for Lianidis contended at oral argument that the salary theory was the sole basis for the District Court’s decision because it was the only theory set forth in the PSR. (PSR ¶ 37- 38.) The record is unclear. On one hand, the Court began with a discussion of Landers and classified the salary theory “as the alternative theory.” (App. at 15.) On the other hand, the Court stated, in conclusion, that it was adopting the PSR:
“So having evaluated the presentence report, I adopt it and find it to be correct. So what we do have here is an offense level of 25, a criminal history category one, which gives us a range of 57 to 71 months under the advisory guidelines.”
(Id. at 17.) Furthermore, the Court imposed a 16-level increase even though the Court could have imposed an 18-level increase under the Landers direct cost approach. See U.S.S.G. § 2B1.1.
We will address both theories. The District Court’s use of a new legal theory is not problematic because neither Federal
The 16-level increase resulted in a total offense level of 25, which, when combined with Lianidis’s criminal history category of I, produced an advisory Sentencing Guidelines range of 57 to 71 months of imprisonment. After granting a two-level downward variance of nine months on account of the defendant’s compelling personal circumstances, the Court imposed a sentence of 48 months of imprisonment, followed by three years of supervised release. The Court also ordered a fine of $75,000 – $25,000 for each count – and a special assessment of $300. The Court entered judgment on December 30, 2008,4
Rule of Criminal Procedure 32 nor our case law require a district court to abide by a probation officer’s interpretation of the Sentencing Guidelines. Cf. United States v. Hudson, 491 F.3d 590, 596 (6th Cir. 2007) (“While case law requires notice before a district court departs or varies from the recommended guideline sentence, . . . [it does] not require notice when a district court interprets the guidelines differently from the probation officers-when it applies the Guidelines in a manner different from what is recommended in the presentence report.” (quotations and citations omitted)). Moreover, Lianidis has not asserted that she was unduly surprised by the Government’s $3,287,192 figure, which was calculated using the PSR’s proceeds figure of $6,783,877.33 and the salary, tax, and benefit figures provided by Lianidis herself. The judgment did not become final, and thus the appeal did not ripen, until the filing of an agreed order for the criminal forfeiture of $150,000 on June 10, 2009.
and Lianidis filed a timely notice of appeal of the 16-level increase on January 13, 2009.
II.
The District Court had jurisdiction under 18 U.S.C. § 3231, and this Court has jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a). “We review the District Court’s interpretation of the Sentencing Guidelines de novo,” but we review the District Court’s application of law to fact with due deference. United States v. Aquino, 555 F.3d 124, 127 (3d Cir. 2009). “We review the District Court’s factual findings for clear error.” United States v. Cohen, 171 F.3d 796, 802 (3d Cir. 1999).
III.
Lianidis argues on appeal that the District Court erred in imposing a 16-level increase pursuant to § 2C1.1(b)(2) under both its Landers approach and its salary theory. We will address the problems with each approach in turn, after a brief overview of § 2C1.1(b)(2).
A. Background
Under U.S.S.G. § 2C1.1(b)(2), the offense level of a defendant convicted of bribing a federal employee increases based on the “benefit received or to be received” in exchange for the bribe:
“If the value of the payment, the benefit received or to be received in return for the payment, the value of anything obtained or to be obtained by a public official or others acting with a public official, or the loss to the government from the offense, whichever is greatest, exceeded $5,000, increase by the number of levels from the table in § 2B1.1 . . . corresponding to that amount.”
U.S. Sentencing Guidelines Manual § 2C1.1(b)(2). We have held that the Government bears the burden of showing “benefit received.” United States v. Pena, 268 F.3d 215, 220 (3d Cir. 2001) (citing United States v. McDowell, 888 F.2d 285, 291 (3d Cir. 1989)). Here, the Government alleges that the “benefit received” is between $1,000,000 and $2,500,000, which warrants a 16-level increase. U.S.S.G. § 2B1.1(b)(1).
To determine whether the Government has met its burden, we must define the scope of “benefit received.” We are aided by the § 2C1.1 application notes, which discuss “benefit received” in terms of “net value” and “profit”:
“The value of ‘the benefit received or to be received’ means the net value of such benefit. Examples: (1) A government employee, in return for a $500 bribe, reduces the price of a piece of surplus property offered for sale by the government from $10,000 to $2,000; the value of the benefit received is $8,000. (2) A $150,000 contract on which $20,000 profit was made was awarded in return for a bribe; the value of the
benefit received is $20,000. Do not deduct the value of the bribe itself in computing the value of the benefit received or to be received. In the preceding examples, therefore, the value of the benefit received would be the same regardless of the value of the bribe.”
U.S.S.G. § 2C1.1 cmt. n.3. Because the Sentencing Guidelines commentary “is akin to an agency’s interpretation of its own legislative rules[,]” we will give the application notes “controlling weight” unless the commentary “violate[s] the Constitution or a federal statute[]” or “is plainly erroneous or inconsistent with the regulation.” Stinson v. United States, 508 U.S. 36, 45 (1993) (quotations and citations omitted).
B. The Landers Approach
Lianidis takes issue with two aspects of the District Court’s application of Landers in calculating “benefit received.” First, Lianidis asserts that, under our decision in Pena, 268 F.3d 215, the proper measurement of “benefit received” is the gross revenue less legitimate costs of the SMA contracts, which Lianidis suggests is slightly distinct from the Landers approach. Second, Lianidis argues that, even following Landers, the District Court erred in refusing to include her and her husband’s salaries and DMS overhead as direct costs of the SMA contracts. The Government maintains that the District Court’s analysis is sound.
1.
Although this Court has addressed the scope of “benefit received,” or “net value,” in some instances, we have yet to define the calculation of “benefit received” in a case where, as here, the contract underlying the bribery is legal. We first examined “net value” in United States v. Schweitzer, where a defendant bribed a public official to obtain confidential information held by the Social Security Administration. 5 F.3d 44, 45 (3d Cir. 1993). There, we held that the “benefit received” is “the market value of the information secured for [the defendant’s] client.” Id. at 47. We declined to subtract the value of the bribe in calculating “benefit received” because the “concept of ‘net value received’ has nothing to do with the expense incurred by the wrongdoer in obtaining the net value received.” Id. This, we continued, “is clear from the Note’s instruction that the value of the bribe is not to be deducted in calculating the ‘net value.’” Id. (referencing U.S.S.G. § 2C1.1 cmt. n.3 (“Do not deduct the value of the bribe itself in computing the value of the benefit received or to be received.”)).
We extended Schweitzer in Pena, which, like Schweitzer and unlike the instant case, concerned an illegal underlying transaction: the defendant police officer accepted bribes in return for permitting illegal gambling machines to operate without interference. Pena, 268 F.3d at 216. In calculating the “benefit received,” we refused to subtract operation costs when the transaction was illegal: “the concept of netting out costs to arrive at profit is inappropriate under the Guidelines section when the transactions are entirely illegitimate.” Id. at 219. We expressly declined to follow United States v. Sapoznik, where
the Seventh Circuit, in another case involving illegal gambling, remanded for re-sentencing because the government had not set forth evidence regarding the costs of the illegal enterprise, which, according to the Seventh Circuit, prevented the calculation of net value. Id. (citing Sapoznik, 161 F.3d 1117, 1119-20 (7th Cir. 1998)). We explained in conclusion that the “‘net value’ of the ‘benefit’ received does not mean ‘net proceeds.’ Rather, it means benefit received after netting out the value of what-if anything-of legitimate value, was provided.” Id. at 221. We found that there was “no such value” in that case. Id.
Lianidis hones in on the Pena phrase “legitimate value.” However, contrary to Lianidis’s characterization, Pena does not stand for the proposition that “net value” is necessarily calculated by subtracting all “legitimate” costs from gross revenue. Rather, Pena held that it is inappropriate to subtract the costs of illegal transactions in calculating “net value.” Since the Pena court did not give meaningful discussion to the costs of legal transactions, nor to whether any differentiation between direct and indirect costs should exist, the precise calculation of “net value” under § 2C1.1(b)(2) when the underlying transaction is legal is still, at the very least, an open issue for this Court.
We can look to our sister circuits for guidance. The seminal case is Landers, the Fifth Circuit decision applied here by the District Court. Similar to the instant case, the defendant in Landers made cash bribes to obtain favorable contracts for the company he represented. 68 F.3d at 883. The district court calculated “net value” by subtracting the costs of the goods sold from the gross value of the contracts. Id. at 884-85. On appeal,
the defendant argued that the district court should have subtracted both the cost of the goods sold and a share of his company’s overhead from the contract price. Id. at 884. In a well-reasoned opinion, the Fifth Circuit agreed with regards to the cost of the goods sold, but not with regards to the overhead. Id. at 886.
To start, the Fifth Circuit determined that the use of the adjective “net” before “value,” as well as the examples in the § 2C1.1 application notes, “implies that some costs should be deducted” in the calculation of “benefit received.” Id. at 884. The court then drew a line between “direct” costs, which it held were deductible, and “indirect” costs, which it held were not.5 Id. at 884-86. The court’s rationale was two-fold. First, the court analogized “indirect costs” to the bribe itself, which application note 3 of § 2C1.1 states is not subtracted in the calculation of “net value”:
“The rationale for refusing to deduct the amount of a bribe from gross value applies equally to indirect costs. Like a bribe, indirect costs have no
The Fifth Circuit rejected the defendant’s contention that “net value” is synonymous with “net profits”: “If the Sentencing Commission wanted courts to use a ‘net profit’ figure, presumably it would have employed that term.” Landers, 68 F.3d at 885. The court also held that the Sentencing Commission had implicitly rejected the concept of “net profits” “by noting that one type of direct costs, bribes, is not deductible from gross profits.” Id.
impact on the harm caused by the illegal conduct. This is true whether one considers the pecuniary benefit to the bribing party or the pecuniary loss to a competitor. For both parties, the benefit of an additional contract is measured by gross revenue minus direct costs. By definition, indirect costs do not affect that value.”
Id. at 885. Second, the court held that excluding “indirect costs” is consistent with the Guidelines’ general goal of achieving reasonable uniformity in sentencing because “[a]llowing a wrongdoer to deduct indirect costs would result in differing culpability not only for similar acts, but also for the very same act.” Id. The court provided a hypothetical as an example:
“Take for example a case in which two defendants bribe the same government official for the same contract. If indirect costs were deductible, the defendants could receive different sentences if one of them worked for a company with higher indirect costs.”
Id. at 886. In conclusion, the court calculated “net value” by subtracting the costs of the goods sold, but not the company’s overhead. Id.
Landers has not fallen on deaf ears. The Courts of Appeals that have addressed this issue – the Second, Seventh, and Eleventh Circuits – have cited Landers with approval. See United States v. Glick, 142 F.3d 520, 525 (2d Cir. 1998) (“In calculating the amount of ‘improper benefit[]’ [under
§ 2E5.1(b)(2)]6 only direct costs, not indirect costs, should be subtracted from the gross value received.”); Sapoznik, 161 F.3d at 1119 (agreeing that fixed costs should be included in net value but finding it unclear whether the costs at issue were indeed fixed); United States v. DeVegter, 439 F.3d 1299, 1304 (11th Cir. 2006) (“We agree with the Fifth Circuit’s approach which subtracts direct costs, but not indirect costs, from profits to determine the net improper benefit [under § 2B4.1(b)(1)].”).7 See also Cohen, 171 F.3d at 803 (citing Landers generally); United States v. Leon, 2 F. Supp. 2d 592, 596 (D.N.J. 1998) (“I hold that only ‘direct costs’ are deductible in calculating the amount of the benefit conferred [under § 2B4.1(b)(1)]. . . . Indirect costs are not deductible.”). We agree that the Fifth Circuit’s reasoning is sound: indirect costs, like bribes, do not impact the harm caused by the bribery, and allowing the deduction of indirect costs would foster inconsistency in sentencing. Accordingly, we will adopt the Landers approach and subtract only direct costs, and not indirect costs, when calculating “net value” under § 2C1.1(b)(2).
Application note 4 of U.S.S.G. § 2E5.1, which concerns bribery affecting an employee benefit plan, directs courts to the commentary of § 2C1.1 in determining “value of the improper benefit to the payer.” Application note 2 of U.S.S.G. § 2B4.1, which applies in cases of commercial bribery, directs courts to the commentary of § 2C1.1 in determining “value of the improper benefit to be conferred.”
2.
Lianidis also challenges the District Court’s application of Landers. Lianidis asserts that both the overhead of the DMS office, which Lianidis alleges only serviced the SMA contracts, and her and her husband’s reasonable salaries under the SMA contracts are direct costs of the SMA contracts. In response, the Government argues that it would be misleading to claim that one hundred percent of the DMS overhead can be attributed to the SMA contracts and that Lianidis’s and her husband’s salaries must be included in “benefit received” as a matter of law.8
We hold at the outset that, although it is the Government’s burden to show “net value,” Pena, 268 F.3d at 220, the defendant bears the burden of producing the necessary documents. To hold otherwise would, in practice, prevent the Government from meeting its burden of proof.
In applying the Landers rule, we will look to the Fifth Circuit’s sound definitions of “direct” and “indirect” costs. We hold that “direct” costs are
“all variable costs that can be specifically identified as costs of performing a contract. This might include, for example, transportation costs for the goods in question. Thus, variable overhead costs that cannot easily be identified to
We address this latter incorrect statement of law more fully in Section C, infra.
a specific contract are not direct costs. This definition differs from the accounting term ‘direct costs’ in that it excludes those variable costs that cannot readily be apportioned to the contract.”
Landers, 68 F.3d at 884 n.2. “Indirect” or “fixed” costs are, on the other hand,
“the costs incurred independently of output. For example, rent and debt obligations are costs a business incurs no matter how many contracts it receives. For the most part, overhead costs are fixed costs. The marginal increase in variable overhead costs from a wrongfully obtained contract is normally so de minimis that accounting for them during sentencing would be impractical.”
Id. at 885 n.3. Put succinctly, whether a cost is direct or indirect depends on whether it can be easily attributed to the specific contract at issue.
Here, the District Court, after summarizing Lianidis’s proposed additional direct costs, merely concluded without explanation, “I do not find that that is direct cost.” (App. at 15.) Because the Court did not engage in the foregoing analysis, we will remand for the District Court to consider whether any portion of the DMS overhead or Lianidis’s and her husband’s salaries can be easily attributed to solely the SMA contracts.
C. The Salary Theory
Lianidis also argues on appeal that the District Court erred in basing its calculation of “benefit received” on her and her husband’s salaries. According to Lianidis, the proper measurement of “benefit received” or “net value” under § 2C1.1(b)(2) is the gross revenue minus legitimate costs to DMS under the SMA contracts, not the salary paid to Lianidis or her husband. The Government disagrees. Asserting that Lianidis’s benefit came in two forms – company profit as well as her and her husband’s salaries – the Government contends that the calculation of “benefit received” “should not change depending on whether a business owner who ultimately will receive all of the company’s profit, chooses to designate some of that profit as salary.” (Appellee’s Br. at 18.) In response, Lianidis argues that this “ordinary language approach” to “benefit” is inappropriate under the Guidelines. (Appellant’s Br. at 22.)
We must agree with Lianidis. The District Court’s use of Lianidis’s and her husband’s salaries as a proxy for “benefit received” runs contrary to the Guidelines commentary and our own precedent in Cohen, 171 F.3d 796.
Example 2 of U.S.S.G. § 2C1.1, application note 3 clarifies the proper measurement of “benefit received” in cases where bribery is used to procure contracts. The pertinent language is as follows:
“(2) A $150,000 contract on which $20,000 profit was made was awarded in return for a bribe; the value of the benefit received is $20,000.”
U.S.S.G. § 2C1.1 cmt. n.3 (2008). The example clearly directs courts to consider the profit made on the illegally obtained contract. Although the example does not expressly disallow the use of salaries paid under such contracts, we must give “controlling weight” to the note’s suggested use of contract profit. See Stinson, 508 U.S. at 45.
Our opinion in Cohen confirms this reading of § 2C1.1(b)(2). In Cohen, a wholesale meat distribution salesman was found guilty of mail fraud based on his participation in a company bribing scheme: he received $500 a week in cash from the company, in addition to his regular salary paycheck, in exchange for distributing the company’s kickbacks. 171 F.3d at 799-800. Like the instant case, the parties disagreed at sentencing over the correct interpretation of “improper benefit” under U.S.S.G. § 2B4.1.9 Id. at 802. The Government argued that the phrase refers to the net value gained by the company as a result of the defendant’s kickbacks; the defendant argued that the phrase refers to the money pocketed by the defendant himself. Id. at 802-03. The district court agreed with the defendant, but we reversed. Citing example 2 of U.S.S.G. § 2C1.1, application note 3, we held that “‘improper benefit’ refers to the net value accruing to the entity on whose behalf the individual paid the bribe.” Id. at 803. Accordingly, we
See note 7, supra.
remanded the case to the district court to re-calculate “improper benefit” with instructions to examine the company’s alleged profit on the $10 million worth of meat purchased from the company as a result of the bribes. Id. at 803-04.
The instant case presents the same issue. Similar to the salesman who distributed kickbacks to encourage customers to purchase his company’s meat, Lianidis gave Woods illegal cash payments to obtain FAA contracts for DMS. Lianidis contends that, under Cohen, the “benefit received” is the gross revenue minus costs accruing to DMS. The Government, in contrast, argues not only that “benefit received” refers to the money that accrued to Lianidis as an individual, but also that “benefit received” includes Lianidis’s salary. Bound as we are by Cohen, we cannot accept the Government’s argument. The “benefit received” under § 2C1.1(b)(2) is not the salary paid to Lianidis and her husband, for which she and her husband legally worked and which the Government does not dispute was reasonable, but rather the “net value” received by DMS itself under the SMA contracts.10
The dissent would hold that “net benefit” includes the salaries paid to Lianidis and her husband in part because a sentencing judge would be unable to discern whether a company owner like Lianidis was hiding company profit through the payment of excessive salaries. We do not share this concern. Regardless, we are not free to disregard the § 2C1.1 application notes, which direct us to determine profit and which have “controlling weight,” simply because we conclude that compliance with the notes will be onerous. See Stinson, 508
This interpretation of § 2C1.1(b)(2) makes sense. Basing a calculation of “benefit received” on a salary paid under an illegally obtain contract is both over- and under-inclusive. The use of salary is over-inclusive because Lianidis and her husband gave their labor, not just a bribe, in exchange for their salaries. The use of salary is under-inclusive because Lianidis and her husband, as owners of DMS, did not depend on their salaries to receive benefits under the SMA contracts.
In summary, we hold that the District Court erred in finding that Lianidis had between $1,000,000 and $2,500,000 in “benefit received” under § 2C1.1(b)(2) based on Lianidis’s and her husband’s salaries.
IV.
To reiterate, we hold that the proper calculation of “benefit received” under U.S.S.G. § 2C1.1(b)(2) is the net value, minus direct costs, accruing to the entity on whose behalf the defendant paid the bribe. We will vacate Lianidis’s sentence and remand to the District Court for re-sentencing in accordance with this standard.11
U.S. at 45. The Government asks that we affirm on alternate grounds based on its argument that the “benefit . . . to be received” by Lianidis under the SMS contract was between $1,000,000 and $2,500,000. Because the District Court did not engage in the necessary factfinding, we decline to reach this
issue. It is not our role as an appellate court to investigate Lianidis’s intent, the extent to which Lianidis’s bribes were connected to the SMS contract, or the SMS contract’s value. See Ingersoll-Rand Financial Corp. v. Anderson, 921 F.2d 497, 504 (3d Cir. 1990) (“This court is not a factfinding tribunal.”).
HARDIMAN, J., dissenting.
I agree with the Majority’s adoption of the Landers test to interpret USSG § 2C1.1(b)(2). I likewise agree that Lianidis bore the burden of producing the evidence necessary to determine the nature and amount of her costs that were directly attributable to performing work procured by the bribe. Unlike my colleagues, however, I would affirm Lianidis’s judgment of sentence for two independent reasons. First, the District Court did not clearly err in determining which costs incurred by DMS were directly attributable to its ill-gotten contracts. Second, because DMS was a closely-held business and Lianidis was its President, the District Court did not clearly err when it held that the portions of the salaries Lianidis and her husband paid themselves that were attributable to their work on the ill-gotten contracts constituted the “benefit received” from her bribes.
The District Court expressly adopted the Landers test in calculating the net value of the benefit received, and held Lianidis’s proposed deductions were not direct costs. The Majority concludes that the District Court reached this conclusion “without explanation” and “did not engage” in a more elaborate analysis of the Landers test. But the Majority does not endeavor to explain how the District Court’s finding of fact, curt though it was, constituted “clear error.” See United States v. Cohen, 171 F.3d 796, 802 (3d Cir. 1999). Lianidis bore the burden of producing evidence to support her claim that some costs were deductible because they were directly attributable to the ill-gotten contracts. The record indicates that she presented the District Court with a laundry list of business expenses and requested a deduction for each. Several of these expenses were classic “fixed costs,” such as rent and upkeep of DMS’s office space, and Lianidis offered little or no evidence connecting them to the FAA contracts she procured through bribery. Absent such proof, I find no “clear error” in the District Court’s conclusion that those costs were not deductible in determining the “benefit received” under § 2C1.1(b)(2).1
Even if Lianidis had carried her burden of showing which costs were directly attributable to her ill-gotten FAA contracts, I would affirm the judgment of the District Court because it correctly found that the $1,046,823.80 in wages Lianidis and her husband paid themselves for work they performed on the contracts procured through bribery were part of the “net benefit” received as a result of her bribe. In this regard, I disagree with the Majority’s treatment of DMS as “the entity on whose behalf the defendant paid the bribe.” Because DMS was a closely-held corporation and Lianidis, as its President, controlled her salary and her husband’s salary, I would hold that Lianidis was the beneficiary of the bribes.
In holding otherwise, the Majority relies on United States v. Cohen, 171 F.3d 796 (3d Cir. 1999). In Cohen, an employee obtained contracts for his employer through bribery, and we concluded that the employer was “the entity on whose behalf”
Lianidis proffered evidence through her accountant that DMS paid $2,128,207 in wages to subcontractors for work performed on the FAA contracts at issue here. This does not change the Guidelines range found by the District Court, however, because the net benefit received by the company still would have exceeded $1 million.
the bribe was paid. Id. at 803. This conclusion made perfect sense because Cohen was not an owner or officer of the company. That is decidedly not the case here. Lianidis owned and controlled DMS, she was the beneficiary of the company’s profits, and she determined her own and her husband’s salaries. This control enabled Lianidis to pay herself as an employee (salary) or as a shareholder (distribution of profits). Under the rule established by the Majority, the owner of a closely-held business who pays herself a handsome salary, as did Lianidis, is subject to a lower Guidelines range than an owner who pays herself a modest salary during the year and pays out the profits of the company at year end, even though both owners end up with the same amount of money. Even worse, an employee such as Cohen—who through bribery procures a contract that results in great financial benefit to his employer but little or no benefit to himself—would be subject to a higher Guidelines range than Lianidis, who chose to pay herself and her husband over $1,000,000 generated by her own bribery.2
For the foregoing reasons, I would hold that when an employee pays bribes to win contracts for a corporation that she owns and controls, the employee herself is the beneficiary of the bribe, and the amount of the benefit is equal to the sum of (1) the portion of her salary attributable to the bribe-induced
The Majority’s analysis of Application Note 2(2) works fine in the typical case where the person who commits the bribery does so on behalf of a corporation that employs him. I find Application Note 2(2) factually inapposite to closely-held companies like DMS for the reasons stated herein.
contract3 and (2) the profits the corporation earned from that contract (after paying her salary). Because the District Court did not clearly err in calculating either of these amounts,4 I respectfully dissent.
I recognize that salaries are not pure profit to an employee because working imposes a labor cost on the employee. As a matter of theory, the net benefit accruing to an employee would be the amount by which her salary exceeds this cost. In practice, however, I can discern no way for a sentencing court to determine this cost. Moreover, I am loathe to permit a deduction for the value of labor that one had the opportunity to perform only through bribery. Even if such a determination were feasible, the employee would still be required to submit evidence demonstrating that her labor costs were directly attributable to the ill-gotten contract. Because Lianidis has made no effort to do so here, I view the entire portion of the salaries she paid to herself and her husband as part of the net benefit she received from her bribes. The District Court did not add these amounts together in calculating the benefit received, instead treating them as alternative measures of the benefit. This was the approach advocated by the government, which was bound by its plea agreement with Lianidis not to argue for an offense level higher than 17, and as a result could not argue that the value of the benefit received was greater than $1 million to $2.5 million. |
PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 08-4748
UNITED STATES OF AMERICA
v.
ALPHONSE HOWARD, Appellant
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-07-cr-00021-1) District Judge: Honorable Gene E. K. Pratter
Submitted Pursuant to Third Circuit LAR 34.1(a) January 25, 2010
Before: FUENTES and FISHER, Circuit Judges, and CONNER,* District Judge.
* Honorable Christopher C. Conner, United States District Judge for the Middle District of Pennsylvania, sitting by designation. (Filed: March 19, 2010 )
Kenneth C. Edelin, Jr. Two Penn Center Plaza, Suite 1410 Philadelphia, PA 19102 Counsel for Appellant
Joel D. Goldstein Michelle Morgan-Kelly Robert A. Zauzmer Office of United States Attorney 615 Chestnut Street, Suite 1250 Philadelphia, PA 19106
Paul Mansfield 286 Barwynne Road Wynnewood, PA 19096 Counsel for Appellee
OPINION OF THE COURT
FISHER, Circuit Judge.
Alphonse Howard (“Howard”) appeals the District Court’s determination that he was a career offender under U.S.S.G. § 4B1.1. He argues that the District Court erred in relying on uncertified documents in determining that his two previous drug convictions were felonies. We conclude that the
District Court was correct in referring to uncertified documents to establish prior convictions for sentencing purposes. Accordingly, the District Court’s judgment will be affirmed.
I.
On March 15, 2006, law enforcement officials executed a search warrant on 5511 Haverford Avenue in Philadelphia, Pennsylvania. This residence, which was located within 1,000 feet of a school, was used by Howard to grow marijuana. Howard was arrested and subsequently pleaded guilty to: (1) manufacturing, and possession with intent to distribute, a mixture and substance containing a detectable amount of marijuana, in violation of 21 U.S.C. §§ 841(a)(1) and (b)(1)(D); and (2) manufacturing, and possession with intent to distribute, a mixture and substance containing a detectable amount of marijuana within 1,000 feet of a school, in violation of 21 U.S.C. § 860(a).
On September 8, 2008, at Howard’s sentencing hearing, he objected to the conclusion of the Pre-Sentence Report that he was a career offender. He also argued that the government had impermissibly introduced uncertified documents as proof of prior drug convictions. These prior convictions, if established as felonies, would classify Howard as a career offender under U.S.S.G. § 4B1.1 and would enhance his offense level from 13 to 32.
Howard had previously been convicted on two separate occasions in Philadelphia County for possession with intent to distribute a controlled substance. He was sentenced to nine
months’ probation for his March 7, 2000 conviction and one year of probation for his September 22, 2000 conviction. At the sentencing hearing in this case, the government offered certified copies of these convictions to establish that Howard was a career offender for sentencing purposes. The certified copy of the September 22, 2000 conviction, however, did not indicate whether Howard had pleaded guilty to a misdemeanor for possession of a controlled substance or a felony for conspiracy involving a controlled substance. The government subsequently conceded that the certified copy of conviction was ambiguous as to the exact offense to which Howard pleaded guilty, but argued that the Municipal Court of Philadelphia County Criminal Docket (“M.C. Docket”) relating to Howard’s September 22, 2000 case reflected that he had pleaded guilty to a felony. The M.C. Docket was not a certified document. The District Court granted the government’s request to continue the sentencing hearing in order for the government to determine whether the transcripts from the September 22, 2000 guilty plea were available.
On December 3, 2008, the District Court re-convened the sentencing hearing. The government stated that the transcripts from the September 22, 2000 guilty plea were unavailable. Notwithstanding that unavailability, the District Court relied on the incomplete certified record of conviction and the uncertified M.C. Docket entries to conclude that Howard’s September 22, 2000 guilty plea had indeed been for a felony, and thus that the career offender enhancement under U.S.S.G. § 4B1.1 was appropriate. Howard was then sentenced to a prison term of 148 months. This timely appeal followed.
II.
The District Court had jurisdiction over this criminal matter pursuant to 18 U.S.C. § 3231. This Court has jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742. The question of what documents a district court may rely on to determine the nature of a prior conviction and the scope of a district court’s authority to make factual findings are questions of law, Shepard v. United States, 544 U.S. 13, 16 (2005), which we review de novo, United States v. Coward, 296 F.3d 176, 179 (3d Cir. 2002).
III.
Howard argues that the evidence presented by the government at sentencing was insufficient to establish that he was a career offender within the meaning of U.S.S.G. § 4B1.1.1 Howard does not deny that he has two previous drug convictions. Instead he challenges the evidence the District
U.S.S.G. § 4B1.1 provides that a defendant is a career offender for sentencing purposes if
(1) the defendant was at least eighteen years old at the time the defendant committed the instant offense of conviction; (2) the instant offense of conviction is a felony that is either a crime of violence or a controlled substance offense; and (3) the defendant has at least two prior felony convictions of either a crime of violence or a controlled substance offense.
Court relied on in making the determination that his September 22, 2000 conviction was a felony. Specifically, he argues that the Court improperly relied on the incomplete certified conviction and the uncertified M.C. Docket in determinating his career offender status. Howard argues on appeal that a court must rely only on certified documents as evidence of prior convictions. We disagree.
The Federal Rules of Evidence do not apply in sentencing proceedings. Fed. R. Evid. 1101(d)(3). Instead, evidence presented at sentencing must have a “‘sufficient indicia of reliability to support its probable accuracy.’” United States v. Miele, 989 F.2d 659, 663 (3d Cir.1993) (quoting U.S.S.G. § 6A1.3(a)). Further, the fact of prior convictions is not an element of a crime and need not be found by a jury. See Almendarez-Torres v. United States, 523 U.S. 224, 244 (1998); United States v. Ordaz, 398 F.3d 236, 240-41 (3d Cir. 2005). The government bears the burden of establishing, by a preponderance of the evidence, prior convictions and career offender status. Mitchell v. United States, 526 U.S. 314, 330 (1999); McMillan v. Pennsylvania, 477 U.S. 79, 91-92 (1986). This Court has never established a per se rule that certified copies of a conviction must be offered by the government before a judge may determine a defendant’s career offender status within the meaning of U.S.S.G. § 4B1.1. See United States v. Watkins, 54 F.3d 163, 168 (3d Cir. 1995).
In Watkins, the defendant argued “for a per se rule that certified copies of the judgments of conviction are required in every case before a sentencing court may determine that the defendant’s prior convictions are for ‘violent felonies’” under
the Armed Career Criminal Act (“ACCA”). Id. We specifically declined to adopt an “inflexible” per se rule. Id. Instead, we held that the district court did not err in relying on a presentence report to “ascertain with certainty the statutes of conviction . . . .” Id. See also United States v. Chavaria-Angel, 323 F.3d 1172, 1176 (9th Cir. 2003) (declining to establish a per se rule requiring the use of certified records). We concluded in Watkins that the district court properly determined from the presentence report the defendant’s criminal history for purposes of sentencing under the ACCA.
The Eleventh Circuit was faced with a similar question in United States v. Acosta, 287 F.3d 1034 (11th Cir. 2002). The defendant in Acosta argued that “because the record of his prior adjudication [was] sealed, the government did not meet its burden” of establishing his prior conviction for sentence enhancement purposes because the government could not produce a certified copy of his adjudication. Id. at 1038-39. The government, however, presented an identical, uncertified copy of the prior adjudication. The Eleventh Circuit did not require the government to offer a certified document. Rather, that court concluded that the uncertified copy of the defendant’s prior adjudication was sufficient to satisfy the government’s burden. Id. at 1039; see also United States v. Potter, 895 F.2d 1231, 1238 (9th Cir. 1990) (declining to “foreclose the possibility that a defendant’s conviction . . . might be established by some other form of clearly reliable evidence”).
In satisfying its evidentiary burden to prove career offender status, the government may rely on certified copies of convictions. However, a court may also confirm a defendant’s
previous convictions by relying on the terms of the plea agreement, the charging document, the transcript of colloquy between judge and defendant, or other comparable judicial records of sufficient reliability. See Shepard v. United States, 544 U.S. 13, 16 (2005) (holding that inquiry under the ACCA to determine statutory elements of prior conviction is limited to judicial records and may not include documents that simply state facts, such as police reports). Addressing this issue, other circuits assess whether the documents submitted have “sufficient indicia of reliability to support their probable accuracy such that the documents can be used as evidence of [a defendant’s] prior conviction.” United States v. Neri-Hernandez, 504 F.3d 587, 591 (5th Cir. 2007); accord United States v. Felix, 561 F.3d 1036, 1045 (9th Cir. 2009); United States v. Zuniga-Chavez, 464 F.3d 1199, 1204 (10th Cir. 2006).
In determining that Howard’s September 22, 2000 conviction was a felony, the District Court in this case relied on an incomplete certified conviction record and M.C. Docket entries, both of which are “records of the convicting court.”2 Shepard, 554 U.S. at 23. The M.C. Docket stated that Howard was found guilty of “CSA-PWID-Conspiracy” and cites to “35[Pa. C.S.A]§780-113§§A30,” which provides that possession of marijuana with the intent to deliver is punishable in Pennsylvania by a term of imprisonment not to exceed five years. From this language the District Court concluded that
The M.C. Docket entry provided the District Court with evidence of the specific statute under which Howard was charged.
Howard’s September 22, 2000 conviction qualified as a felony for purposes of career offender status.
These docket entries are the type of judicial records that are permissible for sentencing courts to use to establish past convictions for sentencing purposes. The fact that the certified conviction was incomplete and ambiguous as to the level of Howard’s offense did not prohibit the District Court from looking to other reliable judicial records to establish the type of crime for which he was convicted.3
IV.
For the foregoing reasons, we will affirm the District Court’s judgment.
We do note, however, that the government’s ability to rely on various documents from the judicial record to establish past criminal convictions does not lighten its burden of proving the prior conviction by a preponderance of the evidence. |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-4900
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JAMES S. PEEBLES,
Defendant - Appellant.
Appeal from the United States District Court for the Western District of North Carolina, at Statesville. Richard L. Voorhees, District Judge. (5:07-cr-00041-RLV-DCK-1)
Argued: January 27, 2010 Decided: March 19, 2010
Before WILKINSON, DUNCAN, and DAVIS, Circuit Judges.
Reversed and remanded with instructions by unpublished opinion. Judge Duncan wrote the majority opinion, in which Judge Davis concurred. Judge Wilkinson wrote a dissenting opinion.
ARGUED: David Grant Belser, BELSER & PARKE, Asheville, North Carolina, for Appellant. Donald David Gast, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for Appellee. ON BRIEF: Edward R. Ryan, Acting United States Attorney, Charlotte, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. DUNCAN, Circuit Judge:
This appeal arises from a prosecution under the
Assimilative Crimes Act (“ACA”), 18 U.S.C. § 13. After pleading
guilty to the offense of aggravated speeding to elude arrest
under N.C. Gen. Stat. § 20-141.5, Appellant James Peebles
received a prison sentence of twelve months and one day.
Because his maximum sentence under North Carolina law would have
been eight months, we hold that the district court violated the
ACA by not imposing “like punishment.” 18 U.S.C. § 13.
Accordingly, we vacate Peebles’s sentence and remand for
resentencing. 1
I.
On September 9, 2007, in Alleghany County, North Carolina,
James Peebles raced down the Blue Ridge Parkway on his
We find it useful to stress the limits of our holding today. We do not, as the dissent suggests, hold that the ACA requires “identical” rather than like punishment or that Peebles’s sentence must track what a North Carolina court would have imposed. See Dis. Op. at 20 (denying that Peebles’s “federal sentence should be limited to the individual sentence a state judge would have imposed on him”). We merely adhere to circuit precedent finding that the ACA precludes a prison term outside the minimum and maximum that a state court could have imposed. See United States v. Pierce, 75 F.3d 173, 176 (4th Cir. 1996) (stating that under the ACA a defendant “may be sentenced only in the way and to the extent that the person could have been sentenced in state court” (internal quotations omitted)). This does not offend federal sentencing guidelines, which remain fully applicable within that range.
motorcycle, going well over the speed limit. When a National
Park Service Ranger tried to stop him, Peebles tried to escape
and caused a high speed chase. Using a “rolling road block,”
police eventually stopped and arrested him. J.A. 85.
Because this dangerous flight occurred within the special
territorial jurisdiction of the United States, Peebles was
prosecuted under the ACA. This statute assimilates into federal
law offenses that “would be punishable if committed . . . within
the jurisdiction of the State” in which the relevant federal
property is located. 18 U.S.C. § 13(a). Peebles was charged
with aggravated speeding to elude arrest under N.C. Gen. Stat.
§ 20-141.5, and he pleaded guilty. The district court sentenced
Peebles to twelve months and one day imprisonment, followed by
one year supervised release. This appeal followed.
II.
On appeal, Peebles argues that the district court violated
the ACA by imposing a sentence greater than North Carolina’s
statutory maximum. “The proper length of a sentence under the
ACA is a question of law subject to de novo review.” United
States v. Pate, 321 F.3d 1373, 1375 (11th Cir. 2003).
The ACA provides that a person who, within the territorial
jurisdiction of the United States, commits “any act . . . which,
although not made punishable by any enactment of Congress, would
be punishable if committed . . . within the jurisdiction of the
State . . . in which such place is situated . . . , shall be
guilty of a like offense and subject to a like punishment.” 18
U.S.C. § 13(a) (emphasis added). In light of circuit precedent
interpreting the highlighted phrase, the government concedes
that the ACA prohibited sentencing Peebles beyond North
Carolina’s statutory maximum sentence. Appellee’s Br. at 11-12.
See also Pierce, 75 F.3d at 176 (“[A] term of imprisonment
imposed for an assimilated crime may not exceed the maximum term
established by state law.”); United States v. Young, 916 F.2d
147, 150 (4th Cir. 1990) (“[T]he ‘like punishment’ requirement
of the Assimilative Crimes Act mandates that federal court
sentences for assimilated crimes must fall within the minimum
and maximum terms established by state law, and that within this
range of discretion federal judges should apply the Sentencing
Guidelines to the extent possible.”). The only disputed
question is how to calculate North Carolina’s statutory maximum
sentence. Peebles argues that it should be the highest sentence
that a state court could have imposed on him. Under our
precedent, we are constrained to agree.
Unlike most federal criminal statutes, section 20-141.5
defines aggravated speeding to elude arrest but does not specify
the maximum or minimum penalty. Rather, it merely labels the
offense “a Class H felony.” N.C. Gen. Stat. § 20-141.5(b).
Maximum penalties are codified elsewhere under the North
Carolina Structured Sentencing Act, N.C. Gen. Stat. § 15A-
1340.10 et seq. Under this regime, for any felony offense,
North Carolina courts have authority to sentence only within a
particular range determined by three variables: (1) the class of
offense, (2) the offender’s prior record level, and (3) whether
the sentence should be aggravated or mitigated beyond the
ordinary or “presumptive” sentence. See N.C. Gen. Stat. § 15A-
1340.13. The process proceeds as follows. First, courts
determine the prior record level by calculating the sum of
points assigned to each prior conviction according to section
15A-1340.14. Then they determine whether the sentence should be
aggravated or mitigated by considering sentencing factors under
section 15A-1340.16. At this stage, the government must prove
aggravating factors beyond a reasonable doubt.
The government does not dispute that Peebles would qualify
for prior record level I. The government also conceded during
oral argument that Peebles’s indictment contains insufficient
allegations to support aggravating his sentence. Therefore, the
highest sentence Peebles could have received under North
Carolina law would have been eight months. See N.C. Gen. Stat.
§ 15A-1340.17(c)-(d). Peebles’s presentence report reached the
same conclusion:
The defendant has zero criminal history points in accordance with NCGS §15A-1340.14(b)(6) and thus a prior record level of I. A Class H felony combined with a level I prior record results in a presumptive range of a minimum 4 months to a maximum 8 months active imprisonment.
J.A. 93. Peebles thus concludes that North Carolina’s statutory
maximum sentence would be eight months. The government
contends, however, that the statutory maximum sentence should be
the highest sentence that could ever be imposed for the offense.
This would be thirty months, i.e., the highest aggravated
sentence authorized for someone with prior record level VI. See
N.C. Gen. Stat. § 15A-1340.17(c)-(d). The choice between these
approaches determines whether Peebles’s sentence of twelve
months and one day violated the ACA’s “like punishment”
requirement.
Given our precedent, we are constrained to adopt Peebles’s
contention. Pierce stated that “like punishment” under the ACA
means that “one who commits an act illegal under state law but
not prohibited by federal law in an area of federal jurisdiction
may be sentenced only in the way and to the extent that the
person could have been sentenced in state court.” 75 F.3d at
176 (internal quotations omitted) (emphasis added). This
language suggests that the district court’s sentence should not
have exceeded the maximum sentence that Peebles himself (rather
than any hypothetical defendant) could have received under North
Carolina law. See also United States v. McManus, 236 F. App’x
855, 856 (4th Cir. 2007) (considering N.C. Gen. Stat. § 15A-
1340.17 and concluding, “[w]e agree with McManus that . . . the
state maximum sentence was the maximum sentence that could have
been imposed on him by a state-court judge”).
This conclusion also comports with the congressional
purpose underlying the ACA and general principles of federalism.
Dating back to 1825, the ACA was designed to fill gaps created
where state criminal law became inapplicable because the federal
government had reserved or acquired land. The Supreme Court
explained further:
When the[] results of the statute are borne in mind, it becomes manifest that Congress, in adopting it, sedulously considered the twofold character of our constitutional government, and had in view the enlightened purpose, so far as the punishment of crime was concerned, to interfere as little as might be with the authority of the states on that subject over all territory situated within their exterior boundaries, and which hence would be subject to exclusive state jurisdiction but for the existence of a United States reservation. In accomplishing these purposes it is apparent that the statute, instead of fixing by its own terms the punishment for crimes committed on such reservations which were not previously provided for by a law of the United States, adopted and wrote in the state law, with the single difference that the offense, although punished as an offense against the United States, was nevertheless punishable only in the way and to the extent that it would have been punishable if the territory embraced by the reservation remained subject to the jurisdiction of the state.
United States v. Press Publ’g Co., 219 U.S. 1, 9-10 (1911).
Here the Supreme Court made clear that the ACA was never
supposed to displace the outer limits on sentencing discretion
imposed by state law. This underscores Pierce’s implication
that a defendant being prosecuted under the ACA should not
receive a prison sentence that a state court would have lacked
authority to impose.
Our holding today also finds support in United States v.
Harris, 27 F.3d 111 (4th Cir. 1994). There, the defendant was
prosecuted under the ACA for driving while impaired under N.C.
Gen. Stat. § 20-138.1. This statute defined driving while
impaired but, rather than specify the authorized punishment,
provided that punishment should be imposed under N.C. Gen. Stat.
§ 20-179. Section 20-179 authorized different punishment levels
depending on whether various aggravating or mitigating
circumstances had been proved. Although counsel for both sides
agreed on the appropriate level, we nevertheless observed:
“Other subsections of § 20-179 authorize more severe punishment
than that permitted by subsection (k). But the government did
not prove the elements necessary to bring Harris within the
purview of the other subsections.” Id. at 116. Implicit in
that observation is the recognition that the government would
have had to present relevant evidence to support the maximum
sentence the provision would afford.
Given the structural similarity between section 20-179 and
section 15A-1340.17, Harris indicates that the ACA prohibits
sentencing Peebles beyond eight months unless the government had
established the elements necessary for the aggravated range or
Peebles’s record level had been greater. Because neither
occurred, Peebles’s actual sentence of twelve months and one day
was unlawful.
In sum, because North Carolina’s statutory maximum sentence
applicable to Peebles was eight months, the district court
violated the ACA’s “like punishment” requirement by sentencing
Peebles to twelve months and one day. Thus, we vacate Peebles’s
sentence and remand for resentencing consistent with this
opinion. 2 REVERSED AND REMANDED WITH INSTRUCTIONS
Peebles also challenges how the district court applied the U.S. Sentencing Guidelines. The court applied section 2A2.4 upon finding it “sufficiently analogous” to Peebles’s crime of aggravated speeding to elude arrest. U.S. Sentencing Guidelines Manual § 2X5.1 [hereinafter “USSG”]. We decline to reach this issue because, assuming we found error, the resulting benefit would be trivial. See USSG § 5G1.1 (“Where the statutorily authorized maximum sentence is less than the minimum of the applicable guideline range, the statutorily authorized maximum sentence shall be the guideline sentence.”). Furthermore, our circuit precedent makes plain that the Guidelines by no means trump the ACA’s “like punishment” requirement. See Young, 916 F.2d at 150 (“[T]he ‘like punishment’ requirement of the Assimilative Crimes Act mandates that federal court sentences for assimilated crimes must fall within the minimum and maximum terms established by state law, and that within this range of discretion federal judges should apply the Sentencing Guidelines to the extent possible.”).
WILKINSON, Circuit Judge, dissenting:
I agree with the majority that an offense under the
Assimilative Crimes Act (ACA), 18 U.S.C. § 13, may be punished
only within the “the maximum term established by state law.”
U.S. v. Pierce, 75 F.3d 173, 176 (4th Cir. 1996). My concern is
that Peebles’s novel interpretation of that well-established
principle disregards our precedent and creates a circuit split
by requiring federal courts to apply state sentencing guidelines
to individual defendants. The ACA requires only “like” -- not
“identical” -- punishment. Every other court that has
considered the interaction between federal and state sentencing
practices for ACA purposes has rightly recognized that while the
generic statutory ranges established by state substantive law
limit the permissible ACA punishment, federal courts need not
apply individualized state sentencing calculations. The
sentence imposed here was reasonable, respected the state
sentencing range for Class H felonies, and in no sense amounted
to an abuse of discretion on the part of the district court.
See Gall v. U.S., 552 U.S. 38 (2007). As a result, I
respectfully dissent. 1
In an opening footnote, see Maj. Op. at 2 n.1, my good colleagues in the majority claim to uphold federal sentencing practice within the state sentence range, but the majority’s three month “range” is so constricted that federal practice hardly applies. Contrary to the majority’s protestations, (Continued) I.
Even the twelve month and one day sentence that Peebles
would have us discard does not fully reflect the deadly nature
of his crime. Certainly the proffered maximum sentence of eight
months fails to do so in light of his potentially lethal
behavior. Peebles led police on a high speed chase after
refusing to pull over his motorcycle for traveling twenty miles
per hour over the speed limit. Reaching speeds above one
hundred miles per hour along the winding twists of the Blue
Ridge Parkway, he fled for some twenty-five miles. Travelers on
individualized state sentencing comes so close to impermissible identicality as to render any distinction between the two negligible. See infra Part II.C. Second, the majority declares the maximum state sentence to be eight months, but that declaration begs the question of what state sentence ranges apply. Class H felonies are subject to a generic four to thirty month range under North Carolina law, and it is that range and that maximum, not individualized state procedures, that respects Congress’s sentencing policy set forth in 18 U.S.C. § 3551(a). See infra Part II.A. Finally, the majority argues that a defendant “may be sentenced only in the way and to the extent that the person could have been sentenced in state court.” U.S. v. Pierce, 75 F.3d 173, 176 (4th Cir. 1996). But immediately after that language, Pierce emphasized that “like punishment does not encompass every incident of a state’s sentencing policy” and in fact affirmed the imposition of a federal term of supervised release under the ACA instead of requiring state probation. Id. at 176-77 (citation omitted). Nothing in Pierce or our other precedent elevates individualized state sentencing procedures above federal sentencing practice, see infra Part II.C. In doing so, the majority transforms the ACA from a gap filling statute into one of displacement, again in contravention of Congress’s express intent in Section 3551(a). See infra Parts II.A and B.
the scenic byway were forced off the road. Peebles passed more
than a dozen cars in no passing zones while narrowly missing
head on collisions with two separate vehicles. His mad dash did
not end until officers from the North Carolina Highway Patrol
and the Alleghany County Sheriff’s Department set up a rolling
roadblock. Even then, Peebles was only captured when his
motorcycle went off the road as he attempted to turn around to
avoid the roadblock and continue his flight. Something is wrong
when the twelve month and one day sentence of such a malefactor
is reduced to a mere eight month maximum. What is wrong is
appellant’s view of the ACA.
II.
Peebles claims the ACA’s “like punishment” clause, codified
in 18 U.S.C. § 13(a), requires us to follow state law right down
to the individualized, defendant-specific provisions of North
Carolina sentencing practice. But when we move from the generic
range that a hypothetical defendant could receive under state
law to the individualized North Carolina calculation that
Peebles demands, we come perilously close to replacing the ACA’s
“like punishment” requirement with one of “identical
punishment.” Peebles’s argument also ignores important guidance
from other federal statutes, the history of the ACA itself, and
the extensive caselaw of circuits across the country. The
better understanding of “like punishment” is that the ACA
directs federal courts to sentence within the generic range of
permissible state sentences that could be imposed on a
hypothetical defendant but to follow federal sentencing policy
so long as it consistent with that range.
A.
As an initial matter, the ACA’s “like punishment”
requirement must be interpreted in pari materia with 18 U.S.C.
§ 3551(a), which explains what types of sentences are authorized
in federal courts. That section indicates that “a defendant who
has been found guilty of an offense described in any Federal
statute, including sections 13 and 1153 of this title . . .
shall be sentenced in accordance with the provisions of this
[federal sentencing] chapter so as to achieve the purposes set
forth in [18 U.S.C. § 3553(a)(2)(A)-(D)]”. 18 U.S.C. § 3551(a)
(emphasis added). The emphasized reference to 18 U.S.C. § 13
(the ACA) was added by Congress in 1990 and makes explicit the
fact that federal sentencing procedures apply to ACA crimes.
See Pub. L. 101-647, § 1602, 104 Stat. 4789, 4843. Even before
Congress added this reference, courts had already recognized
that Section 3551(a) provides a statutory directive that federal
sentencing practices apply to assimilated crimes. U.S. v.
Marmolejo, 915 F.2d 981, 984 (5th Cir. 1990); U.S. v. Garcia,
893 F.2d 250, 253-54 (10th Cir. 1989). Section 3551(a) thus
gives the term “like punishment” a specific, limited meaning:
within the generic state sentencing range assimilated by the
ACA, federal sentencing policy determines the actual sentence.
See, e.g., U.S. v. Pierce, 75 F.3d 175, 176 (4th Cir. 1996).
B.
Further, the legislative history of the ACA itself
indicates that Peebles’s interpretation of the ACA’s “like
punishment” clause cannot be correct. Prior to 1909, the law
that became the ACA required defendants convicted of assimilated
crimes to “be liable to and receive the same punishment as the
laws of the state.” Ch. 576, § 2, 30 Stat. 717, July 7, 1898
(emphasis added). In 1909, however, the “same punishment”
requirement was replaced with the current ACA formulation of
“like punishment.” See Ch. 321, § 289, 35 Stat. 1145, Mar. 4,
1909. This switch undercuts Peebles’s assertion that federal
courts must apply individualized state sentencing procedures.
Now sentences need only be similar to what would be imposed in
state court. “The word ‘like’ in the current version of the ACA
thus implies similarity, not identity.” Marmolejo, 915 F.2d at
984. Peebles’s contrary position may have been good law during
Teddy Roosevelt’s administration, but for over a century
Congress has required only “like punishment,” which does not
require reference to individualized state sentencing procedures.
Additionally, the purpose of the ACA suggests that Peebles
mistakenly interprets the “like punishment” requirement. The
ACA exists to fill gaps in federal criminal law so that
wrongdoing on federal land can be punished even if Congress has
not thought to criminalize a specific act. See, e.g., U.S. v.
Gaskell, 134 F.3d 1039, 1042 (11th Cir. 1998) (“The purpose of
the ACA is to provide a body of criminal law for federal
enclaves by using the penal law of the local state to fill the
gaps in federal criminal law.”) (internal citations omitted);
Garcia, 893 F.2d at 253 (same). Because the purpose of the ACA
is gap filling, it is fair to infer that courts should only
assimilate state law to the extent that there is no
corresponding federal guidance. In the present case, there is
no federal law of aggravated speeding to elude arrest, and the
district court correctly assimilated that North Carolina crime.
However, there are comprehensive federal sentencing laws, and it
would be counterintuitive to overturn those federal procedures
by incorporating individualized state sentencing through a mere
gap filling measure.
C.
Peebles attempts to overcome the statutory obstacles of
text, history, and purpose by claiming that our prior
precedents, including United States v. Pierce, 75 F.3d 173 (4th
Cir. 1996), United States v. Harris, 27 F.3d 111 (4th Cir.
1994), and United States v. Young, 916 F.2d 147 (4th Cir. 1990),
suggest that “like punishment” requires individualized
sentencing based on state law. But those decisions actually
buttress what 18 U.S.C. 3551(a) and the history of the ACA
already make clear, indicating that the normal ACA practice is
to use federal, not state, sentencing procedures to the fullest
extent possible within the boundaries of assimilated substantive
state law. As Pierce explained, “state law may provide the
mandatory maximum or minimum sentence, but the federal
sentencing guidelines determine the sentence within these
limits.” 75 F.3d at 176. Indeed, we noted in Young that “[t]he
[Federal] Sentencing Reform Act and the [Federal] Sentencing
Guidelines adopted thereunder apply to assimilated crimes,”
explicitly rejecting claims that federal judges should apply
state sentencing practices to ACA offenses. 916 F.2d at 150.
If Peebles is correct that individualized state sentences are
required, he comes close to rendering the concept of “maximum or
minimum” sentences irrelevant. If he were arguing for a generic
state law range, I would agree that the ACA requires federal
courts to sentence within such boundaries. But he does not.
Peebles asks to be sentenced between an individualized “maximum”
of eight and an individualized “minimum” of five months. This
so-called three month “range” is so defendant-specific when
compared to the statutory four to thirty month range for a
hypothetical Class H felon that it is nearly meaningless.
Peebles’s argument also disregards the fact that we have
rejected requests to incorporate the trappings of individualized
state sentencing on previous occasions. We have recognized that
“[t]he phrase ‘like punishment’ . . . does not encompass every
incident of a state’s sentencing policy.” Harris, 27 F.3d at
115. Far from it. A federal court “will not assimilate a state
sentencing provision that conflicts with federal sentencing
policy.” Pierce, 75 F.3d at 176. In Pierce, we went so far as
to uphold a federal ACA sentence that included a term of
supervised release, even though North Carolina sentencing law
only provides for probation. Id. at 177. Even more
importantly, we affirmed despite the fact that the supervised
release term exceeded the maximum jail term allowed under state
law because “supervised release is not considered to be a part
of the incarceration portion of a sentence and therefore is not
limited by the statutory maximum term of incarceration.” Id. at
178. As a result, we declined to follow state probation rules
and instead gave full force to federal sentencing policy within
the ACA’s boundaries. Id. See also U.S. v. Engelhorn, 122 F.3d
508 (8th Cir. 1997) (same); U.S. v. Burke, 113 F.3d 211 (11th
Cir. 1997) (per curiam) (same).
Peebles thus invites us to pick and choose the portions of
state sentencing policy that we will now follow. Under Pierce,
federal supervised release trumps state probation rules, but
without questioning that earlier holding, Peebles now promotes
individualized state sentencing calculations over federal
sentencing policy. This approach can only result in complex,
arbitrary, pick-and-choose distinctions. To avoid this pitfall,
courts have two choices: rewrite the ACA’s statutory command of
“like punishment” to read “identical punishment” or recognize
that “like punishment” contemplates only that federal sentencing
policy applies within the state’s generic maximum and minimum
sentence range. Our case law correctly selects the latter
approach, and there is no reason to revisit that choice.
D.
Nor is our circuit an outlier. Our sister circuits also
recognize that federal -- rather than state -- sentencing
procedures apply when calculating individual ACA sentences.
See, e.g., U.S. v. Calbat, 266 F.3d 358, 362 (5th Cir. 2001)
(“Consequently, state law fixes the range of punishment, but the
Sentencing Guidelines determine the actual sentence within that
range.”) (internal citation omitted); U.S. v. Queensborough, 227
F.3d 149, 160 (3d Cir. 2000) (same); U.S. v. Gaskell, 134 F.3d
1039, 1043, 45 (11th Cir. 1998) (same); U.S. v. Leake, 908 F.2d
550, 552 (9th Cir. 1990) (same); U.S. v. Garcia, 893 F.2d 250,
251-52 (10th Cir. 1989) (same); see also U.S. v. Norquay, 905
F.2d 1157, 1161-62 (8th Cir. 1990) (same in interpreting
statutory provision similar to ACA). While many of the
decisions from this and other circuits predate United States v.
Booker, 543 U.S. 220 (2005), and its progeny, I do not think
their basic teaching about federal sentencing practices is
rendered in any way inapplicable by the fact that the Guidelines
are presently advisory. See Gall v. U.S., 552 U.S. 38 (2007).
If anything, the greater discretion now afforded district courts
in sentencing would seem inconsistent with the strict handcuffs
that Peebles would place upon them.
In addition to the widespread recognition that federal
sentencing procedures apply to ACA crimes, other circuits also
have taken the same approach as this court in declining to
require adherence to state probation rules. See Gaskell, 134
F.3d at 1043 (citing and discussing Second, Ninth, and Tenth
Circuit decisions). As the Ninth Circuit explained long ago,
“[t]o hold otherwise would be to have two classes of prisoners
serving in the federal prisons: Assimilative Crimes Act
prisoners and all other federal prisoners. That situation would
be disruptive to correctional administration, and we do not
think Congress intended this result.” U.S. v. Smith, 574 F.2d
988, 992 (9th Cir. 1978). The two-tiered system for which
Peebles argues cannot be what Congress intended, and “[e]fforts
to duplicate every last nuance of the sentence that would be
imposed in state court has never been required.” Garcia, 893
F.2d at 254.
III.
Peebles’s error is further exacerbated by his
misapprehension of the interaction between the ACA, 18 U.S.C.
§ 13, the assimilated crime of aggravated speeding to elude
arrest, N.C. Gen. Stat. § 20-141.5, and the North Carolina
structured sentencing statute, N.C. Gen. Stat. § 15A-1340.17.
Peebles claims his federal sentence should be limited to the
individual sentence a state judge would have imposed on him.
But the ACA does not incorporate North Carolina structured
sentencing. Instead it incorporates substantive offenses that
“would be punishable if committed . . . within the jurisdiction
of the State.” 18 U.S.C. § 13(a).
As the majority acknowledges, the typical federal criminal
statute specifies a maximum and a minimum penalty as part of the
statutory definition of the offense. When an assimilated
statute is structured similarly, the maximum and minimum ranges
apply, but federal courts are free to use federal sentencing
practices within those boundaries. See, e.g., Queensborough,
227 F.3d at 160 (twenty year federal sentence valid when
assimilated Virgin Islands law authorized ten years to life).
In such a situation, whatever sentencing guidance the state may
establish elsewhere is irrelevant for federal assimilation.
North Carolina law operates identically, though with less
clarity than is typical. The substantive law merely defines
Peebles’s aggravated speeding offense as a “Class H felony.”
N.C. Gen. Stat. § 20-141.5(b). The authorized sentence range is
then codified separately in tabular form. N.C. Gen. Stat.
§ 15A-1340.17(c) and (d). That table indicates that a Class H
felony can be punished by four to thirty months. See N.C. Gen.
Stat. § 15A-1340.17(c) and (d). North Carolina courts recognize
that this range establishes the authorized maximum sentence,
regardless of specific defendants’ individual characteristics.
See State v. Dewberry, 600 S.E.2d 866, 870 (N.C. App. 2004)
(“The maximum sentence for a Class H felony is 30 months.”);
State v. Bernard, No. COA07-1289, 2008 WL 1948022, at *6 (N.C.
App. May 6, 2008) (defendant considering self-representation
warned that “speeding to elude is a Class H felony carrying a
maximum punishment of 30 months.”). See also U.S. v. Jones, 195
F.3d 205, 207 (4th Cir. 1999) (“viewing the class maximum as the
statutory maximum for the crime appears to accord . . . with the
general practice in North Carolina courts”).
North Carolina also chose to codify its state sentencing
procedures in the same statute. This decision, however, does
not alter the fact that the resultant law performs two
independent and severable tasks. The first is to provide a
generic reference table that categorizes the range of authorized
penalties by felony class, in the case of a Class H felony up to
thirty months. In addition to this initial function, the
statute serves a secondary purpose of laying out the state’s
sentencing regime. While it is undisputed that Peebles would
have received a sentence between five and eight months if
sentenced under state sentencing guidelines in state court,
federal courts are not required to adopt the identical local
procedures in sentencing ACA defendants. The Class H felony
punishment of up to thirty months is what is assimilated by the
ACA, not every particular of state sentencing rules. See
Garcia, 893 F.2d at 254. 2
Nor does the majority’s contrary view do criminal defendants any favors. In many instances state sentencing law may provide for a harsher punishment than provided by federal sentencing policies. For instance, North Carolina sentencing procedures typically give judges unfettered discretion to decide whether sentences imposed for multiple counts should run concurrently or consecutively. See N.C. Gen. Stat. § 15A-1354. In contrast, federal policy generally favors concurrent sentences, albeit with some exceptions. See, e.g., U.S.S.G. (Continued) In short, Peebles asks us to create a North Carolina
anomaly that conflicts with the precedent of this and other
circuits. Under the ACA, Peebles is only entitled to “like
punishment,” and that is precisely what the district court’s
sentence provided. By focusing on the individualized elements
of state sentencing rules, appellant disregards the ACA’s
century-old “like punishment” requirement in favor of the “same
punishment” phrasing rejected by Congress in 1909. The ACA
“fills in gaps in federal criminal law.” Garcia, 893 F.2d at
253 (citation omitted). It is not intended to displace the
comprehensive federal sentencing practice with individualized
state sentencing procedures. Pierce, 75 F.3d at 176 (“a federal
court . . . will not assimilate a state sentencing provision
that conflicts with federal sentencing policy.”). And it
certainly is not intended to impair the basic prerogative of the
United States to ensure a modicum of public safety on federal
lands and parkways. Other courts have been able to accommodate
state sentencing ranges and this core federal concern, and I
respectfully dissent from the failure to follow their example.
§ 5G1.2 (guideline for sentencing on multiple counts of conviction). |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 06-5216
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
FREDERICK DEVON FLEMING,
Defendant - Appellant.
Appeal from the United States District Court for the Middle District of North Carolina, at Durham. William L. Osteen, Sr., Senior District Judge. (1:06-cr-00245-WLO)
Submitted: April 22, 2009 Decided: March 19, 2010
Before MOTZ, KING, and SHEDD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Eugene E. Lester, III, SHARPLESS & STAVOLA, P.A., Greensboro, North Carolina, for Appellant. Paul Alexander Weinman, OFFICE OF THE UNITED STATES ATTORNEY, Winston-Salem, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Frederick Devon Fleming pled guilty pursuant to a
written plea agreement to possession with intent to distribute
cocaine base (“crack”), in violation of 21 U.S.C. § 841(a)(1)
(2006). Fleming was sentenced to 132 months’ imprisonment.
Finding no error, we affirm.
Counsel filed a brief pursuant to Anders v.
California, 386 U.S. 738 (1967), in which he asserts there are
no meritorious issues for appeal but questions the conviction
and sentence. Fleming was notified of his right to file a pro
se supplemental brief, but he did not do so. The Government
elected not to file a responsive brief.
Initially, counsel contends that Fleming’s conviction
should be vacated because the confidential informant, who was
allegedly on probation, did not have the court’s permission to
act as an informant. The factual basis proffered by the
Government at the Fed. R. Crim. P. 11 hearing, to which Fleming
did not object, established that the informant was properly
acting at the behest of state law enforcement officers. Thus,
Fleming cannot establish any error in this respect. Moreover,
we conclude the district court fully complied with Rule 11 as it
thoroughly discussed Fleming’s right to a trial, the nature of
the offense, and the applicable punishment, in addition to
ascertaining that a factual basis supported the offense.
Counsel next contends that a category of VI over-
represented the seriousness of Fleming’s criminal history
because fifteen of the twenty-four points imposed were the
result of driving with a revoked license. As Fleming did not
object to the calculation of his criminal history in the
district court, review is for plain error. See United States v.
Branch, 537 F.3d 328, 343 (4th Cir. 2008), cert. denied, 129 S.
Ct. 943 (2009). To establish plain error, the defendant must
show that an error occurred, that the error was plain, and that
the error affected the defendant’s substantial rights. United
States v. Olano, 507 U.S. 725, 732-34 (1993).
The district court properly calculated Fleming’s
criminal history category. Our review of the Presentence
Investigation Report (“PSR”) also shows that Fleming has twenty-
four prior criminal convictions, seven of which contributed to
the criminal history points. Two of the prior convictions were
for drug―related offenses, and one of those involved possession
with intent to distribute crack. Thus, application of U.S.
Sentencing Guidelines Manual § 4A1.3(b) (2005), based upon an
over—representation of criminal history, clearly was not
merited.
Counsel also asserts that the district court erred in
failing to consider the sentencing disparity between crack and
powder cocaine. At the time of Fleming’s sentencing hearing on
November 15, 2006, this court’s precedent did not allow district
courts to consider the disparity created by the 100:1 crack to
powder cocaine ratio in determining an appropriate sentence.
See United States v. Eura, 440 F.3d 625, 632-34 (4th Cir. 2006).
However, the Supreme Court determined that “the cocaine
Guidelines, like all other Guidelines, are advisory only” and,
in doing so, overruled Eura. Kimbrough v. United States, 552
U.S. 85, 91 (2007). The Court stated that “it would not be an
abuse of discretion for a district court to conclude when
sentencing a particular defendant that the crack/powder
disparity yields a sentence ‘greater than necessary’ to achieve
§ 3553(a)’s purposes, even in a mine-run case.” Id. at 110.
Since Fleming did not object to his sentence in the
district court, review is for plain error. See Branch, 537 F.3d
at 343. Assuming the court’s failure to consider the
crack/powder disparity constitutes error that was plain, it must
still be established that the error affected the defendant’s
substantial rights. See id. We previously have “concluded that
the error of sentencing a defendant under a mandatory guidelines
regime is neither presumptively prejudicial nor structural,”
thereby requiring a showing of “actual prejudice.” United
States v. White, 405 F.3d 208, 223 (4th Cir. 2005). Thus, to
satisfy the requirements of the plain error standard, the burden
is on the defendant to establish that the error “affected the
outcome of the district court proceedings.” Id. (internal
quotation marks and citation omitted). Because the record does
not reveal a nonspeculative basis for concluding that the
district court would have imposed a shorter sentence had it
known it possessed discretion to do so, we conclude Fleming
cannot demonstrate that the district court’s failure to consider
the crack/powder disparity affected his substantial rights.
Finally, counsel contends that Fleming’s trial counsel
provided ineffective assistance. An ineffective assistance of
counsel claim generally is not cognizable on direct appeal, but
should instead be asserted in a post-conviction motion under 28
U.S.C.A. § 2255 (West Supp. 2008). See United States v.
Richardson, 195 F.3d 192, 198 (4th Cir. 1999). However, we have
recognized an exception to the general rule when “it
‘conclusively appears’ from the record that defense counsel did
not provide effective representation.” Id. (quoting United
States v. Gastiaburo, 16 F.3d 582, 590 (4th Cir. 1994)).
Because the record does not conclusively establish that counsel
was ineffective, the claim is not cognizable on direct appeal.
In accordance with Anders, we have reviewed the entire
record in this case and have found no meritorious issues for
appeal. * Accordingly, we affirm the judgment of the district
court. This court requires that counsel inform his client, in
writing, of his right to petition the Supreme Court of the
United States for further review. If the client requests that a
petition be filed, but counsel believes that such a petition
would be frivolous, then counsel may move this court for leave
to withdraw from representation. Counsel’s motion must state
that a copy thereof was served on the client. We dispense with
oral argument because the facts and legal contentions are
* Notably, acting sua sponte, we twice placed this case in abeyance pending decisions that were potentially favorable to Fleming, including our recent decision in United States v. Lynn, 592 F.3d 572, No. 08-5125(L) (4th Cir. Jan. 28, 2010). Ultimately, however, Fleming is not entitled to any relief under Lynn. In one of the cases consolidated for decision therein (No. 08-5132), the defendant, Avery Peake, posed no objections to the PSR and requested a sentence within his advisory Guidelines range. Lynn, slip op. at 12-13. Thus, we reviewed for plain error Peake’s assertion that the district court committed procedural error by failing to consider the required sentencing factors and offer an adequate explanation for the sentence imposed. See id. at 4, 12-13. We determined that, even assuming the court committed clear error, Peake had not shown that the error had a prejudicial effect on the sentence imposed, in that “[h]is attorney’s arguments before the district court urged that court only to impose a sentence within the Guidelines range, which it did.” Id. at 13. Similarly, Fleming’s lawyer agreed with the PSR and urged a within- Guidelines sentence, and the district court imposed such a sentence. As such, Fleming cannot show that any procedural error committed by the court in failing to adequately explain the chosen sentence was prejudicial, and we must affirm Fleming’s sentence on plain error review.
adequately presented in the materials before the court and
argument would not aid in the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-4833
UNITED STATES OF AMERICA,
Plaintiff – Appellee,
v.
DAVID EDWARD BOLAND,
Defendant – Appellant.
Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Robert J. Conrad, Jr., Chief District Judge. (3:07-cr-00261-RJC-1)
Submitted: February 24, 2010 Decided: March 19, 2010
Before WILKINSON, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Harold M. Vaught, Charlotte, North Carolina, for Appellant. Amy Elizabeth Ray, Assistant United States Attorney, Asheville, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
David Edward Boland pled guilty to receiving visual
depictions of a minor engaging in sexually explicit conduct, 18
U.S.C. § 2252(a), (b)(1) (2006) (Count One), and possession of
one or more books, magazines, periodicals, films, video tapes or
other matter containing any visual depiction of a minor engaging
in sexually explicit conduct, 18 U.S.C. § 2252(a)(4)(B), (b)(2)
(2006). The district court granted the Government’s motion for
upward departures and sentenced Boland to 234 months’
imprisonment and a life-term of supervised release. Counsel has
filed a brief pursuant to Anders v. California, 386 U.S. 738
(1967), stating that in his view, there are no meritorious
issues for appeal, but questioning whether Boland’s sentence was
legally imposed. Boland has filed a pro se supplemental brief.
The Government has not filed a brief. We affirm.
We review for reasonableness all sentences, “whether
inside, just outside, or significantly outside the Guidelines
range” under a “deferential abuse-of-discretion standard.” Gall
v. United States, 552 U.S. 38, 41 (2007); United States v.
Evans, 526 F.3d 155, 161 (4th Cir.), cert. denied, 129 S. Ct.
476 (2008). This review requires appellate consideration of
both the procedural and substantive reasonableness of a
sentence. Gall, 552 U.S. at 46. After determining whether the
district court properly calculated the defendant’s advisory
guidelines range, we must then decide whether the district court
considered the 18 U.S.C. § 3553(a) (2006) factors, analyzed any
arguments presented by the parties, and sufficiently explained
the selected sentence. Id. at 49-50. In imposing its sentence,
the district court must place on the record an “individualized
assessment” based on the particular facts of the case before it.
United States v. Carter, 564 F.3d 325, 330 (4th Cir. 2009).
Finally, we review the substantive reasonableness of the
sentence, “taking into account the totality of the
circumstances, including the extent of any variance from the
Guidelines range.” United States v. Pauley, 511 F.3d 468, 473
(4th Cir. 2007) (internal quotation marks and citation omitted).
To determine whether the district court abused its
discretion in imposing Boland’s departure sentence, we consider
“whether the sentencing court acted reasonably both with respect
to its decision to impose such a sentence and with respect to
the extent of the divergence from the sentencing range.” United
States v. Hernandez-Villanueva, 473 F.3d 118, 123 (4th Cir.
2007). We will find a sentence to be unreasonable if the
sentencing “court provides an inadequate statement of reasons or
relies on improper factors in imposing a sentence outside the
properly calculated advisory sentencing range.” Id.
In this case, the district court’s sentence was
procedurally reasonable. The district court properly adopted
the guidelines sentence calculation in the presentence report,
which the parties did not dispute. However, as the district
court stated on the record, the guidelines calculation did not
take into account many aspects of Boland’s conduct. The
district court listened to the parties’ arguments at length and
ultimately adequately stated its reasons for granting the
Government’s motion for upward departures and in imposing a 234-
month sentence.
Similarly, Boland’s sentence was substantively
reasonable. The district court explained that Boland’s criminal
history category of II substantially under-represented the
seriousness of his past criminal conduct and the likelihood he
will commit other crimes. Boland admitted that shortly after
being paroled on a ten-year federal child pornography sentence,
he returned to the same criminal conduct. Furthermore, Boland
stated that he did not believe his conduct was wrong. The court
therefore departed one criminal history category. See U.S.
Sentencing Guidelines Manual § 4A1.3(a) (2007) (a district court
may depart upward from an applicable guidelines range if
“reliable information indicates that the defendant’s criminal
history category substantially under-represents the seriousness
of the defendant’s criminal history or the likelihood that the
defendant will commit other crimes . . . .”).
Additionally, the district court found that the length
and quantity of the videos warranted an upward departure under
USSG § 2G2.2. The court found that thirty percent of Boland’s
collection of videos was videos longer than five minutes in
length. See USSG § 2G2.2 & cmt. n.4(B)(ii) (authorizing upward
departure if length of recording is substantially more than five
minutes). The court considered a one-level departure; however,
given the gravity of the criminal conduct, the court departed
two levels, noting the staggering amount of lengthy videos, the
sadistic and masochistic nature of the series, and the repeated
victimization depicted. Furthermore, the court found the number
of images possessed by Boland greatly exceeded the number
required for a guideline enhancement under USSG § 2G2.2(b)(7)(D)
(imposing maximum enhancement of five levels for six hundred
images). The court found the sheer quantity of videos as an
encouraged basis for departure. See USSG § 2G2.2 & cmt.
n.4(B)(i) (“If the number of images under represents the number
of minors depicted, an upward departure may be warranted.”).
Although the district court considered a one-level increase, it
did not believe it was adequate to capture the gravity of the
criminal conduct. The court therefore departed two levels on
this basis, finding Boland’s possession of 854,992 images was
not adequately taken into consideration by the guidelines. See
USSG § 5K2.0(a)(3) (departures based on circumstances present to
a degree not adequately taken into consideration in determining
the guidelines range).
In considering the § 3553(a) factors, the district
court found that the children, including infants, in the videos
were subject to extensive and extended abuse beyond what was
typical in other cases handled by the court and contemplated in
the guidelines. The court also cited the nature and quantity of
the images. After finding that Boland posed a serious risk of
further crimes, the court stated that the primary purpose of the
sentence was to protect the public from further crimes by
Boland. The court explained that the terms and conditions of
supervised release were insufficient to protect the public and
that “its protective function is best served by enhancing the
sentence.” After establishing a newly calculated advisory
guidelines range of 188 to 235 months’ imprisonment, the
district court deemed a sentence of 234 months appropriate in
this case.
Given the district court’s meaningful articulation of
its consideration of the § 3553(a) factors, and its careful
consideration of reasons warranting departure from the
guidelines range, we find Boland’s departure sentence
reasonable. In accordance with Anders, we have reviewed the
record in this case and have found no meritorious issues for
appeal. We further find Boland’s claims in his pro se
supplemental brief without merit. We therefore affirm the
district court’s judgment. This court requires that counsel
inform Boland, in writing, of the right to petition the Supreme
Court of the United States for further review. If Boland
requests that a petition be filed, but counsel believes that
such a petition would be frivolous, then counsel may move in
this court for leave to withdraw from representation. Counsel’s
motion must state that a copy thereof was served on Boland. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-4997
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JOSEPH DIBRUNO, JR.,
Defendant - Appellant.
Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Frank D. Whitney, District Judge. (3:06-cr-00430-FDW-1)
Submitted: February 2, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Dennis Gibson, LAW OFFICE OF DENNIS GIBSON, Asheville, North Carolina, for Appellant. Amy Elizabeth Ray, Assistant United States Attorney, Asheville, North Carolina; Melissa Louise Rikard, Assistant United States Attorney, Charlotte, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Joseph DiBruno, Jr. (“DiBruno”), appeals his
convictions and resulting 262-month sentence after pleading
guilty to conspiracy to defraud the United States, 18 U.S.C.
§ 371 (2006), conspiracy to commit money laundering, 18 U.S.C.A.
§ 1956(h) (West 1999 & Supp. 2009), and concealment of assets,
18 U.S.C. § 152 (2006). DiBruno’s counsel has filed an appeal
under Anders v. California, 386 U.S. 738 (1967), raising the
issues of ineffective assistance of counsel, Government breach
of the plea agreement, and judicial bias at sentencing. The
Government declined to file a brief. DiBruno has filed a pro se
supplemental brief. Finding no error, we affirm.
First, counsel raises the issue that DiBruno’s
attorneys did not comply with his wishes and failed to inform
him regarding the consequences of his actions, particularly the
consequences of entering the guilty plea. An ineffective
assistance of counsel claim generally is not cognizable on
direct appeal, but should instead be asserted in a
post-conviction motion to the district court under 28 U.S.C.
§ 2255 (2006). See United States v. Richardson, 195 F.3d 192,
198 (4th Cir. 1999). On direct appeal, this Court may address a
claim of ineffective assistance only if counsel’s
ineffectiveness conclusively appears from the record. See,
e.g., United States v. Baldovinos, 434 F.3d 233, 239 (4th Cir.
2006); Richardson, 195 F.3d at 198 (internal citation and
quotation marks omitted).
In reviewing ineffective assistance claims arising
from counseling a guilty plea, this court utilizes a modified
deficient conduct and prejudice test. See Beck v. Angelone,
261 F.3d 377, 394 (4th Cir. 2001) (citing Hill v. Lockhart,
474 U.S. 52, 58-59 (1985)). To prevail, the petitioner must
demonstrate that his trial counsel’s performance was objectively
unreasonable and that “there is a reasonable probability that,
but for counsel’s errors, [the defendant] would not have pleaded
guilty and would have insisted on going to trial.” Beck,
261 F.3d at 394 (citing Hill, 474 U.S. at 59). Although DiBruno
filed a motion to withdraw his guilty plea, DiBruno withdrew his
motion prior to sentencing and his guilty plea was again
entered. Because DiBruno's assertions fail to satisfy the
prejudice prong of this test, we need not consider whether trial
counsel’s performance was objectively reasonable.
Next, DiBruno asserts that the Government “breached
the Plea Agreement and engaged in other unspecified forms of
prosecutorial misconduct.” Appellant’s Br. 14. Counsel
concedes that these allegations are non-specific and his review
of the record did not identify any prosecutorial misconduct.
“‘It is well-established that the interpretation of plea
agreements is rooted in contract law, and that each party should
receive the benefit of its bargain.’” United States v. Dawson,
587 F.3d 640, 645 (4th Cir. 2009) (quoting United States v.
Peglera, 33 F.3d 412, 413 (4th Cir. 1994)). This Court reviews
de novo questions regarding the contractual interpretation of
plea agreements, and it reviews for plain error unpreserved
claims that the Government breached the plea agreement. United
States v. Dawson, 587 F.3d 640, 645 (4th Cir. 2009).
The Government moved to dismiss the remaining counts
to which DiBruno did not plead guilty. The terms of the plea
agreement specified that the parties would jointly recommend the
amount of loss to be in excess of 2.5 million dollars, that the
adjusted offense level was 35, and that the Government would
move for a two-level reduction for acceptance of responsibility.
The presentence report (“PSR”) calculated the adjusted offense
level to be 37. Compared to the plea agreement, this
calculation included a new two-level enhancement for specific
offense characteristics and a two-level greater enhancement for
DiBruno’s role in the offense; it also omitted the two-level
vulnerable victim enhancement. Including a two-level reduction
for acceptance of responsibility, the total offense level was
35. The recommended restitution amount was $3,808,487.
The Government objected to the PSR on the basis that
it omitted the vulnerable victim enhancement under U.S.
Sentencing Guidelines Manual § 3A1.1 (2007). The plea agreement
provided that the parties agreed that there should be a two-
level increase under this section included in the adjusted
offense level. Because the plea agreement provided for the
enhancement, the Government neither breached the plea agreement
nor engaged in prosecutorial misconduct by arguing that the
vulnerable victim enhancement should be applied. The Government
eventually withdrew its recommendation to apply a two-level
reduction for acceptance of responsibility because, immediately
prior to sentencing, DiBruno claimed he was innocent of the
criminal conduct by filing a motion to withdraw his guilty plea.
The plea agreement states that the Government would only
recommend the reduction if “the defendant clearly demonstrates
acceptance of responsibility for his offense, as well as all
relevant conduct . . . .” The Government was not required to
recommend the reduction if DiBruno failed to make a full
disclosure to the probation officer, misrepresented facts to the
Government prior to entering the plea, or committed any
misconduct after entering into the plea. The court denied the
Government’s motion to strike the two offense-level reduction
for acceptance of responsibility, but stated it was “a real
close call.” J.A. 579. At the same time, the court found that
DiBruno did not strictly comply with the terms of the plea
agreement governing acceptance of responsibility, thereby
relieving the Government of its obligation to recommend a 210-
month sentence. J.A. 580. The court therefore found that the
Government’s failure to recommend a 210-month sentence did not
breach the plea agreement. J.A. 580. This Court finds no
merit in DiBruno’s arguments that the district court improperly
interpreted the plea agreement, that the Government breached the
plea agreement, or that the Government engaged in prosecutorial
misconduct.
Finally, counsel raises the issue of whether there was
judicial bias at sentencing but ultimately concludes the claim
has no merit. A judge must recuse himself or herself where the
party seeking recusal files a timely and sufficient affidavit
stating the judge has a personal bias or prejudice either
against the affiant or in favor of an adverse party, 28 U.S.C.
§ 144 (2006), or where his or her impartiality might reasonably
be questioned. 28 U.S.C. § 455 (2006). DiBruno did not file
such a motion. * DiBruno did not point to any evidence that the
district court held an extra-judicial bias, nor has our review
of the record revealed a bias. Therefore, this argument is
without merit. See Liteky v. United States, 510 U.S. 540, 555
(1994) (“[J]udicial rulings alone almost never constitute a
* DiBruno’s father, Joseph DiBruno, Sr., had moved for the court to recuse itself based on his belief that the court was personally involved in drafting his plea agreement. See J.A. 142-43. This motion was denied, id. at 143-44, and, in any event, cannot be attributed to DiBruno.
valid basis for a bias or partiality motion. . . . [T]hey . . .
can only in the rarest circumstances evidence the degree of
favoritism or antagonism required [to make fair judgment
impossible] when no extrajudicial source is involved.” (citation
omitted)); Shaw v. Martin, 733 F.2d 304, 308 (4th Cir. 1984)
(“Alleged bias and prejudice to be disqualifying must stem from
an extrajudicial source and result in an opinion on the merits
on some basis other than what the judge learned from his
participation in the case.”).
DiBruno has filed a pro se supplemental brief raising
three claims. First, he argues that his speedy trial rights
under the Sixth Amendment and the Speedy Trial Act were
violated. DiBruno’s remaining two claims address ineffective
assistance of counsel in regard to the voluntariness of his
plea. He claims that his plea is involuntary because his second
attorney lacked sufficient time to review his case before he
recommended that DiBruno accept the plea agreement. DiBruno
additionally claims that his plea is involuntary because his
attorney told him that he would not have a chance of winning at
trial before that particular district court judge. We have
reviewed these claims and find them to be without merit.
In accordance with Anders, we have reviewed the record
in this case and have found no meritorious issues for appeal.
We therefore affirm DiBruno’s convictions and sentence. We
grant DiBruno’s motions for an extension of time to file his pro
se supplemental brief and to supplement his pro se brief and
deny his motion for default judgment. This court requires that
counsel inform DiBruno, in writing, of the right to petition the
Supreme Court of the United States for further review. If
DiBruno requests that a petition be filed, but counsel believes
that such a petition would be frivolous, then counsel may move
in this court for leave to withdraw from representation.
Counsel’s motion must state that a copy thereof was served on
DiBruno.
We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-5076
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
DARRYL HANDBERRY,
Defendant – Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at Greenville. Louise W. Flanagan, Chief District Judge. (4:08-cr-00009-FL-1)
Submitted: February 26, 2010 Decided: March 19, 2010
Before GREGORY and AGEE, Circuit Judges, and HAMILTON, Senior Circuit Judge.
Affirmed by unpublished per curiam opinion.
Jennifer Haynes Rose, LAW OFFICE OF JENNIFER HAYNES ROSE, Raleigh, North Carolina, for Appellant. George E. B. Holding, United States Attorney, Anne M. Hayes, Jennifer P. May-Parker, Assistant United States Attorneys, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Darryl Handberry pled guilty to making false
statements, in violation of 18 U.S.C. § 924(a)(1)(A) (2006), and
possession and receipt of an unregistered firearm, in violation
of 26 U.S.C. §§ 5841, 5861(d), and 5871 (2006), while reserving
the right to appeal the denial of his motion to suppress
evidence seized from his residence. On appeal, Handberry argues
that the district court erred in denying his motion to suppress
and also contends that the district court clearly erred in
imposing a four-level enhancement for use and possession of a
weapon during another felony under U.S. Sentencing Guidelines
Manual (“USSG”) § 2K2.1(b)(6) (2007) of the Sentencing
Guidelines. For the following reasons, we affirm.
I.
In spring 2007, the Beaufort County Sheriff’s
Department was contacted by a cooperating witness (“CW”), who
informed the Department that he was able to buy cocaine and
marijuana from a black male known as “D.” On March 27, CW
contacted “D,” who was later identified as David Pierre, and
agreed to purchase cocaine from him at the Clifton Park
Apartments. Later that day, CW purchased marijuana and cocaine
from Pierre and another, unidentified black male driving a green
Jeep. Two days later, CW again contacted Pierre and ordered an
“eight ball” of powder cocaine; Pierre told CW to meet him on
Bonner Street near 11th Street, and the transaction occurred
without incident. Next, on April 2, 2007, CW ordered half of an
ounce of powder cocaine from Pierre, who again instructed CW to
meet him on Bonner Street near 11th Street.
Finally, on April 9, CW called Pierre around 4:30 p.m.
to order three-quarters of an ounce of powder cocaine. Pierre
instructed CW to meet him at the Clifton Park Apartments. By
this time, the Sheriff’s Department was operating surveillance
at 1124 Bonner Street, where they believed Pierre was residing.
On that day, deputies witnessed Pierre exit the residence and
enter a car driven by a white female, identified later as Megan
Midyette. Pierre arrived at the Clifton Park Apartments at 5:05
p.m. and completed the transaction with CW, at which point both
Pierre and Midyette were detained by deputies. Pierre was
arrested and charged with several drug offenses, and Midyette
was transported back to the Sheriff’s Department after she
offered to cooperate with the investigators. At the Department,
Midyette told one of the arresting officers that she was at 1124
Bonner Street to purchase marijuana from Pierre and did not know
that Pierre was selling cocaine.
While Midyette and Pierre were in transit, other
deputies, led by Lieutenant Russell Davenport, returned to 1124
Bonner Street, arriving there at 5:10 p.m. When Davenport
approached the house, he heard loud music and knocked on the
door without announcing his identity. Receiving no response,
Davenport turned an unlocked doorknob and entered the house.
Upon entering, Davenport noticed a strong smell of marijuana.
Davenport and the other deputies moved into the house, guns
raised, and shouted that any individuals in the home should lie
down on the floor. The deputies detained two residents, Darryl
Handberry, the home’s owner, and another individual, Randall
Dentley. When deputies pulled Handberry up to handcuff him,
they discovered he was lying on a Hi-Point pistol. Once inside
the home, deputies also viewed cocaine and marijuana lying on a
table in plain view. The deputies performed a sweep of the
house to ensure there were no other occupants, and placed
Handberry and Dentley in patrol cars.
While deputies remained at the house, Lt. Davenport
returned to the Sheriff’s Department to apply for a search
warrant for the house. The search warrant affidavit described
the surveillance of 1124 Bonner Street and identified it as the
residence of Pierre, and noted the presence of the green Jeep
used in one of CW’s buys. The affidavit also stated that
deputies watched Pierre leave the residence that day with Megan
Midyette to travel to Clifton Park Apartments to complete a drug
transaction with CW. The affidavit referenced Midyette’s post-
detention statement that she went to 1124 Bonner Street to
purchase marijuana but that Pierre first asked her to drive him
to the Clifton Park Apartments. Finally, the affidavit
described the deputies’ securing of the residence under “exigent
circumstances.” The affidavit stated that while securing the
premises Davenport witnessed cocaine, marijuana, digital scales,
and a Hi-Point pistol in plain view in the living room.
The search warrant was approved at 7:00 p.m. and was
executed by Investigator Boyd. The search eventually produced
several items of evidentiary value, including a sawed-off
shotgun hidden under the couch and several handguns. During the
search, Handberry motioned Investigator Boyd over to the patrol
car where he was being detained and asked what was happening.
Investigator Boyd informed Handberry that the deputies were
trying to ascertain what the guns were doing in the house, and
Handberry replied that he purchased the shotgun for protection
“off the street” and that the handguns recovered from the house
were not his. At the time of this conversation, Handberry had
not been read his Miranda * rights.
Based upon these events, a federal grand jury sitting
in the Eastern District of North Carolina returned an eight-
count indictment against Handberry and Pierre. The indictment
charged Handberry and Pierre with conspiracy to make false
* Miranda v. Arizona, 384 U.S. 436 (1966).
statements in connection with a firearms transaction, in
violation of 18 U.S.C. § 371 (2006) (Count One), and making
false statements, in violation of 18 U.S.C. § 924(a)(1)(A)
(Count Two), and charged Handberry with possession and receipt
of an unregistered firearm—the sawed-off shotgun recovered from
the search—in violation of 26 U.S.C. §§ 5841, 5861(d), and 5871
(Count Three). The five remaining charges referred only to
Pierre.
Handberry filed a motion to suppress the evidence
seized from his home, contesting the warrantless nature of the
initial search. During the suppression hearing, Lt. Davenport
testified that it was a common practice for drug dealers in high
crime neighborhoods to communicate with each other regarding
recent drug arrests in the area. Davenport testified that as a
result, the target of a search is often able to destroy or move
evidence before a search warrant is obtained. Davenport
explained that the arrests of Midyette and Pierre occurred in
the parking lot of an apartment complex roughly one-half mile
from 1124 Bonner Street, and for that reason, the deputies
secured the house before obtaining a search warrant. Davenport
also testified that he witnessed another individual under
investigation for drug dealing in the parking lot at the time
Midyette and Pierre were arrested.
Following this hearing, a magistrate judge issued a
written Memorandum recommending denial of the motion. Handberry
filed an objection to the magistrate judge’s report, but the
district court denied the motion to suppress. Thereafter,
pursuant to a written plea agreement, Handberry pled guilty to
Count Two and Count Three, conditioned on his right to appeal
the denial of his motion to suppress the evidence. The district
court sentenced Handberry to forty-six months imprisonment and
three years of supervised release and Handberry noted a timely
appeal.
II.
On appeal, Handberry raises three issues: (1) whether
the district court erred in denying his motion to suppress the
firearms discovered during the search at 1124 Bonner Street; (2)
whether the district court erred in denying his motion to
suppress the statements given to Investigator Boyd; and (3)
whether the district court clearly erred in adding a four-point
enhancement for use and possession of a weapon during another
felony under USSG § 2K2.1(b)(6) in sentencing Handberry.
A.
Handberry first argues that the district court erred
in denying his motion to suppress. In addressing the denial of
such a motion, we review the district court’s findings of
historical fact for clear error, giving “due weight to
inferences drawn from those facts by resident judges and local
law enforcement officers,” and review de novo the ultimate legal
conclusion. Ornelas v. United States, 517 U.S. 690, 699 (1996).
And, “[b]ecause the district court denied the motion to
suppress, we construe the evidence in the light most favorable
to the Government.” United States v. Perkins, 363 F.3d 317, 320
(4th Cir. 2004).
In denying Handberry’s motion to suppress the firearms
seized from 1124 Bonner Street, the district court found that
the deputies possessed probable cause to search the residence
and that exigent circumstances excused their failure to obtain a
warrant prior to entry. In the alternative, the district court
found that the independent source doctrine applied because “a
sufficient amount of genuinely independent evidence . . .
supported the [search warrant] affidavit.” Because we agree
with the district court that the independent source doctrine
applies, we need not address whether exigent circumstances
permitted the warrantless entry.
Under the Fourth Amendment, “even when officers have
probable cause to believe that contraband is present in a home,
a warrantless search of the home is unlawful unless exigent
circumstances exist at the time of entry.” United States v.
Mowatt, 513 F.3d 395, 399 (4th Cir. 2008).
In Murray v. United States, the Supreme Court
recognized that “a later, lawful seizure is genuinely
independent of an earlier, tainted one”—and the independent
source doctrine applies—unless “the agents’ decision to seek the
warrant was prompted by what they had seen during the initial
entry, or if information obtained during that entry was
presented to the Magistrate and affected his decision to issue
the warrant.” 487 U.S. 533, 542 (1988) (footnote omitted). The
Murray Court specifically applied the independent source
doctrine to a case in which execution of a search warrant was
preceded by an illegal search of the same premises. In such
cases, the Court held, the evidence recovered in the later
search is not admissible unless the government establishes that
“no information gained from the illegal [search] affected either
the law enforcement officers’ decision to seek a warrant or the
magistrate’s decision to grant it.” Id. at 540; see United
States v. Dessesaure, 429 F.3d 359, 369 (1st Cir. 2005)
(similar); United States v. Herrold, 962 F.2d 1131, 1140 (3d
Cir. 1992) (similar).
In this case, the magistrate judge and district court
both concluded that, even assuming the original warrantless
search was improper, the independent source doctrine applied
because a “sufficient amount of genuinely independent evidence”
supported the search warrant affidavit. On appeal, Handberry
argues that, absent the information gleaned from the original
search—i.e., the marijuana, cocaine, digital scale and Hi-Point
pistol—there was insufficient evidence to support a finding of
probable cause.
The determination of whether probable cause exists
depends on the totality of the circumstances and involves a
“practical, common-sense decision whether . . . there is a fair
probability that contraband or evidence of a crime will be found
in a particular place.” Illinois v. Gates, 462 U.S. 213, 238
(1983). Because “probable cause is a fluid concept—turning on
the assessment of probabilities in particular factual contexts—
not readily, or even usefully, reduced to a neat set of legal
rules,” id. at 232 we “give due weight to inferences drawn from
[the] facts by . . . local law enforcement officers,” Ornelas,
517 U.S. at 699; see also United States v. Dickey-Bey, 393 F.3d
449, 453 (4th Cir. 2004) (“Under this pragmatic, common sense
approach, we defer to the expertise and experience of law
enforcement officers at the scene.”). “[T]he crucial element is
not whether the target of the search is suspected of a crime,
but whether it is reasonable to believe that the items to be
seized will be found in the place to be searched.” United
States v. Lalor, 996 F.2d 1578, 1582 (4th Cir. 1993).
On balance, we agree with the district court that
sufficient independent evidence supported the search warrant
affidavit. The Sheriff’s Department had identified 1124 Bonner
Street as Pierre’s residence and had engaged in three undercover
cocaine purchases from Pierre. The green Jeep used to transport
Pierre to one of the purchases was located at the residence. On
the day in question, Pierre left the residence and drove
directly to the Clifton Park apartments, where he completed the
sale of cocaine to CW, suggesting that his cocaine supply was
located at 1124 Bonner Street. In addition, Midyette told
Investigator Boyd that she went to the residence to purchase
marijuana. These facts, all of which were obtained independent
of the initial entry and search, support a finding of probable
cause.
In addition, ample evidence suggests that the original
search did not play a role in Lt. Davenport’s decision to seek a
warrant. Davenport testified that he believed the 1124 Bonner
Street residence needed to be secured because of his concern
that another drug dealer would notify the residents of Pierre’s
arrest. The original search reflected that understanding, as
Davenport and the deputies detained Handberry and the other
resident, swept the remainder of the house for individuals, and
then exited. Other than spotting the items in plain view, no
search for contraband occurred. Indeed, the sawed-off shotgun
was found during the execution of the warrant and not during the
initial search. The scope of this initial search supports the
inference that Lt. Davenport would have applied for the search
warrant absent the evidence found in plain view. Therefore, the
district court did not err in denying the motion to suppress.
B.
Handberry next argues that the district court erred in
admitting his statement to Investigator Boyd that he purchased
the sawed-off shotgun recovered from the residence. The
Government argues that Handberry may not challenge this ruling
on appeal by virtue of his conditional guilty plea.
“A voluntary and intelligent plea of guilty is an
admission of all the elements of a formal criminal charge, and
constitutes an admission of all material facts alleged in the
charge.” United States v. Willis, 992 F.2d 489, 490 (4th Cir.
1993) (internal quotation marks and citations omitted). “When a
defendant pleads guilty, he waives all nonjurisdictional defects
in the proceedings conducted prior to entry of the plea.”
United States v. Bundy, 392 F.3d 641, 644 (4th Cir. 2004).
Thus, “when the judgment of conviction upon a guilty plea has
become final and the offender seeks to reopen the proceeding,
the inquiry is ordinarily confined to whether the underlying
plea was both counseled and voluntary.” Id.
Based upon these considerations, “direct review of an
adverse ruling on a pretrial motion is available only if the
defendant expressly preserves that right by entering a
conditional guilty plea” pursuant to Rule 11(a)(2). United
States v. Wiggins, 905 F.2d 51, 52 (4th Cir. 1990). “This
approach comports with the general rule that conditions to a
plea are not to be implied.” Bundy, 392 F.3d at 645 (internal
quotation marks omitted).
Handberry unconditionally pled guilty to Count Two and
conditionally pled guilty to Count Three. The written plea
agreement contains the following language:
The parties agree:
a. Pursuant to the defendant’s conditional plea of guilty to [] Count Three of the Indictment herein and pursuant to Fed. R. Crim. P. 11(a)(2), that the defendant reserves the right to appeal from the portion of the Court’s adverse decision on Defendant’s Motion to Suppress Evidence, filed July 7, 2008, denying the defendant’s motion to suppress the sawed- off shotgun obtained during the April 9, 2007, search of the defendant’s residence.
(J.A. at 206).
During the Rule 11 colloquy, Handberry stated that he
understood the conditional guilty plea he was entering, and the
plea agreement specifically conditions the plea to Count Three
on Handberry’s right to appeal only “from the portion of the
Court’s adverse decision . . . denying the defendant’s motion to
suppress the sawed-off shotgun.” Nothing during the Rule 11
colloquy suggests that Handberry understood the provision
differently or believed that he would be able to appeal the
admission of his statement. Accordingly, we agree with the
Government that Handberry failed to preserve this issue for
appeal.
C.
Finally, Handberry challenges the four-level
enhancement for use and possession of a weapon during another
felony under USSG § 2K2.1(b)(6). The district court added this
enhancement after accepting the probation officer’s finding that
Handberry permitted Pierre to use one of the handguns during his
drug trafficking operation. On appeal, Handberry challenges
this finding while the Government contends that the appeal
waiver contained in the plea agreement bars consideration of the
issue.
A defendant may waive the right to appeal if that
waiver is knowing and intelligent. United States v. Blick, 408
F.3d 162, 169 (4th Cir. 2005). Generally, if the district court
fully questions a defendant regarding the waiver of his right to
appeal during the Rule 11 colloquy, the waiver is both valid and
enforceable. See United States v. Johnson, 410 F.3d 137, 151
(4th Cir. 2005); United States v. Wessells, 936 F.2d 165, 167-68
(4th Cir. 1991). Whether a defendant validly waived his right
to appeal is a question of law that this court reviews de novo.
Blick, 408 F.3d at 168. An appeal waiver does not, however, bar
the appeal of a sentence imposed in excess of the statutory
maximum or a challenge to the validity of a guilty plea. United
States v. General, 278 F.3d 389, 399 n.4 (4th Cir. 2002); United
States v. Marin, 961 F.2d 493, 496 (4th Cir. 1992).
The plea agreement contained the following appellate
waiver:
The Defendant agrees:
c. To waive knowingly and expressly all rights, conferred by 18 U.S.C. § 3742, to appeal whatever sentence is imposed, including any issues that relate to the establishment of the advisory Guideline range, reserving only the right to appeal from a sentence in excess of the applicable advisory Guideline range that is established at sentencing, and further to waive all right to contest the conviction or sentence in any post-conviction proceeding . . . excepting an appeal or motion based upon grounds of ineffective assistance of counsel or prosecutorial misconduct not known to the Defendant at the time of the Defendant’s guilty plea.
(J.A. at 204).
During the Rule 11 colloquy, the magistrate judge
specifically referenced the appeal waiver with Handberry,
ensuring that he understood its ramifications. Handberry
stated, under oath, that he understood the appeal waiver, and
there is no suggestion that he was under the influence of drugs
or alcohol at the time of the Rule 11 colloquy. In addition,
Handberry had three years of college education, and his attorney
indicated that he had no difficulty communicating with him.
On appeal, Handberry does not contest any of these
facts, and, accordingly, we agree with the Government that this
issue, which relates to Handberry’s guideline sentence and does
not involve any of the exceptions discussed in General or Marin,
is clearly covered by the appellate waiver.
III.
For the foregoing reasons, we affirm Handberry’s
conviction and sentence. We dispense with oral argument because
the facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 08-5233
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
DANIEL ANTONIO SANDERS,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at New Bern. Louise W. Flanagan, Chief District Judge. (5:08-cr-00174-FL-2)
Submitted: January 21, 2010 Decided: March 19, 2010
Before NIEMEYER, MICHAEL, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
John Keating Wiles, CHESHIRE, PARKER, SCHNEIDER, BRYAN & VITALE, Raleigh, North Carolina, for Appellant. George E. B. Holding, United States Attorney, Anne M. Hayes, Jennifer P. May-Parker, Assistant United States Attorneys, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Daniel Antonio Sanders pled guilty to being an
accessory after the fact in a Hobbs Act robbery, 18 U.S.C. § 3
(2006), without a plea agreement, and was sentenced to a term of
sixty-three months imprisonment. He appeals his sentence,
arguing that the district court abused its discretion in denying
his request for a one-level downward variance to compensate for
the government’s refusal to move for a one-level reduction under
U.S. Sentencing Guidelines Manual § 3E1.1(b) (2008). We affirm.
Sanders’ co-defendant, Kendricus Williams, robbed a
convenience store and escaped in a vehicle driven by Sanders.
They were immediately pursued by police. Sanders crashed the
vehicle after a high-speed chase; both he and Williams were
arrested. In an unprotected statement to the police following
his arrest, Sanders said he drove Williams to the store not
knowing Williams intended to rob it, but that he saw a gun in
Williams’ waistband when Williams returned to the car, saw
Williams counting money, and heard Williams indicate that he had
robbed the store.
At his sentencing hearing, Sanders challenged an
enhancement recommended in the presentence report for possession
or brandishing of a firearm during the offense under USSG
§ 2B3.1(b)(2)(C). Sanders asserted that he was unaware that
Williams intended to rob the store and was not responsible for
conduct that occurred before he knowingly became involved in the
offense. The district court overruled his objection,
specifically holding that the objection was not frivolous. The
court further found that Sanders had accepted responsibility and
awarded him a two-level reduction under USSG § 3E1.1(a).
The government nonetheless characterized Sanders’
objection as frivolous and refused to move for the additional
one-level reduction available under § 3E1.1(b) when the
defendant has “timely notif[ied] authorities of his intention to
enter a plea of guilty, thereby permitting the government to
avoid preparing for trial and permitting the government and the
court to allocate their resources efficiently[.]”
Sanders responded that he had given early notice that
he would plead guilty and requested a one-level variance to
offset the government’s action. The district court decided not
to grant a variance, stating that the government was “within its
province to not move for the reasons it deems appropriate for
that third point of acceptance of responsibility.” When defense
counsel asked the government to explain for the record why it
had refused a motion under § 3E1.1(b), the government stated:
[T]he government has, in its view, applied the application note to 3E1.1 in a manner which accords with the prerogatives of the executive branch, and that is to not move in a case where the government does not feel that the defendant has fully accepted responsibility for his actions, and those actions
include the relevant conduct. And that is specifically listed there in the application note.
Sanders’ advisory guideline range was 57-71 months.
The district court imposed a sentence of sixty-three months
imprisonment.
On appeal, Sanders argues that the district court
abused its discretion when it denied his request for a one-level
variance on the ground that the government had discretion to
refuse to move for a one-level adjustment under § 3E1.1(b) for
whatever reasons it deemed appropriate.
We review a sentence for reasonableness under an abuse
of discretion standard. Gall v. United States, 552 U.S. 38, 51
(2007). This review requires consideration of both the
procedural and substantive reasonableness of a sentence. Id.
After determining whether the district court properly calculated
the defendant’s advisory guideline range, we next consider
whether the district court considered the 18 U.S.C. § 3553(a)
(2006) factors, analyzed the arguments presented by the parties,
and sufficiently explained the selected sentence. Id.; see
United States v. Carter, 564 F.3d 325, 330 (4th Cir. 2009)
(holding that, while the “individualized assessment need not be
elaborate or lengthy, . . . it must provide a rationale tailored
to the particular case . . . and [be] adequate to permit
meaningful appellate review”). Finally, we review the
substantive reasonableness of the sentence, “taking into account
the totality of the circumstances, including the extent of any
variance from the Guidelines range.” United States v. Pauley,
511 F.3d 468, 473 (4th Cir. 2007). In this circuit, substantive
reasonableness review presumes that a sentence imposed within
the properly calculated guidelines range is reasonable. United
States v. Green, 436 F.3d 449, 457 (4th Cir. 2006) (adopting
presumption of reasonableness); see also Rita v. United States,
551 U.S. 338, 347 (2007) (upholding rebuttable presumption of
reasonableness for within-guidelines sentence).
Other circuits have held that the government may
withhold a motion under § 3E1.1(b) on a variety of grounds
unrelated to the timeliness of the guilty plea if its decision
serves some legitimate government interest, equating the limits
on its discretion under § 3E1.1(b) with the constraints to its
filing a motion for a substantial assistance departure under
USSG § 5K1.1, as set out in Wade v. United States, 504 U.S. 181,
186-87 (1992) (holding that government not obligated to file
motion for substantial assistance departure, but refusal may not
be based on unconstitutional motive and must be rationally
related to legitimate government end). See United States v.
Johnson, 581 F.3d 994, 1003 (9th Cir. 2009) (holding that the
desire to avoid “the expenditure of additional resources in
anticipation of and defending against an appeal is a legitimate
governmental interest”); United States v. Drennon, 516 F.3d 160,
163 (3d Cir. 2008) (government’s refusal to make motion because
defendant moved to suppress evidence was rationally related to
legitimate government interest of “efficient allocation of the
government’s litigating resources”); United States v. Newson,
515 F.3d 374, 379 (5th Cir. 2008) (holding that defendant’s
refusal to waive his right to appeal is proper basis for
government to refuse motion, “as it is rationally related to the
purpose of the rule and is not based on an unconstitutional
motive”); United States v. Moreno-Trevino, 432 F.3d 1181, 1185-
86 (10th Cir. 2005) (prosecutors should have same discretion
under § 3E1.1(b) as under § 5K1.1, citing Wade).
Thus, the weight of authority currently favors the
application of the limits set forth in Wade to the government’s
discretion under § 3E1.1(b). Moreover, the sentencing court
retains the discretion to grant or deny a requested variance.
The sentencing court’s decision not to vary below the guideline
range is presumptively reasonable, Rita, 551 U.S. at 347, and we
conclude that Sanders has not rebutted the presumption of
reasonableness.
Therefore, we affirm the sentence imposed by the
district court. We dispense with oral argument because the
facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-1277
ANGELA MORRALL,
Plaintiff - Appellant,
v.
ROBERT M. GATES,
Defendant - Appellee.
Appeal from the United States District Court for the District of Maryland, at Greenbelt. Roger W. Titus, District Judge. (8:07- cv-02097-RWT)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
David A. Branch, LAW OFFICES OF DAVID A. BRANCH, P.C., Washington, D.C., for Appellant. Rod J. Rosenstein, United States Attorney, Melanie L. Glickson, Assistant United States Attorney, Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Angela Morrall, an African-American female, appeals
from the district court’s adverse grant of summary judgment and
dismissal of her action alleging that her former employer,
Robert Gates, Secretary of the Department of Defense,
discriminated against her in violation of Title VII of the Civil
Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e to 2000e-17
(2006) and 42 U.S.C. § 1981 (2006), when it terminated her
employment allegedly based upon her race. Our review of the
record and the district court's opinion discloses that this
appeal is without merit.
We conclude that the district court correctly
determined that Morrall failed to establish a prima facie case
of discrimination. See McDonnell Douglas Corp. v. Green, 411
U.S. 792, 802-04 (1973); Miles v. Dell, Inc., 429 F.3d 480, 485
(4th Cir. 2005). Specifically, relevant to the third prong of
her prima facie case, the undisputed evidence established that
Morrall, who was employed for less than one year and was
terminated during her probationary period, was not performing
her job duties at a level that met her employer’s legitimate
expectations at the time she was terminated. The record
demonstrates that she demonstrated disrespectful and disruptive
conduct. Her relationship with her supervisors was difficult,
and her employment was fraught with her written and verbal
complaints about a broad variety of subjects. 1 Whether an
employee is performing at a level that meets legitimate
expectations is based on the employer’s perception, and
Morrall’s own, unsubstantiated assertions to the contrary are
insufficient to stave off summary judgment. King v. Rumsfeld,
328 F.3d 145, 149 (4th Cir. 2003). Plus, even if Morrall had
established a prima facie case of race discrimination, she
failed to establish that her employer’s legitimate,
nondiscriminatory reason for terminating her employment, namely
her insubordination, was pretextual. See Tex. Dep't of Cmty.
Affairs v. Burdine, 450 U.S. 248, 253 (1981); Conkwright v.
Westinghouse Elec. Corp., 933 F.2d 231, 234-35 (4th Cir. 1991). 2
While Morrall attempts to argue that other similarly- situated employees were treated more favorably than she following episodes of insubordination, as the district court correctly held, the two individuals identified by Morrall were not similarly-situated because there was no evidence that they were probationary employees at the time of their alleged misconduct. See, e.g., George v. Leavitt, 407 F.3d 405, 415 (D.C. Cir. 2005). Nor did Morrall establish viable claims of retaliation or hostile work environment under Title VII, even assuming, arguendo, that such claims were properly exhausted. Her claim of retaliation fails because her first EEO contact occurred after her termination, such that any claim of alleged retaliatory conduct based upon that contact fails as a matter of law, see Anderson v. G.D.C., Inc., 281 F.3d 452, 458 (4th Cir. 2002), and because she failed to demonstrate that any other complained-of conduct by the employer was retaliatory for any other protected activity, see King v. Rumsfeld, 328 F.3d at 150- 51. Nor has Morrall established that the employer’s conduct was sufficiently extreme to establish an actionable hostile work (Continued) We review for abuse of discretion the district court’s
denial of Morrall’s request for additional discovery prior to
granting summary judgment. See Strag v. Bd. of Trs., 55 F.3d
943, 952-53 (4th Cir. 1995). Here, the district court permitted
Morrall to obtain certain additional discovery, some, but not
all, of which Morrall did. It is evident that, prior to ruling
on the employer’s summary judgment motion, the district court
considered and granted some of Morrall’s requested discovery,
and reviewed the extensive factual record fully developed at the
administrative level, as well as the additional discovery
provided by both parties. We cannot say that there was any
abuse of discretion by the district court in its limitation on
Morrall’s requested discovery. See id.
Accordingly, we affirm the judgment of the district
court. We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
AFFIRMED
environment claim. See Faragher v. City of Boca Raton, 524 U.S. 775, 788 (1998). Moreover, we agree with the district court that, while Morrall established the existence of misunderstandings relating to the proper classification of her job, she failed to establish racial discrimination related thereto. |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2018
DOLORES L. CHIA,
Plaintiff – Appellant,
v.
WELLS FARGO BANK NA, as servicer for U.S. Bank National Association, as trustee for Structural Asset Securities Corporation Trust 2005-WF3; U.S. NATIONAL BANK ASSOCIATION; WELLS FARGO BANK NA, exclusive and inclusive of its subsidiaries including: Wells Fargo Home Mortgage, Premier Asset Services, Wells Fargo Asset Corporation; RICHARD A. SMISSEN; MICHAEL V. SMISSEN; KATHRYN SMISSEN WYN; SCOTT M. WHEATLEY, as an individual and as the CEO of Jabez Mortgage Group, LLC, Executive Settlement Services, Wheatley Law Firm, TitleSolve; LA-Z-BOY, INC.; SAMUEL I. WHITE; J. DOES 1-50, XXXCORPORATIONS 1-50,
Defendants – Appellees.
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Leonie M. Brinkema, District Judge. (1:09-cv-00670-LMB-TRJ)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion. Delores L. Chia, Appellant Pro Se. Elizabeth Shattuck Finberg, Vienna, Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Dolores L. Chia appeals from the district court’s
order denying her motion to amend her complaint and determining
that, following her discharge in bankruptcy, she lacked standing
to bring claims against Wells Fargo Bank, NA, arising out of the
refinance of her mortgage and the subsequent foreclosure sale of
her home. We have reviewed the record and find no reversible
error. Accordingly, although we grant Chia’s motion for leave
to file an amended reply brief, we affirm for the reasons stated
by the district court. Chia v. Wells Fargo Bank NA, No. 1:09-
cv-00670-LMB-TRJ (E.D. Va. Aug. 3 & 5, 2009). We dispense with
oral argument because the facts and legal contentions are
adequately presented in the materials before the court and
argument would not aid the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2091
RODRIGUEZ SAMUEL DA MATHA DE SANTANNA,
Plaintiff – Appellant,
v.
MARTIN O’MALLEY, Governor (first Representative of Maryland); GLENN IVEY, State’s Attorney (first Public Prosecutor of PG County); BRIAN LOFTON, Commissioner (ID#5138),
Defendants – Appellees,
and
STATE OF MARYLAND, In care of Governor O’Malley,
Defendant.
Appeal from the United States District Court for the District of Maryland, at Greenbelt. Alexander Williams, Jr., District Judge. (8:09-cv-01927-AW)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER and DAVIS, Circuit Judges. *
Dismissed by unpublished per curiam opinion.
* The opinion is filed by a quorum of the panel pursuant to 28 U.S.C. § 46(d) (2006). Rodriguez Samuel Da Matha De Santanna, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Rodriguez Samuel Da Matha De Santana seeks to appeal
the district court order dismissing his claims against one of
the four Defendants named in his suit. This court may exercise
jurisdiction only over final orders, 28 U.S.C. § 1291 (2006),
and certain interlocutory and collateral orders, 28 U.S.C.
§ 1292 (2006); Fed. R. Civ. P. 54(b); Cohen v. Beneficial Indus.
Loan Corp., 337 U.S. 541 (1949). The order De Santanna seeks to
appeal is neither a final order nor an appealable interlocutory
or collateral order. Accordingly, we dismiss the appeal for
lack of jurisdiction. We dispense with oral argument because
the facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2100
BORIS SHULMAN,
Plaintiff – Appellant,
v.
BLUE CROSS & BLUE SHIELD OF SOUTH CAROLINA,
Defendant – Appellee,
and
SOUTH CAROLINA HUMAN AFFAIRS COMMISSION,
Defendant.
Appeal from the United States District Court for the District of South Carolina, at Columbia. Cameron McGowan Currie, District Judge. (3:07-cv-02967-CMC)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Boris Shulman, Appellant Pro Se. Kathryn Thomas, GIGNILLIAT, SAVITZ & BETTIS, Columbia, South Carolina, for Appellant.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Boris Shulman appeals the district court’s order
accepting the magistrate judge’s recommendation to grant
Defendant’s motion for summary judgment on his retaliation and
race and national origin discrimination claims, in violation of
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.
§§ 2000e to 2000e-17 (2006). We have reviewed the record and
find no reversible error. Accordingly, we affirm the district
court’s order. See Shulman v. Blue Cross & Blue Shield of S.C.,
No. 3:07-cv-02967-CMC (D.S.C. Sept. 2, 2009). We dispense with
oral argument because the facts and legal contentions are
adequately presented in the materials before the court and
argument would not aid the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2132
WARREN R. FOLLUM,
Plaintiff – Appellant,
v.
NORTH CAROLINA STATE UNIVERSITY; KEVIN MACNAUGHTON, in his individual and official capacities; MICHAEL HARWOOD, in his individual and official capacities; CAROLE ACQUESTA, in her individual and official capacities; BARBARA CARROLL, in her individual and official capacities,
Defendants – Appellees.
Appeal from the United States District Court for the Eastern District of North Carolina, at New Bern. Louise W. Flanagan, Chief District Judge. (5:08-cv-00526-FL)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Warren R. Follum, Appellant Pro Se. Kimberly D. Potter, Assistant Attorney General, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Warren R. Follum appeals the district court’s order
accepting the recommendation of the magistrate judge and
dismissing his employment discrimination complaint. We have
reviewed the record and find no reversible error. Accordingly,
we affirm for the reasons stated by the district court.
Follum v. North Carolina State Univ., No. 5:08-cv-00526-FL
(E.D.N.C. Sept 2, 2009). We dispense with oral argument because
the facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2154
RODRIGUEZ SAMUEL DA MATHA DE SANTANNA,
Plaintiff – Appellant,
v.
BRADLEY ARANT BOULT CUMMINGS LLP; ERIC FRECHTEL, Attorney,
Defendants – Appellees.
Appeal from the United States District Court for the District of Maryland, at Greenbelt. Roger W. Titus, District Judge. (8:09- cv-02438-RWT)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Rodriguez Samuel Da Matha De Santanna, Appellant Pro Se. Scott Burnett Smith, BRADLEY, ARANT, ROSE & WHITE, Huntsville, Alabama, for Appellees.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Rodriguez Samuel Da Matha De Santanna appeals from the
district court order dismissing his claims against the law firm
of Bradley Arant Boult Cummings LLP (“Bradley Arant”). We have
reviewed the record and find no reversible error. Accordingly,
we affirm for the reasons stated by the district court. Da
Matha De Santanna v. Bradley Arant Cummings LLP, No. 8:09-cv-
02438-RWT (D. Md. Sept. 30, 2009). We dispense with oral
argument because the facts and legal contentions are adequately
presented in the materials before the court and argument would
not aid the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2191
DAVID A. BARDES, individually as a taxpayer; and as next friend of his two minor children, DAB and APB,
Plaintiff – Appellant,
v.
JOHN M. MAGERA, individually and in his official capacity as State's Attorney for South Carolina Department of Social Services; STATE OF SOUTH CAROLINA; CHARLESTON COUNTY SOUTH CAROLINA; COUNTY COUNCIL OF CHARLESTON SOUTH CAROLINA; MCROY CANTERBURY, JR., individually and in his official capacity as Administrator for Charleston County; KATHLEEN M. HAYES, individually and in her official capacity as the South Carolina Department of Social Services State Director; JAMES A. CANNON, JR., individually and in his official capacity as Sheriff of Charleston County South Carolina; CORRECT CARE SOLUTIONS, LLC; Hon. R. WRIGHT TURBEVILLE, individually and in his official capacity as a Judge of the State of South Carolina; Hon. JOCELYN B. CATE, individually and in her official capacity as a Judge of the State of South Carolina; Hon. PAUL W. GARFINKEL, individually and in his official capacity as a Judge of the State of South Carolina; JULIE J. ARMSTRONG, individually and in her official capacity as Clerk of the Courts for the Charleston Judicial Center; WISHART NORRIS HENNINGER AND PITTMAN PA; WADE HARRISON, Esq., individually and in his official capacity as officer within any court of law,
Defendants – Appellees,
and
ODESSA WILLIAMS, individually and in her official capacity as Charleston County Department of Social Services Director,
Defendant. Appeal from the United States District Court for the District of South Carolina, at Charleston. Patrick Michael Duffy, Senior District Judge. (2:08-cv-00487-PMD-RSC)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
David A. Bardes, Appellant Pro Se. Stephanie Pendarvis McDonald, SENN, MCDONALD & LEINBACK, LLC, Charleston, South Carolina, Amanda R. Maybank, MAYBANK LAW FIRM, LLC, Charleston, South Carolina, Pamela Suzanne Duffy, Molly Anne Whitlatch, WISHART, NORRIS, HENNINGER & PITTMAN, PA, Burlington, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
David A. Bardes seeks to appeal the district court’s
order adopting the magistrate judge’s report and recommendation
and dismissing all but one of Bardes’s claims and attendant
defendants. This court may exercise jurisdiction only over
final orders, 28 U.S.C. § 1291 (2006), and certain interlocutory
and collateral orders, 28 U.S.C. § 1292 (2006); Fed. R. Civ. P.
54(b); Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541,
545-47 (1949). The order Bardes seeks to appeal is neither a
final order nor an appealable interlocutory or collateral order.
Accordingly, we dismiss the appeal for lack of jurisdiction. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2290
OZIE M. WARE,
Plaintiff – Appellant,
v.
RODNEY PRUITT; JUDGE FLYNN,
Defendants – Appellees,
and
J. E. PATSOURAKOS, Officer; OFFICER GRIFFIN,
Defendants.
Appeal from the United States District Court for the District of South Carolina, at Aiken. Margaret B. Seymour, District Judge. (1:09-cv-02360-MBS-JRM)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ, and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Ozie M. Ware, Appellant Pro Se. Evan Markus Gessner, LIDE & PAULEY, LLC, Lexington, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Ozie M. Ware seeks to appeal the district court order
dismissing his claims against two of the four Defendants named
in his law suit. This court may exercise jurisdiction only over
final orders, 28 U.S.C. § 1291 (2006), and certain interlocutory
and collateral orders, 28 U.S.C. § 1292 (2006); Fed. R. Civ. P.
54(b); Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541
(1949). The order Ware seeks to appeal is neither a final order
nor an appealable interlocutory or collateral order.
Accordingly, we dismiss the appeal for lack of jurisdiction. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-2296
SABRINA D. DAVIS,
Plaintiff – Appellant,
v.
KIA MOTORS AMERICA, INCORPORATED,
Defendant – Appellee,
and
KIA MOTORS OF AMERICA,
Defendant.
Appeal from the United States District Court for the District of South Carolina, at Greenville. R. Bryan Harwell, District Judge. (6:08-cv-01937-RBH)
Submitted: March 16, 2010 Decided: March 19, 2010
Before NIEMEYER, MOTZ and DAVIS, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Sabrina D. Davis, Appellant Pro Se. David Christopher Marshall, Curtis L. Ott, TURNER, PADGET, GRAHAM & LANEY, PA, Columbia, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Sabrina D. Davis seeks to appeal the district court’s
order dismissing her complaint for lack of subject matter
jurisdiction. Defendant Kia Motors America, Incorporated has
moved to dismiss the appeal as untimely.
Parties are accorded thirty days after the entry of
the district court’s final judgment or order to note an appeal,
Fed. R. App. P. 4(a)(1)(A), unless the district court extends
the appeal period under Fed. R. App. P. 4(a)(5), or reopens the
appeal period under Fed. R. App. P. 4(a)(6). “[T]he timely
filing of a notice of appeal in a civil case is a jurisdictional
requirement.” Bowles v. Russell, 551 U.S. 205, 214 (2007).
The district court’s order was entered on the docket
on August 18, 2009. The notice of appeal was filed on November
18, 2009. Because Davis failed to file a timely notice of
appeal or to obtain an extension or reopening of the appeal
period, we grant the motion to dismiss the appeal. We dispense
with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and
argument would not aid in the decisional process.
DISMISSED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-4512
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
CALVIN JERMEL STEWART, JR.,
Defendant - Appellant.
Appeal from the United States District Court for the District of South Carolina, at Greenville. Henry F. Floyd, District Judge. (6:06-cr-00142-HFF-1)
Submitted: February 24, 2010 Decided: March 19, 2010
Before KING, DUNCAN, and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
James B. Loggins, Assistant Federal Public Defender, Greenville, South Carolina, for Appellant. Maxwell B. Cauthen, III, Assistant United States Attorney, Greenville, South Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Calvin Jermel Stewart, Jr. pled guilty, without a plea
agreement, to possession of a firearm and ammunition after
having been convicted of a crime punishable by more than one
year of imprisonment, in violation of 18 U.S.C. § 922(g) (2006).
In the presentence report (PSR), the probation officer
determined that Stewart qualified for sentencing as an armed
career criminal pursuant to 18 U.S.C. § 924(e) (2006) and U.S.
Sentencing Guidelines Manual (USSG) § 4B1.4 (2005). Stewart’s
status as an armed career criminal resulted in an offense level
of thirty-three, and a criminal history category of IV, which
yielded a sentencing range of 188 to 235 months of imprisonment.
Stewart did not object to the PSR. The district court sentenced
Stewart to 220 months of imprisonment.
Counsel failed to file a notice of appeal. Stewart
filed a 28 U.S.C.A. § 2255 (West Supp. 2009) motion, asserting
that he is actually innocent, that counsel was ineffective in
failing to file an appeal, that criminal history points were
incorrectly applied to place him in armed career criminal
status, and that his conviction for pointing a firearm does not
constitute a crime of violence after the Supreme Court’s
decision in Begay v. United States, 553 U.S. 137, 128 S. Ct.
1581, 1584-86 (2008). The district court granted relief in
part, vacated its original judgment, and immediately reentered
judgment to allow Stewart a belated direct appeal.
On appeal, counsel filed a brief pursuant to Anders v.
California, 386 U.S. 738 (1967), stating that there are no
meritorious issues for appeal, but questioning whether the
district court erred in sentencing Stewart. In his pro se
supplemental brief, Stewart argues that the Anders brief was
submitted in violation of the Sixth Amendment and requests that
his appeal be remanded to the district court so that the court
may consider the merits of the claims asserted in his § 2255
motion. The Government declined to file a brief. We affirm.
This court reviews a sentence for reasonableness under
an abuse of discretion standard. Gall v. United States, 552
U.S. 38, 51 (2007). This review requires appellate
consideration of both the procedural and substantive
reasonableness of a sentence. Id. After determining whether
the district court properly calculated the defendant’s advisory
Guidelines range, this court must then consider whether the
district court considered the 18 U.S.C. § 3553(a) (2006)
factors, analyzed any arguments presented by the parties, and
sufficiently explained the selected sentence. Id. “Regardless
of whether the district court imposes an above, below, or
within-Guidelines sentence, it must place on the record an
‘individualized assessment’ based on the particular facts of the
case before it.” United States v. Carter, 564 F.3d 325, 330
(4th Cir. 2009).
In this case, counsel does not assert any specific
error, procedural or substantive, in the district court’s
sentencing determination. Our review of the record leads us to
conclude that the district court did not err in sentencing
Stewart. In his pro se brief, Stewart argues that the three
convictions used to qualify him for an enhanced sentence as an
armed career criminal are not violent felonies under Begay.
This argument is meritless. In Begay, the Supreme Court held
that the offense of driving while intoxicated under New Mexico
law was not a violent felony under the Armed Career Criminal
Act’s “otherwise” clause because it was not sufficiently similar
to crimes specifically mentioned in that clause. Begay, 128 S.
Ct. at 1588. The Court stated that “[i]n our view, DUI differs
from the example crimes — burglary, arson, extortion, and crimes
involving the use of explosives — in at least one pertinent, and
important, respect. The listed crimes all typically involve
purposeful, ‘violent,’ and ‘aggressive’ conduct.” Id. at 1586.
Stewart’s prior convictions for pointing a firearm at another
person, lynching, and assault and battery of a high and
aggravated nature likewise involve “purposeful, violent, and
aggressive conduct.” The district court correctly determined
that Stewart qualified for sentencing as an armed career
criminal. We also conclude that the district court provided a
sufficiently individualized explanation for its sentence that
demonstrated its consideration of the relevant § 3553(a)
factors, as required by Carter.
This court reviews the substantive reasonableness of
the sentence, “taking into account the ‘totality of the
circumstances, including the extent of any variance from the
Guidelines range.’” United States v. Pauley, 511 F.3d 468, 473
(4th Cir. 2007) (quoting Gall, 128 S. Ct. at 597). This court
presumes that a sentence imposed within the properly calculated
guidelines range is reasonable. Rita v. United States, 551 U.S.
338, 347 (2007); United States v. Smith, 566 F.3d 410, 414 (4th
Cir. 2009). Stewart has presented no information to demonstrate
that the totality of the circumstances would support a sentence
below the Guidelines range, and our review of the record reveals
none.
In accordance with Anders, we have reviewed the record
in this case and have found no meritorious issues for appeal.
We have considered the remaining arguments asserted in Stewart’s
supplemental brief, including those claims raised in his § 2255
motion in the district court, and find them to be without merit.
We therefore affirm Stewart’s conviction and sentence. This
court requires that counsel inform Stewart, in writing, of the
right to petition the Supreme Court of the United States for
further review. If Stewart requests that a petition be filed,
but counsel believes that such a petition would be frivolous,
then counsel may move in this court for leave to withdraw from
representation. Counsel’s motion must state that a copy thereof
was served on Stewart.
We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional
process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-4522
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
STEPHEN HARDISON,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. W. Earl Britt, Senior District Judge. (5:08-cr-00278-BR-2)
Submitted: February 24, 2010 Decided: March 19, 2010
Before MICHAEL and AGEE, Circuit Judges, and HAMILTON, Senior Circuit Judge.
Affirmed by unpublished per curiam opinion.
Sue Genrich Berry, BOWEN AND BERRY, PLLC, Wilmington, North Carolina, for Appellant. George E. B. Holding, United States Attorney, Anne M. Hayes, Jennifer P. May-Parker, Assistant United States Attorneys, Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Stephen Hardison appeals the 197-month sentence
imposed after he pled guilty, pursuant to a plea agreement, to
one count of conspiracy to distribute and possess with intent to
distribute fifty grams or more of crack cocaine, 500 grams or
more of cocaine, and a quantity of marijuana, in violation of 21
U.S.C. §§ 846, 841(a)(1) (2006). We affirm.
In the presentence report (PSR), the probation officer
recommended a total offense level of twenty-seven and a criminal
history category of VI, which resulted in a sentencing range of
130 to 162 months of imprisonment. The PSR also noted that
Hardison’s extensive criminal history might warrant an upward
departure pursuant to U.S. Sentencing Guidelines Manual (USSG)
§ 4A1.3(a) (2008). Hardison did not object to the PSR.
Before sentencing, the Government filed a motion for a
downward departure pursuant to USSG § 5K1.1 based on Hardison’s
substantial assistance. At sentencing, the district court
adopted the factual findings and Guidelines calculations in the
PSR, without objection. The Government orally moved for an
upward departure on the ground that Hardison’s criminal history
category under-represented the seriousness of his past criminal
conduct and the likelihood that he would continue to commit
crimes. The district court granted the Government’s motion for
an upward departure and departed upward to offense level thirty-
four, which increased the sentencing range to 262 to 327 months.
The court then granted the Government’s substantial assistance
motion and departed downward to a sentence of 197 months of
imprisonment.
On appeal, Hardison first argues that the district
court imposed a procedurally unreasonable sentence by failing to
consider the factors in 18 U.S.C. § 3553(a) (2006), with the
exception of Hardison’s criminal history, which was considered
only as it related to the Government’s motion for upward
departure. This court reviews a sentence for reasonableness
under an abuse of discretion standard. Gall v. United States,
552 U.S. 38, 51 (2007). This review requires appellate
consideration of both the procedural and substantive
reasonableness of a sentence. Id. After determining whether
the district court properly calculated the defendant’s advisory
Guidelines range, this court must consider whether the district
court considered the § 3553(a) factors, analyzed any arguments
presented by the parties, and sufficiently explained the
selected sentence. Id. at 49-51. “Regardless of whether the
district court imposes an above, below, or within-Guidelines
sentence, it must place on the record an ‘individualized
assessment’ based on the particular facts of the case before
it.” United States v. Carter, 564 F.3d 325, 330 (4th Cir.
2009).
Our review of the record leads us to conclude that the
district court did not procedurally err in its determination or
explanation of Hardison’s sentence. Hardison argued that “the
history and characteristics of the defendant,” 18 U.S.C.
§ 3553(a)(1), did not warrant an upward departure, but supported
a sentence at the statutory minimum. The district court
discussed in detail Hardison’s criminal history, the indications
that he would continue to commit crime, and the need to protect
the public from Hardison’s crimes. Although the court did not
discuss Hardison’s drug addiction or employment opportunities,
such omission was not error. The district court adequately
addressed the relevant § 3553(a) factors and explained its
sentencing determination in terms specific to Hardison.
Hardison also argues that his sentence is
substantively unreasonable because the district court based its
decision to upwardly depart on the number of his prior
convictions rather than on the seriousness of his criminal
record. This court reviews the substantive reasonableness of
the sentence, “taking into account the ‘totality of the
circumstances, including the extent of any variance from the
Guidelines range.’” United States v. Pauley, 511 F.3d 468, 473
(4th Cir. 2007) (quoting Gall, 552 U.S. at 51). “If the
district court decides to impose a sentence outside the
Guidelines range, it must ensure that its justification supports
the ‘degree of the variance’; thus, ‘a major departure should be
supported by a more significant justification than a minor
one.’” United States v. Evans, 526 F.3d 155, 161 (4th Cir.
2008) (quoting Gall, 552 U.S. at 50). This court “may consider
the extent of the deviation [from the recommended Guidelines
range], but must give due deference to the district court’s
decision that the § 3553(a) factors, as a whole, justify the
extent of the variance.” Gall, 552 U.S. at 51. That this court
would have reached a different result in the first instance is
an insufficient reason to reverse the district court’s sentence.
Id.
A district court may depart upward from the Guidelines
range under USSG § 4A1.3(a) when “the defendant’s criminal
history category substantially under-represents the seriousness
of the defendant’s criminal history or the likelihood that the
defendant will commit other crimes.” USSG § 4A1.3(a)(1). This
court has stated that “[s]ection 4A1.3 was drafted in classic
catch-all terms for the unusual but serious situation where the
criminal history category does not adequately reflect past
criminal conduct or predict future criminal behavior.” United
States v. Lawrence, 349 F.3d 724, 730 (4th Cir. 2003). “In
determining whether an upward departure from Criminal History
Category VI is warranted, the court should consider that the
nature of the prior offenses rather than simply their number is
often more indicative of the seriousness of the defendant’s
criminal record.” USSG § 4A1.3, comment. (n.2(B)). In deciding
the extent of a departure in the case of a defendant who is
already in criminal history category VI, “the court should
structure the departure by moving incrementally down the
sentencing table to the next higher offense level in Criminal
History Category VI until it finds a guideline range appropriate
to the case.” USSG § 4A1.3(a)(4)(B).
Contrary to Hardison’s argument, the district court’s
explanation reveals that the court considered the nature of his
prior crimes in addition to their number. The PSR reveals that
Hardison has a total of twenty-eight misdemeanor and seventy
felony convictions. Seventeen of the misdemeanor and fifty-five
of the felony convictions received no criminal history points in
the Guidelines calculation. Moreover, Hardison’s criminal
history includes multiple instances in which he received a
sentence of probation that was later revoked upon his commission
of additional crimes. Finally, although the majority of
Hardison’s crimes were property-related, many of his convictions
involved breaking and entering, which presents a risk of
confrontation by the owner of the property. The district
court’s decision to depart was supported by the evidence, and
the extent of the departure was reasonable.
Accordingly, we affirm Hardison’s sentence. We
dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the
court and argument would not aid the decisional process.
AFFIRMED |
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 09-4651
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JOHNMARLO BALASTA NAPA,
Defendant - Appellant.
Appeal from the United States District Court for the Western District of Virginia, at Roanoke. James C. Turk, Senior District Judge. (7:08-cr-00030-jct-1)
Submitted: February 25, 2010 Decided: March 19, 2010
Before MICHAEL, KING, and AGEE, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Larry W. Shelton, Federal Public Defender, Fay F. Spence, First Assistant Federal Public Defender, Roanoke, Virginia, for Appellant. Julia C. Dudley, United States Attorney, Craig J. Jacobsen, Assistant United States Attorney, Roanoke, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
Johnmarlo B. Napa entered a conditional guilty plea,
Fed. R. Crim. P. 11(a)(2), to willfully transmitting a threat to
injure another person in violation of 18 U.S.C. § 875(c) (2006).
The conditional plea preserved Napa’s right to challenge the
district court’s denial of his motion to dismiss the indictment.
On appeal, Napa contends that the district court erred
in rejecting his argument that the communications that formed
the basis for the indictment do not fall within the parameters
of § 875(c). Napa argues that the communications were not
threats because they did not contain an expression of an intent
to commit an unlawful act of violence to a particular person or
group. As a result, he argues, the communications are protected
by the First Amendment. Finding no error, we affirm.
Napa’s indictment arose from an email message that he
sent to two Virginia Tech students. The two students, H.H. and
C.L., attended Virginia Tech on April 16, 2007, when Seung-Hui
Cho killed thirty-two people. * H.H. and C.L. had been stalked by
Cho and had received disturbing messages from him in the months
prior to the shooting. After the shooting, H.H. and C.L. were
interviewed about their prior interactions with Cho, and their
* Because the victims did not testify in the proceedings below, and in light of Fed. R. Crim. P. 6(e), the Government has identified the two victims only as H.H. and C.L.
names and photographs appeared in several newspaper stories and
on the internet.
Napa’s email, which bore the return email address
“SeungCho <seunghuichorevenge@yahoo.com>,” was specifically
directed to H.H. and C.L., and was sent from Nevada to their
email addresses at Virginia Tech on the eve of the first
anniversary of the Virginia Tech shooting. The message which is
a quote from a videotape Cho sent to NBC News just prior to the
mass shooting in Norris Hall, stated:
You have never felt a single ounce of pain your whole life. Did you want to inject as much misery in our lives as you can just because you can? I didn’t have to do this. I could have left. I could have fled. But No, I will no longer run. It’s not for me. For my children, for my brothers and sisters that you fucked. I did it for them . . .
Napa included in the email message a hyperlink to a
“My Space” internet web page that contained information about
Cho, photographs of Cho with guns, a ballad glorifying Cho’s
acts, and photographs of both H.H. and C.L. that Napa found on
the internet. Adjacent to a photo of Cho was the statement
“Continue the Rampage.” Among the pictures on Napa’s My Space
page was a photo that showed Cho holding cutout paper dolls on
which the faces of H.H. and C.L. and Virginia Tech shooting
victims had been pasted. There were also several individual
photographs of H.H. and C.L. among the pictures on the My Space
page.
When H.H. opened the message, she became hysterical
and called the Blacksburg Police. She also called C.L. to warn
her about the email. When C.L. opened the email, she became
very frightened and feared for her safety because the person who
had sent the email “could be anywhere.” C.L. believed that the
person who sent the message had researched the events
surrounding the shooting at Virginia Tech, discovered who H.H.
and C.L. were, found their photographs, and found their email
addresses. Upon reading the email, C.L. immediately felt
threatened.
After receiving H.H.’s call, the Blacksburg Police
reported the incident to federal authorities. The email message
was traced back to Napa, who ultimately admitted to sending the
message.
We review de novo whether a written communication is
constitutionally protected speech or “an unprotected ‘true
threat.’” United States v. Bly, 510 F.3d 453, 457 (4th Cir.
2007).
The transmission of threats in interstate commerce is
prohibited by 18 U.S.C. § 875(c). To prove a violation of
§ 875(c), “the government must establish that the defendant
intended to transmit the interstate communication and that the
communication contained a true threat.” United States v. Darby,
37 F.3d 1059, 1066 (4th Cir. 1994). The government need not
show that the speaker actually intended to carry out the threat.
Darby, 37 F.3d at 1064 n.3 (a violation of 18 U.S.C. § 875(c) is
not a specific intent crime and “the government need not prove
intent (or ability) to carry out the threat”).
In determining whether the communication contains a
true threat, the communication must be viewed in the context in
which it is received. See United States v. Spruill, 118 F.3d
221, 228 (4th Cir. 1997) (when considering whether a statement
is a threat, “[c]ontext is important”). The communication must
be viewed using an objective standard, - that is, whether “an
ordinary, reasonable person who is familiar with the context of
the communication would interpret it as a threat of injury.”
United States v. Spring, 305 F.3d 276, 280 (4th Cir. 2002)
(internal quotation marks and alterations omitted); Darby, 37
F.3d at 1064.
In Watts v. United States, 394 U.S. 705 (1969), the
Supreme Court identified four factors in determining that
Watts’s statement was not a true threat. The Court noted that
the communication was: (1) made in jest; (2) to a public
audience; (3) in political opposition to the President; and (4)
conditioned upon an event the speaker himself vowed would never
happen. Id. at 707-08. See also United States v. Lockhart, 382
F.3d 447, 451-52 (4th Cir. 2004) (applying these four factors
and finding that Lockhart’s statement was a true threat upon the
life of the President).
In applying these four factors to Napa’s case, we find
that the email he sent to H.H. and C.L. was a true threat. In
so finding, we note first that any ordinary, reasonable person
familiar with the context would have felt threatened by the
message and would not have construed it as a joke. Second,
unlike the statement made to the public in Watts, the statement
here was specifically directed at H.H. and C.L. Third, the
message was not constructed in a manner to engage H.H. and C.L.
in the free trade of ideas regarding the Virginia Tech shooting
or their specific interactions with the shooter. Finally,
viewing the expression in the context in which it was received,
Napa’s statement on the My Space page “Continue the Rampage,”
taken with his return email address of
seunghuichorevenge@yahoo.com, would indicate to an ordinary,
reasonable person that Napa planned on avenging Cho’s death by
committing future violent acts, and the threat of such violence
was imminent, and not conditional.
We accordingly conclude, the district court properly
denied Napa’s motion to dismiss the indictment, and affirm
Napa’s conviction. We dispense with oral argument because the
facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED |
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 10a0077p.06
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _________________
X Plaintiff-Appellee, - UNITED STATES OF AMERICA, - - - No. 08-1915 v. , > - Defendant-Appellant. - LARRY J. COCCIA, - N Appeal from the United States District Court for the Western District of Michigan at Grand Rapids. No. 06-00034-001—Robert Holmes Bell, District Judge. Argued: January 13, 2010 Decided and Filed: March 19, 2010 Before: MARTIN, BOGGS, and WHITE, Circuit Judges.
_________________
COUNSEL ARGUED: Clare E. Freeman, OFFICE OF THE FEDERAL PUBLIC DEFENDER, Grand Rapids, Michigan, for Appellant. Hagen W. Frank, ASSISTANT UNITED STATES ATTORNEY, Grand Rapids, Michigan, for Appellee. ON BRIEF: Clare E. Freeman, Richard D. Stroba, OFFICE OF THE FEDERAL PUBLIC DEFENDER, Grand Rapids, Michigan, for Appellant. Raymond E. Beckering III, ASSISTANT UNITED STATES ATTORNEY, Grand Rapids, Michigan, for Appellee. _________________
OPINION _________________
HELENE N. WHITE, Circuit Judge. Defendant Larry J. Coccia (“Coccia”) appeals the district court’s judgment, which found that Coccia had violated a term of his supervised release, continued his supervised release, and required him to provide a DNA sample. Coccia asserts that the district court erred in finding that he had violated his supervised release, and that requiring him to provide a DNA sample under a statute that did not apply
No. 08-1915 United States v. Coccia Page 2
to him at the time of his original conviction and sentence violates the Ex Post Facto Clause of the United States Constitution. We AFFIRM the district court’s judgment because a review of the record confirms that the court found Coccia in violation of the terms of his supervised release, and collecting DNA from Coccia was not unconstitutional.
I. Background
Coccia, who has a history of psychiatric problems, was found guilty in Massachusetts of possessing a firearm while subject to a restraining order in violation of 18 U.S.C. § 922(g)(8), and was sentenced to 60 months in custody to be followed by three years of supervised release. Jurisdiction over Coccia’s term of supervised release was subsequently transferred to the Western District of Michigan.
After Coccia failed to appear for two appointments to provide a DNA sample, his Probation Officer, Rhonda J. Wallock (“Wallock”), scheduled a third appointment for March 11, 2008. On March 3, 2008, Wallock received a letter from Coccia dated February 24, 2008, in which Coccia stated his intention to relocate on March 4, 2008 to Sault Ste. Marie in the Upper Peninsula of Michigan, which is in the Northern Division of the Western District of Michigan. Coccia’s letter stated “Please note my new address,” and provided the address of a motel in Sault Ste. Marie.
Wallock spoke with Coccia by phone on March 5, 2008, and Coccia confirmed that he was in Sault Ste. Marie and intended to remain there. Wallock informed Coccia that he had to return to have his DNA collected, and that he had failed to provide her with ten days notice of his relocation as required by the terms of his supervised release. During the conversation, Coccia claimed that Wallock was no longer his probation officer because he had relocated, and Wallock informed Coccia that his understanding was incorrect.
On March 6, 2008, Coccia appeared at the U.S. Probation Office in Marquette, Michigan, and asked to speak with his “new” probation officer. An officer there informed Coccia that Wallock was still his probation officer and that he had to return to Grand Rapids, in the Southern Division, for DNA collection. Coccia appeared anxious and agitated, and was acting bizarrely. Afer leaving the probation office, Coccia went to the federal No. 08-1915 United States v. Coccia Page 3
courthouse where he asked to see District Judge Robert Bell. Based on his demeanor, the court security officers ordered Coccia to leave the courthouse.
Informed of these events, Wallock petitioned for an arrest warrant. A magistrate judge granted the petition and issued a warrant for Coccia’s arrest based on his violating Standard Condition Number Six of his supervised release, which required him to provide ten days notification before relocation. United States Marshals arrested Coccia.
On July 1, 2008, the district court held a hearing regarding Coccia’s alleged violation of his supervised release. Coccia’s counsel stated at the hearing that he was “kind of pleading no contest” and that he believed that Coccia had engaged in a “technical violation” of Standard Condition Six, but that Coccia’s move to the motel “didn’t really qualify as much of a residence or a permanent residence or a permanent change.” Coccia’s counsel requested that should the court find a violation, the court not revoke Coccia’s supervised release, but instead order it continued.
After hearing testimony regarding the relevant events from Wallock, the district court arranged for the DNA sample to be taken by Coccia’s brother-in-law, who is a doctor and who employed Coccia part-time. The district court stated:
What we’re going to do is this. I’m going to continue Mr. Coccia on supervised release. I’m going to require that within the next 30 days Mr. Coccia in conjunction with his brother-in-law and in conjunction with his employment get the DNA test done.
Coccia’s counsel did not raise any objections.
The minutes of the hearing note that the court found Coccia guilty of violating Standard Condition Number Six, and in its Amended Judgment the district court explicitly found Coccia in violation of Standard Condition Number Six based on his failure to provide Wallock with ten days prior notice of his change of residence. The Amended Judgment also modified the conditions of supervised release, including requiring Coccia to submit to DNA collection within thirty days of the date of the Judgment. No. 08-1915 United States v. Coccia Page 4
Coccia complied with the order to provide a DNA sample, but also filed a notice of appeal. On March 21, 2009, Coccia’s term of supervised release expired, and on March 25, 2009, Coccia was discharged from supervised release.
II. Analysis
A.
Coccia’s first claim of error, challenging the Amended Judgment’s finding that he violated the terms of his supervised release on the basis that the district court did not make an explicit finding during the hearing, is likely moot. However, because the argument is so easily addressed and rejected, we will simply do so.
The district court’s finding of a violation was implicit in the course of the proceedings. Such a finding was entered in the contemporaneous minutes, and was stated in the order. A court speaks through its written orders and judgments, and where, as here, such a judgment is consistent with the record of the proceedings, there is no reason to reverse. See United States v. Busacca, 977 F.2d 583, at *1 (6th Cir. 1992) (unpublished table decision) (citing United States v. Bergmann, 836 F.2d 1220, 1221 (9th Cir. 1988)).
B.
Coccia claims that requiring him to provide a DNA sample under 42 U.S.C. § 14135a(d) violates the Constitution’s prohibition on ex post facto laws. Although Coccia has already complied with the district court’s order and provided a blood sample, he requests as relief the removal of his DNA from the federal database. Because Coccia did not raise this claim below, our review is for plain error. United States v. Olano, 507 U.S. 725, 731-32 (1993).
In 1994, Congress passed the Violent Crime Control and Law Enforcement Act, authorizing the FBI to establish a national index of DNA samples from convicted federal offenders. Violent Crime Control and Law Enforcement Act of 1994, Pub. L. No. 103-322, 108 Stat. 1796 (Sept. 13, 1994). Pursuant to this Act, the FBI created the Combined DNA Index System (“CODIS”), which allows law enforcement officials to link DNA found at a crime scene to DNA on file. Congress allowed for certain federal offenders to be included in CODIS in the Antiterrorism and Effective Death Penalty Act of 1996 (“AEDPA”). No. 08-1915 United States v. Coccia Page 5
AEDPA § 811(a)(2), Pub. L. No. 104-132, 110 Stat. 1214 (April 24, 1996). Subsequently, the Department of Justice determined that AEDPA did not provide sufficient authority for the collection of DNA from federal offenders, and in response Congress passed the DNA Analysis Backlog Elimination Act of 2000 (“DNA Act”), §3, Pub. L. No. 106-546, 114 Stat. 2726 (2000) (codified at 42 U.S.C. §§ 14135-14135e). The DNA Act mandated the collection of DNA samples from prisoners, parolees, and individuals on probation who have committed certain qualifying offenses. Failure of an individual covered by the DNA Act to submit to DNA collection constitutes a Class “A” misdemeanor subject to punishment in accordance with Title 18. 42 U.S.C. § 14135a(a)(5). The information maintained in CODIS may be disclosed only to law enforcement agencies for “identification purposes,” “in judicial proceedings,” “for criminal defense purposes,” and, if personally identifiable information is first removed, for statistical and quality control purposes. 42 U.S.C. §14132(b)(3)(A)-(D).
It is undisputed that at the time Coccia was convicted of possessing a firearm while under a restraining order he was not covered by the DNA Act because his crime was not one of the enumerated offenses. However, on October 30, 2004, Congress passed the Justice for All Act of 2004, § 203, Pub. L. No. 108-405, 118 Stat. 2260 (codified at 42 U.S.C. § 14135a(d)) (“Justice Act”), which amended the DNA Act to require DNA samples from individuals convicted of “any [federal] felony.” 42 U.S.C. § 14135a(d)(1) (2004). Coccia argues that requiring him to provide a DNA sample violates the Ex Post Facto Clause, because he was not required to do so by statute at the time of his conviction and sentencing.
The Ex Post Facto Clause prohibits Congress from passing laws that:
(1) “make[ ] an action, done before the passing of the law, and which was innocent when done, criminal; and punish[ ] such action,” (2) “aggravate[ ] a crime,” making it “greater” than when committed, (3) increase the punishment beyond that prescribed when the action was done, or (4) “alter [ ] the legal rules of evidence, [to] receive[ ] less, or different, testimony, than the law required at the time of the commission of the offence, in order to convict the offender.”
Article 1, § 9, cl. 3 of the U.S. Constitution states: “No bill of attainder or ex post facto law shall be passed.” No. 08-1915 United States v. Coccia Page 6
United States v. Eberhard, 525 F.3d 175, 178 (2nd Cir. 2008) (quoting Calder v. Bull, 3 U.S. (3 Dall.) 386, 390 (1798)).
Coccia argues that requiring him to submit a DNA sample violates the Ex Post Facto Clause by increasing his punishment beyond that applicable at the time of his conviction and sentencing.
The DNA Act explicitly applies retroactively:
The probation office responsible for the supervision under Federal law of an individual on probation, parole, or supervised release shall collect a DNA sample from each such individual who is, or has been, convicted of a qualifying Federal offense . . .
42 U.S.C. § 14135a(a)(2) (emphasis added); see also United States v. Harley, 315 F. App’x 437, 440 (3rd Cir. 2009) (unpublished table decision). “If the intention of the legislature [in enacting a statute that has retroactive application] was to impose punishment, that ends the inquiry,” and the statute violates the Ex Post Facto Clause. Smith v. Doe, 538 U.S. 84, 92 (2002). “If, however, the intention was to enact a regulatory scheme that is civil and nonpunitive, we must further examine whether the statutory scheme is ‘so punitive either in purpose or effect as to negate [the State’s] intention’ to deem it ‘civil.’” Id. (quoting Kansas v. Hendricks, 521 U.S. 346, 361 (1997)). In making the determination that a statute deemed “civil” by the legislature is, in actuality, punitive, “only the clearest proof will suffice to override legislative intent and transform what has been denominated a civil remedy into a criminal penalty,” Smith, 538 U.S. at 92 (quoting Hudson v. United States, 522 U.S. 93, 100 (1997)), because the courts “ordinarily defer to the legislature’s stated intent.” Id. (quoting Hendricks, 521 U.S. at 361).
Coccia concedes that “[c]ourts considering this issue have concluded that Congress intended a regulatory scheme—rather than a punitive purpose—in enacting the DNA Act,” and does not argue otherwise. See, e.g., United States v. Hook, 471 F.3d 766, 776 (7th Cir. 2006) (holding DNA Act as amended by the Justice Act “punitive in neither purpose nor effect”); Johnson v. Quander, 440 F.3d 489, 500-01 (D.C. Cir. 2006) (same); Harley, 315 F. App’x at 441 (“The evidence suggests that Congress did not intend the Justice Act to impose punishment.”). Coccia argues, however, that the effect of the DNA Act is No. 08-1915 United States v. Coccia Page 7
sufficiently punitive to override Congress’s intent. We therefore look to the seven factors for evaluating such a claim enumerated by the Supreme Court in Kennedy v. Mendoza- Martinez, 372 U.S. 144, 168-69 (1963):
[(1) w]hether the sanction involves an affirmative disability or restraint, [(2)] whether it has historically been regarded as punishment, [(3)] whether it comes into play only on a finding of scienter, [(4)] whether its operation will promote the traditional aims of punishment-retribution and deterrence, [(5)] whether the behavior to which it applies is already a crime, [(6)] whether an alternative purpose to which it may rationally be connected is assignable for it, and [(7)] whether it appears excessive in relation to the alternative purpose assigned . . . .
Coccia concedes that all courts that have applied these factors to the DNA Act as amended by the Justice Act have held that it does not have an overriding punitive effect. See, e.g., Harley, 315 F. App’x at 441 (recognizing that “every court of appeals to have applied these factors to the Justice Act, the unamended DNA Act, and similar state laws has held that such laws do not have fatally punitive effects.”). He argues, however, that those courts’ conclusions “do not concur with the reality of the impact of the Act on offenders.”
Whether the DNA Act has an overriding punitive effect is an issue of first impression in this Circuit. We too conclude that the DNA Act is not so punitive in effect as to override its regulatory purpose, and thus that applying it to Coccia does not violate the Ex Post Facto Clause.
Coccia argues that three of the Kennedy factors favor finding the DNA Act functionally punitive. Coccia first claims that in relation to the first factor, the DNA Act confers a substantial disability because DNA collection “involves an intrusion into one’s personal and bodily sphere; it involves the collection and cataloguing of the most important and intimate details of one’s physical being. It involves discomfort.” The Ninth Circuit in United States v. Reynard, 473 F.3d 1008, 1016 (9th Cir. 2007), agreed that the DNA Act confers a disability by requiring an individual’s submission “to the physical intrusion of blood extraction and also creates a ‘disability’ by incorporating . . . DNA information into a nationwide database,” but concluded that the intrusion was minimal. Reynard held that the inclusion of the DNA sample in the CODIS database was a minimal intrusion because the No. 08-1915 United States v. Coccia Page 8
genetic markers used to identify individuals are “purposely selected because they are not associated with any known genetic trait.” Reynard, 473 F.3d at 1016. Further, blood tests generally are considered minimally intrusive. Hook, 471 F.3d at 776 (citing Jones v. Murray, 962 F.2d 302, 306 (4th Cir. 1992)); see also Gilbert v. Peters, 55 F.3d 237, 238-39 (7th Cir. 1995) (“Both federal and state courts have uniformly concluded that statutes which authorize collection of blood specimens to assist in law enforcement are not penal in nature. Rather, the blood sample is taken and analyzed for the sole purpose of establishing a data bank which will aid future law enforcement.” (internal quotations omitted)); see also Harley, 315 F. App’x at 441-42 (rejecting claim that courts have “underestimated the magnitude of the affirmative disability” imposed by the DNA Act as amended). We agree that this fact does not establish the DNA Act as punitive.
Coccia next asserts, regarding the fourth Kennedy factor, that the DNA Act promotes the purposes of sentencing because it constitutes an “ongoing stigma and [] real threat of an additional conviction.” In Reynard, the Court noted that “[l]egislative history suggests that Congress acknowledged that the DNA Act might help curb recidivism rates,” but that “not every law with a deterrent effect is punitive.” Reynard, 473 F.3d at 1020 (citing United States v. Jackson, 189 F.3d 820, 824 (9th Cir. 1999)). The Court in Reynard also held that the DNA Act did “not have a retribution component because it does not label the offender as more culpable than before, and is not geared toward making [the individual] understand and regret the severity of his crimes.” Id. at 1020 (internal brackets and citations omitted). The Seventh Circuit held in Hook, 471 F.3d at 776, that neither a blood test nor retention of information is punitive, and further observed:
In the event that [a defendant] had committed other crimes for which he might be convicted as a result of his DNA being collected, any punishment that he would receive would be in relation to a new conviction, not his original conviction, and thereby would not violate the Ex Post Facto Clause.
We agree.
Coccia finally claims in relation to the fifth Kennedy factor that failure to submit a DNA sample was not previously a crime. The court in Reynard held that the penalty in the DNA Act for non-compliance is punished as a separate offense, diminishing potential ex post No. 08-1915 United States v. Coccia Page 9
facto concerns because the purpose of the Clause is to protect against increased punishment for prior, not separate, offenses. Reynard, 473 F.3d at 1020-21; see also Hook, 471 F.3d at 776.
We also agree with the court in Reynard in finding that the other Kennedy factors, which Coccia does not dispute, favor finding that the DNA Act is not functionally punitive. Reynard, 473 F.3d at 1020-21. Under the totality of the factors, the DNA Act, as amended by the Justice Act, does not have an overriding punitive effect, and its application to Coccia does not violate the Ex Post Facto Clause. See Harley, 315 F. App’x at 441; Reynard, 473 F.3d at 1020-21; Hook, 471 F.3d at 776. Thus, the district court did not commit error, plain or otherwise.
We AFFIRM the district court. |
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 10a0078p.06
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _________________
X Plaintiff-Appellee, - UNITED STATES OF AMERICA, - - - No. 07-3481 v. , > - Defendant-Appellant. - MARKEITH TURNER, - N Appeal from the United States District Court for the Southern District of Ohio at Cincinnati. No. 06-00009—Sandra S. Beckwith, District Judge. Argued: November 30, 2009 Decided and Filed: March 19, 2010 Before: GUY, SUTTON and GRIFFIN, Circuit Judges.
_________________
COUNSEL ARGUED: Saber W. VanDetta, SQUIRE, SANDERS & DEMPSEY L.L.P., Cleveland, Ohio, for Appellant. Benjamin C. Glassman, ASSISTANT UNITED STATES ATTORNEY, Cincinnati, Ohio, for Appellee. ON BRIEF: Saber W. VanDetta, J. Philip Calabrese, Bruce A. Khula, SQUIRE, SANDERS & DEMPSEY L.L.P., Cleveland, Ohio, for Appellant. Benjamin C. Glassman, ASSISTANT UNITED STATES ATTORNEY, Cincinnati, Ohio, for Appellee. _________________
OPINION _________________
SUTTON, Circuit Judge. Markeith Turner challenges his convictions for seven drug- and gun-related crimes and the sentence that followed. Because Turner’s indictment on two counts took longer than the Speedy Trial Act allows, we reverse these two convictions but otherwise affirm the remaining five convictions. We also vacate his sentence and remand to the district court for resentencing.
No. 07-3481 United States v. Turner Page 2
I.
After hearing gunshots on the evening of February 11, 2005, Officer Jason Rees of the Cincinnati Police Department rushed on foot toward the sound. Along the way, Rees noticed Markeith Turner, who had been walking toward him but changed directions and started walking in the opposite direction when he saw Rees. Rees followed Turner into a building, where Turner climbed the stairs, turned down a hallway and started banging on a door at the end of the hallway. “Let me see your hands,” Rees ordered, and Turner complied, after which Rees handcuffed him. Trial Tr. at 2-81.
Meanwhile, Officer Kenneth Kilgore caught up with Rees and Turner, and found a handgun and what turned out to be crack cocaine and heroin lying on the floor where Turner had stood. Searching Turner, Kilgore found eight bullets wrapped in a handkerchief in his back pocket. At the station, Turner admitted that he had been holding the drugs—though for someone else, not for himself—and that he had fired the gun because “he had seen some drug dealers drive by and it made him paranoid” and he had hoped to “scare them out of the area.” Id. at 2-25.
In April 2005, the United States charged Turner by complaint with being a felon in possession of a firearm and being a felon in possession of ammunition. See 18 U.S.C. § 922(g). After a lengthy examination to determine his competency, Turner was indicted for, then went to trial on, these two counts plus eight more: possession of a handgun in a school zone, see 18 U.S.C. § 922(q)(2)(A), possession with intent to distribute crack cocaine and heroin, see 21 U.S.C. § 841(a)(1), (b)(1)(C), being a fugitive in possession of a firearm and in possession of ammunition, see 18 U.S.C. § 922(g), being a person under indictment in possession of a firearm and in possession of ammunition, see id. § 922(n), and discharging a firearm during a drug-trafficking crime, see id. § 924(c)(1)(A)(i), (iii).
The jury convicted Turner on all counts save for possession with intent to distribute crack cocaine, and the district court dismissed the two fugitive-in-possession counts for lack of admissible evidence on his fugitive status. The court sentenced him to 382 months on the remaining seven counts. No. 07-3481 United States v. Turner Page 3
II.
Turner first argues that the government’s delay in indicting him requires us to dismiss two of the charges. The government allowed too much time to pass, he maintains, between his arrest on June 1, 2005, and his indictment on January 18, 2006, breaching its obligation under the indictment prong of the Speedy Trial Act. See 18 U.S.C. § 3161(b).
Under the Act, the government has thirty days to indict an individual after arresting him, see id., though the Act contains many exclusions. Two matter here. One excludes “delay resulting from any proceeding, including any examinations, to determine the mental competency . . . of the defendant.” Id. § 3161(h)(1)(A). The other excludes
delay resulting from transportation of any defendant . . . to and from places of examination or hospitalization, except that any time consumed in excess of ten days from the date [of] an order of removal or an order directing such transportation, and the defendant’s arrival at the destination shall be presumed to be unreasonable.
Id. § 3161(h)(1)(F).
In this case, the district court excluded “the entire delay” between the request for a competency evaluation and the competency hearing, reasoning that the competency- examination exclusion of § 3161(h)(1)(A) trumped the ten-day limit on transportation time of § 3161(h)(1)(F). R.31 at 7. The court reached this conclusion because it believed—quite reasonably—that United States v. Murphy, 241 F.3d 447 (6th Cir. 2001), required as much.
After the district court relied on Murphy for this point, this court determined that the relevant language in Murphy was dictum, holding instead that any “delay in transporting a defendant to a mental competency examination beyond the ten day limit imposed by § 3161(h)(1)(F) is presumptively unreasonable, and in the absence of rebutting evidence to explain the additional delay, this extra time is not excludable.” United States v. Tinklenberg, 579 F.3d 589, 596 & n.2 (6th Cir. 2009). Tinklenberg reasoned that the alternative interpretation—one that would exclude transportation time under § 3161(h)(1)(A) but not limit it under § 3161(h)(1)(F)—would effectively read the latter provision out of the statute. Id. at 596; see Bloate v. United States, ___ U.S. ___, No. 08-728, slip op. at 8 n.9 (Mar. 10, 2010) (rejecting an interpretation of the Speedy Trial Act that would “render[]” a provision No. 07-3481 United States v. Turner Page 4
of the Act “a nullity”). “The only way to avoid conflict” between those two provisions, we held, “is to read § 3161(h)(1)(F) as a specific exception to the general rule announced in § 3161(h)(1)(A),” imposing a presumptive limit of ten days for transportation on the otherwise unlimited time for competency hearings. 579 F.3d at 596; see Bloate, slip. op. at 10 (“[a] specific provision . . . controls one[s] of more general application”) (quotation marks omitted). The government concedes that Tinklenberg defeats the primary arguments it made in its brief to this court.
In view of Tinklenberg and in view of the language of § 3161(h)(1)(F), we must reverse this aspect of the district court’s decision. The relevant period under § 3161(h)(1)(F) began with the “order directing . . . transportation” and ended with the “defendant’s arrival at the destination.” The clock thus started on June 8, 2005, when the court ordered a competency examination for Turner and stated:
Further, as part of this Order, the United States Marshal and the Bureau of Prisons are hereby directed to conduct the transportation and the evaluation of the defendant in an appropriate, expeditious manner.
R.12 at 2. The clock stopped on August 12, 2005, when Turner arrived at the Metropolitan Detention Center for the evaluation. The government’s only explanation for the delay does not rebut the presumption of unreasonableness for delays that last more than ten days. See 18 U.S.C. § 3161(h)(1)(F). In vaguely relying on the “difficulty suffered by the facility and by the United States Marshal Service in effectuating a timely evaluation and transportation to and from the facility,” R.30 at 3, the government offers no handhold for rebutting the presumption that it should not take the marshals more than ten days to transport an inmate from a prison to the site of a competency examination. Because the remaining period includes more than thirty days, the Act requires us to dismiss the charges in Turner’s original complaint.
The government persists that Turner has forfeited his claim under the Speedy Trial Act. It points to a proposed order that Turner filed with his motion to determine mental competency, which said:
Pursuant to the Speedy Trial Act provisions of 18 U.S.C. § 3161(h)(1)(A), the time required for trial of the defendant shall be tolled from the date of the instant order until the results of said psychiatric examination are received by No. 07-3481 United States v. Turner Page 5
the Court, such period being a delay contemplated by 18 U.S.C. § 3161(h)(1)(A).
R.10-1 at 2. Because Turner’s proposed order purported to exclude all of the time from the issuance of the competency-examination order to the receipt of the examination results, the government says that he may not argue otherwise now.
Yet the government has a forfeiture problem of its own, as it failed to raise this argument below. That is not its only problem: Even assuming that the proposed order could constitute a waiver, the Speedy Trial Act does not allow defendants to waive a deadline prospectively. See Zedner v. United States, 547 U.S. 489, 500 (2006). Unlike many rights, the rights protected by the Speedy Trial Act belong not just to the defendant, but also to the public at large, and “[a]llowing prospective waivers would seriously undermine the Act because there are many cases . . . in which the prosecution, the defense, and the court would all be happy to opt out of the Act, to the detriment of the public interest.” Id. at 502. Turner’s proposed order did not—it could not by itself—waive his right to object to the indictment delay.
Judicial estoppel is no more helpful to the government. As an equitable doctrine developed to “protect the integrity of the judicial process,” New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (quotation marks omitted), it “generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.” Pegram v. Herdrich, 530 U.S. 211, 227 n.8 (2000); see also Reed Elsevier, Inc. v. Muchnick, ___ U.S. ___, No. 08-103, slip op. at 14–15 (Mar. 2, 2010). But Turner did not make a Speedy Trial Act “argument” below. The merits of the motion he filed focused on the facts and law relating to Turner’s need for a competency hearing; it did not turn on the Act and needed little argument because the government did not oppose it. See Zedner, 547 U.S. at 505 (refusing to apply judicial estoppel and noting that “the Government itself accepted the . . . interpretation without objection”).
The language of the proposed order upon which the government focuses also had no relevance to whether Turner was entitled to a competency hearing. Nor would anyone have mistaken the short paragraph for a fully considered legal position. In addition to its brevity and its lack of analysis, the passage purports to toll the “time required for trial of the No. 07-3481 United States v. Turner Page 6
defendant,” R.10-1 at 2 (emphasis added), not the time required for indictment, see 18 U.S.C. § 3161(b), and not for that matter the time required for transportation. And the passage correctly states the “general rule” of § 3161(h)(1)(A), even though it makes no mention of § 3161(h)(1)(F)’s “specific exception” to that rule. Tinklenberg, 579 F.3d at 596. No doubt Turner would have done well to give more consideration to the Speedy Trial Act issue before submitting the proposed order. But there was no reason at that point to anticipate the government’s conceded “difficulty . . . in effectuating a timely . . . transport to . . . the facility,” R.30 at 3, which of course was the ultimate problem and not the problem addressed in the motion.
The government adds that Turner “failed to develop the record with respect to the date on which an institution was designated and the date he was actually transported.” U.S. Br. at 25. The government again invokes Murphy—this time, a portion reaffirmed by Tinklenberg, 579 F.3d at 596 n.2—in which the court held that the ten-day limit could not apply unless the defendant provides evidence of the actual transportation delay. 241 F.3d at 455. The government notes that the June 8 order does not designate any specific institution but commits Turner “to the Federal Medical Center designated by the Bureau of Prisons.” R.12 at 1. On this record, the government says, the ten-day clock never started (or at least no evidence shows when it started) and accordingly Turner necessarily cannot establish a violation.
The government reads § 3161(h)(1)(F) too narrowly and Murphy too broadly. The statute says nothing about the designation of a specific institution; it refers only to the “transportation of any defendant . . . to and from places of examination or hospitalization,” and starts counting days on “the date . . . [of] an order directing such transportation.” 18 U.S.C. § 3161(h)(1)(F). The June 8 order “direct[s]” the United States Marshal “to conduct the transportation . . . of the defendant . . . in an appropriate, expeditious manner,” R.12 at 2, which qualifies as an “order directing . . . transportation,” even if it speaks only of transportation to a Federal Medical Center, not a specific facility.
The government’s reading would require either a second judicial order or a separate agency order to trigger § 3161(h)(1)(F). As to the concept of a second judicial order, a court might choose to issue one order directing an evaluation, then, once the government has No. 07-3481 United States v. Turner Page 7
picked a facility for the defendant’s evaluation, issue another order directing the government to transport the defendant there—an approach that might eliminate the countable-delay problems encountered here. Cf. United States v. McGhee, 532 F.3d 733, 736–37 (8th Cir. 2008). But we do not read the statute to require a second order to begin the Speedy Trial clock. Here, the court’s first order covered evaluation and transportation, which satisfies the requirement of an “order directing . . . transportation.” And it would be strange to construe the statute to contain a start date that begins, if at all, only when courts do something—issue a second judicial order—that, the government tells us, they rarely do. 1/26/10 U.S. Letter Br. at 4.
The government responds that the infrequency of second judicial orders would not “gut[] § 3161(h)(1)(F),” id. at 6, because, even without such an order, we still could start the clock at the start of the defendant’s trip or on the date of an agency’s internal order to transport Turner. The Seventh Circuit has followed this approach in the absence of a judicial order of transportation. See United States v. Garrett, 45 F.3d 1135, 1139–40 (7th Cir. 1995). But why consider solutions for a problem—the absence of an order of transportation—that does not exist? In this case, the district court’s June 8 order explicitly directed the Marshals Service to transport Turner.
All of this makes Turner’s case readily distinguishable from Murphy’s. In that case, so far as the court’s opinion reveals, there was no order of transportation and no evidence about the date of arrival, nor any evidence of an agency order as in Garrett, meaning that the defendant could not prove the start date or the end date. Murphy, 241 F.3d at 449. Murphy’s conclusion—that the defendant could not succeed for failure of proof, id. at 455—thus has no bearing on this case, where Turner has shown both dates.
The government notes that finding a placement for a defendant like Turner can take time and argues that the ten-day limit of § 3161(h)(1)(F) could cause practical difficulties. The first response is that Congress, not this court, set the limit. The second response is that, after a ten-day delay, § 3161(h)(1)(F) establishes a presumption of unreasonableness, not a conclusion of unreasonableness. If legitimate problems arise in transporting a defendant, the government legitimately may rebut the presumption. The third response is that the order directing examination need not direct transportation. If the government fears that a No. 07-3481 United States v. Turner Page 8
defendant’s placement could take some time, it is free to suggest that the court not issue an order directing transportation at that point. Nothing in the statute forbids giving the government some time (though presumably not unlimited time) to find a placement before issuing an “order directing . . . transportation.” The fourth response is that our holding limits only automatic exclusion under § 3161(h)(1), not the ends-of-justice continuances that courts may grant under § 3161(h)(7). What the Court said in Bloate, in rejecting a similar argument by the government, applies with equal force here:
This conclusion does not lay “a trap for trial judges” because it limits . . . only automatic exclusions. . . . [A] district court may [still] exclude . . . time under subsection (h)(7) if it grants a continuance for that purpose based on recorded findings “that the ends of justice served by taking such action outweigh the best interest of the public and the defendant in a speedy trial.” Subsection (h)(7) provides “[m]uch of the Act’s flexibility,” Zedner, 547 U.S., at 498, and gives district courts “discretion—within limits and subject to specific procedures—to accommodate limited delays for case-specific needs,” id., at 499.
Slip. op. at 17.
The government also claims that Tinklenberg cannot be reconciled with Murphy and that Murphy, as the first of the two decisions, should control. See Darrah v. City of Oak Park, 255 F.3d 301, 310 (6th Cir. 2001). Murphy stated that § 3161(h)(1)(A)’s general exclusion for time of examination should control a situation like this regardless of the ten- day time limit, 241 F.3d at 455, but Tinklenberg reasoned that the statement was “not necessary to the outcome” of Murphy and thus did not bind later panels, 579 F.3d at 596 & n.2. We agree with the government that one could read Murphy’s statement as a holding, rather than as dicta, making Murphy, not Tinklenberg, the precedent that binds. But Murphy is not clear on the point. This is not a situation where the second opinion overlooked the first, see White v. Columbus Metro. Hous. Auth., 429 F.3d 232, 240–41 (6th Cir. 2005), or where the second opinion disregarded the first merely because it disagreed with it, see Darrah, 255 F.3d at 310. Here, the second opinion considered the first one, reasonably found the first opinion not binding and indeed was written by the author of the first opinion. While the en banc court remains free to consider the merits of the Murphy approach versus the Tinklenberg approach to this question, we think Tinklenberg reasonably distinguished Murphy. No. 07-3481 United States v. Turner Page 9
Tinklenberg, it bears adding, is consistent with the majority of courts to consider the issue. Most courts generally agree that “the entire time between the order for psychiatric examination and the date of the competency hearing cannot be excluded, for under § 3161(h)(1)(F) any time over 10 days spent transporting the defendant to his psychiatric examination is considered unreasonable.” United States v. Castle, 906 F.2d 134, 137 (5th Cir. 1990); see United States v. Noone, 913 F.2d 20, 25–26 & n.5 (1st Cir. 1990); cf. United States v. Collins, 90 F.3d 1420, 1427 (9th Cir. 1996). Language in one case may suggest that courts should exclude all time from the order for a psychiatric examination to the final competency hearing, regardless of how much of that time the defendant spent waiting to be transported to the examination, though the point seems not to have been debated by the parties. See United States v. Vasquez, 918 F.2d 329, 333 (2d Cir. 1990).
Turner thus has established that the government violated the Speedy Trial Act. But his success on this front gets him only so far on another front—his interest in being let out of prison. First, we can order the dismissal of just two of his seven convictions—for being a felon in possession of a firearm and being a felon in possession of ammunition, see 18 U.S.C. § 922(g)—and the order thus affects just the components of his sentence, if any, based on these two convictions. Those were the only charges included in his original complaint, and a speedy indictment violation requires dismissal only of the offenses charged in the original complaint. See 18 U.S.C. § 3162(a)(1); United States v. Nabors, 901 F.2d 1351, 1355 (6th Cir. 1990). Second, the government may be able to try these charges again, because we remand to the district court to determine, based upon the factors in 18 U.S.C. § 3162(a)(1), whether to dismiss these charges with or without prejudice. See Zedner, 547 U.S. at 509.
III.
A.
Turner’s other claims fare worse. He argues that the police arrested him without probable cause in violation of the Fourth Amendment and asks us to suppress the drugs, gun and ammunition seized after the arrest. But Turner waived this argument by failing timely to raise it below. Under Rule 12(e) of the Federal Rules of Criminal Procedure, a party waives any motion to suppress that it fails to file by the deadline the district court sets. No. 07-3481 United States v. Turner Page 10
Turner never filed a motion to suppress, and the closest thing he did file—a pro se “Petition to Dismiss Complaint” that argued the police did not have probable cause to arrest him, R.36—came nine days after the relevant filing deadline.
Turner responds that Rule 12(e) allows the district court to relieve a party from the waiver “[f]or good cause,” Fed. R. Crim. P. 12(e), which he met by trying to file a motion to suppress before the deadline but that his attorney prevented him from filing. See R.34 (moving for a new lawyer because the current lawyer was “not willing to file motions [Turner] ask[ed] him [to]”). But we have rejected this same argument before. See, e.g., United States v. Nance, 481 F.3d 882, 885 n.1 (6th Cir. 2007) (refusing to reach merits of suppression motion even where defendant unsuccessfully pressed his counsel to file it). Turner adds that the district court found not only that Turner’s pro se motion was “filed out of time” but also that it was “without merit on [its] face,” R.96 at 13, which amounts to a merits ruling that we may review. But we have rejected this argument before as well. See, e.g., United States v. Obiukwu, 17 F.3d 816, 819 (6th Cir. 1994) (“The fact that the district court saw fit to rule on the merits of [the] motion, despite its untimeliness, does not save the defendant from waiver of the grounds stated in the motion.”).
Even to the extent that we may review Turner’s claim for plain error—and it is not clear that we may, see United States v. Caldwell, 518 F.3d 426, 430 (6th Cir. 2008); see also United States v. Collier, 246 F. App’x 321, 335–36 (6th Cir. 2007)—we decline to do so here, without the benefit of a suppression hearing below. Given the multiplicity of factors that may give rise to probable cause, see Maryland v. Pringle, 540 U.S. 366, 370–71 (2003), or turn an investigative stop into an arrest, see United States v. Lopez-Arias, 344 F.3d 623, 627 (6th Cir. 2003), we cannot meaningfully resolve these issues based on this trial testimony alone.
B.
Turner raises several new claims in his reply brief. These claims are forfeited, see Moulton v. U.S. Steel Corp., 581 F.3d 344, 354 (6th Cir. 2009), and meritless to boot.
Turner argues that the jury delivered an inconsistent verdict by convicting him of possessing heroin, ammunition and a firearm but acquitting him of possessing crack cocaine. No. 07-3481 United States v. Turner Page 11
But there is nothing inconsistent about this verdict, since it is quite possible to possess one thing and not another, and, “[i]n any event, inconsistent verdicts are constitutionally tolerable.” Dowling v. United States, 493 U.S. 342, 353–54 (1990).
Turner separately argues that his conviction was based on hearsay, because the government did not produce the ammunition he possessed but relied on witnesses testifying about it, and did not produce the gunshot residue evidence from his gun but also relied on testimony about it. Yet testimony about out-of-court events or objects is not hearsay unless it includes testimony about an out-of-court statement. See Fed. R. Evid. 801(c).
Turner also argues that the government’s destruction of the ammunition and the gunshot residue evidence violated his due process rights. But one cannot state a due process claim simply by pointing to “the failure of the State to preserve evidentiary material of which no more can be said than that it could have been subjected to tests, the results of which might have exonerated the defendant.” Arizona v. Youngblood, 488 U.S. 51, 57 (1988). Turner offers no theory by which this evidence might have exonerated him—or, for that matter, any tests to which he would subject the evidence—and so this claim fails as well.
C.
In view of our disposition of Turner’s Speedy Trial Act claim, we need not consider his sentencing challenges. The sentence on the two felon-in-possession counts, we recognize, run concurrently with the sentences on the unaltered convictions, making it quite possible that these dismissals will have little, if indeed any, affect on the length of Turner’s sentence. But given the complexity of the guidelines calculation underlying Turner’s sentence—which took nearly nine pages of transcript to explain—and given the district court’s plenary sentencing responsibilities, we will let the district court determine the effect of these dismissals on Turner’s sentence in the first instance.
(One side note: We thank counsel for the two parties, who ably represented their competing sides and went above and beyond the call of duty in helping the court to try to sort out the complicated issues raised in this case.) No. 07-3481 United States v. Turner Page 12
IV.
For these reasons, (1) we reverse Turner’s convictions for being a felon in possession of a firearm and a felon in possession of ammunition; (2) we remand to the district court to determine whether to dismiss those charges with or without prejudice; (3) we affirm Turner’s five other convictions; and (4) we vacate Turner’s sentence and remand for resentencing. |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 10a0173n.06
No. 08-5765 FILED Mar 19, 2010 UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk FOR THE SIXTH CIRCUIT
MICHAEL H. McKIM, ) ) Plaintiff-Appellant, ) APPEAL FROM THE DISTRICT ) COURT FOR THE WESTERN v. ) DISTRICT OF KENTUCKY ) NEWMARKET TECHNOLOGIES, INC., ) ) Defendant-Appellee. )
BEFORE: CLAY and McKEAGUE, Circuit Judges; and POLSTER, District Judge.*
Dan Aaron Polster, District Judge. Appellant appeals the district court’s grant of summary
judgment in favor of Appellee and denial of Appellant’s motions for summary judgment and to
vacate, alter or amend judgment. The district court found that a subscription agreement does not add
new and material conditions to a settlement the parties had previously reached. For the following
reasons, we affirm.
I. FACTS AND PROCEDURAL HISTORY
Appellant Michael McKim (“Appellant”) was Vice-President of Research and Development
for IPVoice Communications, Inc., now known as Appellee NewMarket Technology, Inc.
* The Honorable Dan Aaron Polster, United States District Judge for the Northern District of Ohio, sitting by designation.
(“Appellee”), until his voluntary resignation on September 17, 1999. Appellant sued Appellee on
May 20, 2000, in the United States District Court for the Western District of Kentucky, claiming
that, under his employment agreement, he was entitled to recover 1,050,000 shares of NewMarket
stock. The case was dismissed on November 19, 2001, when the parties reached a settlement
providing Appellant with $5,000 to be paid in seven installments and 350,000 shares of NewMarket
stock, which Appellant could register whenever Appellee conducted a public offering.
The same day that Appellee executed the settlement agreement its board of directors voted
to reverse split the company’s stock on a 30:1 basis. Consequently, Appellant received 11,667
shares of the post-reverse split stock instead of 350,000 shares, though the overall value of the stock
and his percentage of outstanding shares did not change. Nevertheless, on April 14, 2004, Appellant
brought another suit in the Western District of Kentucky requesting a declaration of rights and
alleging that Appellee committed fraud and breach of contract by reverse splitting its stock. The
parties agreed to mediate their dispute in front of Magistrate Judge Whalin on November 16, 2004.
At the mediation, the parties reached an agreement on the major issues in the case. A document
outlining the terms agreed upon was drafted by Magistrate Judge Whalin and executed by counsel
for the parties; however, no copy of the document has been produced by the parties.1 As
characterized in Appellant’s complaint and admitted by Appellee, the parties agreed that Appellant
would receive:
(a) an executed general release releasing McKim and his Associated Persons from any and all claims that could have been asserted in the Litigation;
Appellant has asserted both that a copy of the document was “retained in Judge Whalin’s records” (Dist. Ct. Dkt. 1 at ¶ 22; Appellant Brief at 17) and that a copy “does not survive.” (Dist. Ct. Dkt. 9-1 at 1; Dist. Ct. Dkt. 13 at 3 n.3.) Appellee has generally remained silent on the issue in its briefing. Nevertheless, the parties do not dispute the specific terms agreed upon during the mediation with Magistrate Judge Whalin.
(b) a $5,000 cash payment;
(c) a re-issued $1,000 check that had been previously issued;
(d) 300,000 shares of NewMarket Technology (trading symbol NMKT.OB);
(e) a letter from New Market’s counsel regarding McKim’s ability to immediately trade the 11,667 shares of IPVoice stock already in his possession;
(f) an agreement to provide information and documentation necessary to convert McKim’s 11,667 share[sic] of IPVoice stock to NewMarket Technology trading shares;
(g) a letter from New Market’s counsel regarding when McKim would be able to freely trade the above identified 300,000 restricted shares of NewMarket Technology common stock. Such documentation was to be delivered in fully executed form promptly after settlement. If it became possible for McKim’s restricted shares to become tradeable at a date earlier than the one identified in the NewMarket’s counsel’s letter NewMarket was to use its best efforts to insure that the restrictions on McKim’s shares were lifted and available for trade at the earliest possible date. However, nothing in the agreement was to require McKim to trade any shares owned by him at any given time;
(h) . . . a late fee of $250 per day for each day NewMarket is late in performance and any costs incurred by McKim to enforce this provision including attorney’s fees.
(Dist. Ct. Dkt. 1at ¶ 22; Dist. Ct. Dkt. 5 at ¶ 20.)
Following the mediation, the parties continued their settlement negotiations and participated
in teleconferences with Magistrate Judge Whalin on December 3, 2004, and December 15, 2004.
On January 5, 2005, Appellee’s counsel sent Magistrate Judge Whalin a letter stating:
“This confirms the settlement conversations Trace Champagne and I had yesterday. Mr. Champagne and I have agreed to resolve the above-referenced matter on behalf of our clients. The parameters of the settlement agreement include the issuance of 300,000 shares restricted IPVoice stock to Mr. McKim and the 11,667 shares of IPVoice stock previously issued to Mr. McKim, a confidentiality agreement, and a cash payment of $5,000 to Mr. McKim and the reissuance of the $1,000 check previously issued by IPVoice to Mr. McKim. In addition, IPVoice will also provide an opinion letter from counsel as to when the 300,000 shares and the 11,667 shares of IPVoice stock may be eligible for free trading. In addition, the parties will
negotiate appropriate language to ensure that the 300,000 shares of restricted stock are issued in a timely manner. ... We will prepare a more formal settlement agreement and will keep the Court updated on the matter ...”
(Dist. Ct. Dkt. 1at Ex. 6.)
On January 6, 2005, the district court dismissed the case as settled with leave to reinstate
within 30 days. Appellee’s counsel tendered drafts memorializing the settlement agreement on
January 14, 2005, and January 28, 2005. On February 10, 2005, Appellee’s counsel tendered a third
draft of the settlement agreement. Appellant’s counsel reviewed the draft, made minor comments,
and returned it to Appellee. Appellee’s counsel incorporated the comments, sent a fourth draft to
Appellant’s counsel that same day and recommended that closing should occur on February 16,
2005. On February 11, 2005, Appellant signed this version of the draft and faxed the signed
documents to Appellee.
On February 15, 2005, Appellee’s counsel notified Appellant’s counsel that Appellee would
not be able to issue “the type of letter that McKim wants regarding the stock restriction issue” and
that, instead, “NewMarket’s approved SEC counsel must do the type of opinion McKim is seeking.”
(Dist. Ct. Dkt. 8-20.) Accordingly, closing did not occur on the formal settlement. After Appellee’s
counsel had numerous meetings with its SEC counsel, it sent a revised settlement agreement to
Appellant’s counsel on February 28, 2005, which required Appellant to execute an undefined
subscription agreement along with the issuance of the NewMarket shares. Appellant refused to sign
the subscription agreement. On October 24, 2005, Appellee’s counsel forwarded a sixth draft
agreement, this time with a written subscription agreement, requiring, among other things, that
Appellant be an accredited investor. Once again, Appellant refused to sign the subscription
agreement.
On November 1, 2006, and March 19, 2007, Appellee’s counsel sent revised drafts to
Appellant containing a subscription agreement but ultimately increasing the number of shares offered
from 300,000 to 450,000. Appellant continued to refuse to sign the subscription agreement. In June
2007, the parties sought Magistrate Judge Whalin’s intervention. Magistrate Judge Whalin
expressed concern that the court retained subject matter jurisdiction but granted Appellant leave to
file a formal motion to re-open the matter or to file a separate action for breach of contract.
Appellant filed a new action on June 27, 2007, requesting a declaration of rights, and alleging breach
of contract and fraud.
The parties agreed that there were no material disputes of fact and filed cross-motions for
summary judgment. The district court held oral argument on March 13, 2008. On March 19, 2008,
the district court granted summary judgment in favor of Appellee and denied Appellant’s motion for
summary judgment. In its ruling, the district court found that the parties’ settlement agreement was
ambiguous and therefore extrinsic evidence could be examined. The district court further found that
the subscription agreement did not add new and material conditions to the settlement.
On March 28, 2008, Appellant moved, pursuant to Rule 59(e), to vacate, alter or amend the
district court’s judgment. Appellant’s motion was denied by the district court on May 20, 2008.
Appellant then filed the instant appeal, arguing that the district court erred by granting Appellee’s
motion for summary judgment, denying his motion for summary judgment, and denying his motion
to vacate, alter or amend judgment. The matter has now been fully briefed and the parties have
waived oral argument.
II. JURISDICTION
The Court has appellate jurisdiction over this matter pursuant to 28 U.S.C. § 1291, and
Federal Rules of Appellate Procedure 3 and 4(b), granting the Court of Appeals jurisdiction to
review all final decisions of the district courts.
III. STANDARD OF REVIEW
The parties do not agree on the standard of review for the district court decision. Appellant
agues that review of the lower court’s opinion should be de novo. Appellee contends that because
the parties agreed to determine the case on the merits by cross-motions for summary judgment, the
standard of review is whether the district court clearly erred by finding that the subscription
agreement did not alter Appellant’s rights under the settlement agreement.
A district court’s grant of summary judgment is reviewed de novo. See Michigan Bell Tel.
Co. v. MFS Intelenet of Michigan, Inc., 339 F.3d 428, 433 (6th Cir. 2003). “The standard of review
for cross-motions of summary judgment does not differ from the standard applied when a motion
is filed by one party to the litigation.” Ferro Corp. v. Cookson Group, 585 F.3d 946, 949 (6th Cir.
2009); see also Converge, Inc. v. Topy America, Inc., 316 Fed App’x 401, 404 n.1 (6th Cir. 2009)
(holding that while an abuse of discretion standard applies to a motion to enforce a settlement
agreement, a grant of summary judgment in a breach of contract suit based on a settlement agreement
is reviewed de novo). Appellee cites to Cook Inc. v. Boston Scientific Corp., 333 F.3d 737, 741-42
(7th Cir. 2003) for the proposition that the clearly erroneous standard is used when litigants waive
trial and ask the district court to decide the case as if the pretrial record were a trial record. However,
Cook, a Seventh Circuit case, is not binding on this Court. Moreover, there is nothing in the record
suggesting that the parties waived trial in this instance. “The fact that both parties have moved for
summary judgment does not mean that the court must grant judgment as a matter of law for one side
or the other; summary judgment in favor of either party is not proper if disputes remain as to material
facts ...” Ferro, 585 F.3d at 949-50. Accordingly, the Court will conduct a de novo review of the
lower court decision. Because this matter is in federal court based upon diversity jurisdiction, 28
U.S.C. §1332, the Court will apply the law of Kentucky, the forum state, to substantive issues.
IV. ANALYSIS
Appellant argues that the district court erred by: (1) granting summary judgment to Appellee;
(2) denying summary judgment to Appellant; and (3) denying Appellant’s Rule 59(e) motion to
vacate, alter or amend Judgment.
Appellant asserts that the district court incorrectly granted summary judgment to Appellee
by: (1) finding that the contract was ambiguous and therefore using extrinsic evidence to determine
that the subscription agreement should be part of the contract; and (2) holding that the subscription
agreement, which required Appellant to comply with Regulation D of the Securities Act of 1933 (the
“Securities Act”) and to make various representations, warranties, and indemnifications, did not add
material burdens or terms to the settlement.
Because a settlement is a type of contract, interpretation of the terms of a settlement are
governed by contract law. See Frear v. PTA Industries, Inc., 103 S.W.3d 99, 105 (Ky. 2003).
Contractual terms are ambiguous if they are “reasonably susceptible to different or inconsistent
interpretations.” Morganfield Nat’l Bank v. Damien Elder & Sons, 836 S.W.2d 893, 895 (Ky. 1992).
“If an ambiguity exists, the court will gather, if possible, the intention of the parties from the contract
as a whole, and in doing so will consider the subject matter of the contract, the situation of the parties
and the conditions under which the contract was written, by evaluating extrinsic evidence as to the
parties’ intentions.” Frear, 103 S.W.3d at 106 (citations omitted). Parol evidence may be
introduced to ascertain the true meaning of ambiguous or uncertain terms of a contract. Hammon
v. Kentucky Cent. Life & Acc. Ins. Co., 289 S.W.2d 726, 728 (Ky. 1956). “However, in the absence
of ambiguity a written instrument will be enforced strictly according to its terms, and a court will
interpret the contract’s terms by assigning language its ordinary meaning and without resort to
extrinsic evidence.” Frear, 103 S.W.3d at 106 (citations omitted).
The district court erred in finding that the agreement reached by the parties was ambiguous.
The parties do not disagree that a contract was formed, nor is there disagreement on the essential
terms of the contract. Rather, the only dispute is whether Appellant should be required to sign a
subscription agreement that both parties agree was not specifically included in the contract.
Paragraph 9(h) of the February 11 draft of the settlement agreement, signed by Appellant, states that
“[e]ach party shall execute such additional documents and take such further actions as shall be
reasonable and necessary to carry out the provisions of this Agreement.” (Dist. Ct. Dkt. 1-12 at
¶9(h).) Thus, the only issue in dispute is whether the subscription agreement is “reasonable and
necessary” to effectuate the settlement. This is a matter of law for the Court to decide.
Under the Securities Act of 1933 (“the Securities Act”), 15 U.S.C. §§ 77a et seq., it is
unlawful to issue a security without the filing of a registration statement, unless there is an
exemption from registration. 15 U.S.C. § 77e(c). One such exemption (the “Section 4(2)
exemption”) exists for transactions “by an issuer not involving any public offering.” 15 U.S.C. §
77d(2). However, the Section 4(2) exemption does not apply if the security is issued to an
“underwriter,” defined as a “a person who has purchased from an issuer with a view to, or offers or
sells for an issuer in connection with, the distribution of any security.” 15 U.S.C. § 77b(a)(11).
Regulation D, promulgated under the Securities Act, establishes three registration exemptions and
can ensure that the person to whom the securities are issued is not considered an underwriter. 17
C.F.R. § 230.501 et seq. The relevant exemption for purposes of the instant case is Rule 506 of
Regulation D, which if complied with, provides a safe-harbor that will qualify the offering for the
Section 4(2) exemption and therefore will not be considered a public offering. 17 C.F.R. § 230.506.
Rule 506 is limited to those considered to be accredited investors and sophisticated non-accredited
investors. Id.
Because of Appellant’s status as a former insider, Appellee feared that Appellant may be
considered an underwriter and therefore believed Appellant needed to sign a subscription agreement
prior to the issuance of 300,000 shares of unregistered stock. The subscription agreement stated that
the stock was being issued pursuant to Regulation D, that Appellant was an accredited investor, and
required Appellant to make various representations, warranties and indemnifications.
Compliance with Regulation D ensures that the offering is exempt under Section 4(2). See
e.g., Brown v. Earthboard Sports USA, Inc., 481 F.3d 901, 905 (6th Cir. 2007). However, the stock
can be issued pursuant to other exemptions. See 15 U.S.C. § 77d. The subscription agreement
serves a protective function. By requiring Appellant to make various representations and warranties
and to indemnify Appellant, the subscription agreement ensures Appellee will not lose the benefit
of Regulation D and Section 4(2), and shields Appellee from possible securities liability if Appellant
rashly re-sells the stock.
Though unregistered stock can only be issued pursuant to an exemption, such as Regulation
D, Appellant argues that the subscription agreement creates burdens that materially alter the nature
of the settlement. Specifically, Appellant contends that being required to comply with Regulation
D, to make various pre and post-transaction representations, warranties, and indemnifications, and
to receive a letter from Appellee’s counsel before the restrictive legend on the unregistered stock can
be removed for purposes of re-sale of the stock, creates material obligations that were not bargained
for.
We disagree, and find that the subscription agreement is a reasonable method for effectuating
the agreed-upon essential terms of the settlement. In particular, the subscription agreement enables
Appellee to lawfully issue the 300,000 unregistered shares to Appellant while not altering: (1) the
general release; (2) the $5,000 in cash; (3) the re-issued check for $1,000; (4) the letter regarding
Appellant’s ability to trade the 11,667 shares he already possessed; (5) the documentation necessary
to convert IPVoice stock to NewMarket stock; or (6) the letter from Appellee’s counsel regarding
when Appellant would be able to freely trade the 300,000 shares of restricted stock.
Appellant makes much of the fact that the district court’s order “assumes that the
requirements of Regulation D are the controlling law and necessary for the Appellee to issue the
shares in furtherance of the settlement...” (Appellant Brief at 39.) While Regulation D is not the sole
means by which the unregistered stock can be transferred to Appellant, Appellant was presented
numerous opportunities to offer a different exemption under which the stock could be issued, and
failed to do so. In his appellate brief, Appellant raises the possibility of an exemption pursuant to
Section 3(a)(10) of the Securities Act, 15 U.S.C. § 77c(a)(10), which would make the unregistered
shares immediately tradable. However, there is no evidence that Appellant raised the possibility of
this exemption while negotiating with Appellee prior to filing a third lawsuit. Nor did Appellant
suggest Section 3(a)(10) as a possible exemption in his complaint or in his motion for summary
judgment. Appellant appears to have first raised the issue of the availability of another exemption
at oral argument on the motions for summary judgment, which the district court refused to consider.
To preserve an argument first raised in an oral argument before the trial court, “the litigant
not only must identify the issue but also must provide some minimal level of argumentation in
support of it.” United States of America v. Huntington Nat’l Bank, 574 F.3d 329, 332 (6th Cir.
2009). Appellant acknowledges that the Section 3(a)(10) exemption was not cited specifically at oral
argument but insists that by claiming that Regulation D should not apply “it is axiomatic that another
[exemption] should apply.” (Appellant Reply Brief at 18.) In noting that the district court rejected
Appellant counsel’s plea to brief the exemption issue, Appellant suggests that March 13, 2008, “was
the first time the court raised a question about the application of Regulation D to this matter.” (Id.
at 19.) Even if the district court only first questioned Regulation D at oral argument, the application
of Regulation D to the settlement agreement should have been considered by Appellant long before,
since it is the foundation of the subscription agreement demanded by Appellee and forms the basis
of Appellant’s complaint. Yet, at oral argument before the district court, Appellant still did not
suggest which alternate exemption should apply and how else he could have assured Appellee he was
not an underwriter. Thus, because Appellant did not “provide some minimal level of argumentation
in support” of the application of the Section 3(a)(10) exemption at oral argument, the argument that
Section 3(a)(10) should apply is waived.
Moreover, it is hard for Appellant to argue that Regulation D imposes material burdens when
Appellant previously agreed to the main term that he alleges creates that material burden. Appellant
now asserts that the Section 3(a)(10) exemption to Regulation D is preferable because “it precludes
the need to hold the shares for 1 year, and the shares could have been tradable immediately.”
(Appellant Brief at 39.) However, the February 11, 2005 draft agreement that Appellant signed
entitles Appellant to “a letter from IPVoice’s counsel regarding [his] ability to freely trade the above
identified 300,000 restricted shares of the New Market Technology common stock on February 20,
2006.” (Dist. Ct. Dkt. 1-12 at ¶ 9(h).) Since the agreement that Appellant signed required that he
would have to hold the restricted stock for one year before selling it, the subscription agreement
sought by Appellee imposed no additional material burden upon him.
Moreover, because the subscription agreement is a method for ensuring compliance with
Regulation D and therefore did not add material burdens which could not have been contemplated,
the additional provisions contained within the subscription agreement, such as the representations
and warranties, were also reasonable and necessary to effectuate the settlement. Under Rule 502 of
Regulation D, a possible method for complying with the requirement that “[t]he issuer shall exercise
reasonable care to assure that the purchasers of the securities are not underwriters within the meaning
of section 2(a)(11) of the [Securities] Act” is for the issuer to conduct a “[r]easonable inquiry to
determine if the purchaser is acquiring the securities for himself or for other persons.” 17 C.F.R. §
230.502(d). While doing this “will establish the requisite reasonable care, it is not the exclusive
method to determine such care.” Id.
None of the specific terms Appellant takes umbrage with are legally required to comply with
Regulation D. Nevertheless, because they are all aimed at ensuring that Appellant is not an
underwriter and therefore that Appellee satisfies Regulation D, they are a reasonable method for
assuring adherence to the securities laws. “[T]he elicitation of bare representations that the buyer
does not have any present agreement to resell is plainly insufficient.” S.E.C. v. Cavanaugh, 1
F.Supp. 2d 337, 367 (S.D.N.Y. 1998). Therefore, along with present representations and warranties,
it is reasonable for the subscription agreement to require indemnifications, post-transaction
representations and warranties, and an opinion letter from Appellee’s outside counsel before removal
of the restrictive legend on the unregistered stock. See Cavanaugh, 1 F.Supp. 2d at 367 (citing
Securities Act Release No. 3825 (S.E.C. Aug. 12, 1957) and Securities Act Release No. 5121 (S.E.C.
Dec. 30, 1970)). Because compliance with Regulation D does not add material burdens, signing a
subscription agreement ensuring compliance with Regulation D also does not add material burdens
to the contract. Accordingly, the district court did not err by finding that specific terms of the
subscription agreement did not add material terms or burdens to the settlement.
Similarly, because Appellant presents the same arguments in contending that the district court
erred in denying his motion for summary judgment, the district court’s denial of Appellant’s motion
for summary judgment is affirmed. Beyond arguing that summary judgment should have been
granted because the subscription agreement was an additional term to the settlement, Appellant also
contends that he detrimentally relied on Appellee’s representation that it was negotiating in good
faith and therefore lost the ability to bring this dispute before the district court prior to the stock
diminishing in value. The district court dismissed the matter on January 6, 2005, with leave to
reinstate within thirty days. Appellee notified Appellant that it believed a subscription agreement
was necessary on February 28, 2005. Appellant did not bring a cause of action for breach of contract
until June 27, 2007, nearly two and a half years later. Any decrease in the value of the stock due to
a settlement not being effectuated is a result of Appellant not moving to enforce the settlement while
within the jurisdiction of the district court judge or waiting so long to bring a new cause of action.
Accordingly, although the district court did not explicitly rule on Appellant’s equitable argument,
Appellant’s motion for summary judgment was appropriately denied.
Moreover, because an appeal from a denial of a Rule 59(e) motion to vacate, alter or amend
judgment is generally treated as an appeal of the underlying judgment itself, Andrews v. Columbia
Gas Transmission Corp., 544 F.3d 618, 623 n.4 (6th Cir. 2008), the district court’s denial of
Appellant’s motion to vacate, alter or amend is also affirmed.
Finally, we would be remiss if we failed to note our dismay at the inordinate amount of
judicial resources these two parties have consumed in litigating a private dispute for ten years,
through three lawsuits, two botched settlement agreements (one of which involved considerable
effort by a magistrate judge), and now this appeal.
VI. CONCLUSION
For the reasons discussed supra, the district court’s grant of summary judgment in favor of
Appellee, denial of Appellant’s motion for summary judgment, and denial of Appellant’s Motion
to Vacate, Alter or Amend Judgment are hereby AFFIRMED. |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 10a0174n.06
No. 08-4601 FILED Mar 19, 2010 UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk FOR THE SIXTH CIRCUIT
VICTOR PENDRAK, aka Viktor ) Pendrak, ) ON REVIEW FROM THE ) BOARD OF IMMIGRATION Petitioner, ) APPEALS ) v. ) ) OPINION ERIC H. HOLDER, JR., Attorney ) General, ) ) Respondent. ) ______________________________
Before: COLE, GILMAN, and WHITE, Circuit Judges.
HELENE N. WHITE, Circuit Judge. Petitioner Viktor Pendrak1 seeks review of a Board
of Immigration Appeals (BIA) order affirming without opinion the Immigration Judge’s (IJ’s)
decision denying his claims for asylum and withholding of removal pursuant to the Immigration and
Nationality Act, and for relief pursuant to the United Nations Convention Against Torture (CAT).
We DENY Pendrak’s petition for review.
Pendrak’s first name is inconsistently spelled in the official documents relating to these proceedings. In this opinion we will use the spelling favored by the petitioner himself. I. BACKGROUND
A. Pendrak’s Account
Pendrak is a native and citizen of Ukraine. Pendrak’s wife at the time of the hearing was a
Ukranian citizen who resided in Ukraine with their two daughters.2 (A.R. 78.) In 1988, when
Pendrak was eighteen, he was drafted into the Ukrainian army and served two years. (A.R. 74.)
After serving in the army, he worked as an electrician and as a salesman, and, in 1996, opened an
automotive body shop. (A.R. 76, 151.) During the time Pendrak owned and operated his body shop,
he angered the Ukrainian mafia because he refused to acquiesce to their demands for money.
Pendrak testified that, when he owned the body shop, the mafia threatened him and his family, stole
his car, and ultimately burned down the body shop. (A.R. 80.) In July 1998 Pendrak moved from
Ukraine to Greece where he worked in construction for a little over a year. (A.R. 73, 92.) Pendrak
testified that, after he returned from Greece, the Ukrainian mafia beat him in order to claim their
money. Pendrak stated he was kicked “all over [his] body” but could not successfully report the
incident to the police because they were connected to the mafia and would not pay attention to him.
(A.R. 80.)
In February 2000, Pendrak voluntarily joined the Ukranian army as a sergeant, signing a
contract to serve for three years. (A.R. 76, 93.) Pendrak left the army without permission after three
months. (A.R. 76.) When asked why he left the army, Pendrak replied, “Because they were
All documents in the administrative record indicate that Pendrak is married to Ukrainian citizen Anjelika Bobak. They divorced in 2000 because Pendrak feared she would be harassed because of her association with him; however, they were remarried a few months later. (A.R. 34, 140.) At his April 2007 hearing, Pendrak stated he was still in communication with Bobak. (A.R. 78.) However Pendrak’s brief on appeal states that, on December 17, 2008, he married a United States citizen, Maria Popovich, with whom he currently resides. Popovich has apparently filed an I-130 Petition for Alien Relative on behalf of Pendrak. Pendrak has also filed an Application for Adjustment of Status. (Pet. Br. 8.) suppose[d] to send me into places where I did not want to go.” (A.R. 76.) When asked where he
would be sent, Pendrak said, “They would not tell me the truth, but I guess it was Chechnya.” (A.R.
77.)3 Pendrak went to Moscow, where he stayed for several months. He obtained a fraudulent visa
(he testified that he did not know it was fake) and left for the United States in February 2001. (A.R.
86.)
Pendrak wrote in his asylum application that he “know[s] the penalty for desertion is a long
prison sentence” and that “if I returned I would be put in prison and most probably tortured while
in prison for deserting the Ukranian National Army. The punishment is very severe for deserters,
they are beaten, and tortured and are kept in prisons for years. Some deserters do not manage to
survive this brutal treatment.” (A.R. 152.) He also stated that prisoners are not given medical
treatment and that no one can stop the poor treatment of prisoners because “it is part of the institution
and can be inflicted totally at will.” (A.R. 153.) At his removal hearing, Pendrak expressed his
belief that “there is a contract in any army that [it] will try to torture you or kill you when you leave
it.”4 (A.R. 84.) He also stated to the IJ, “If you want to save my life I would like to ask you not to
send me back home because there is no law in the Ukraine and they will get me there.” (A.R. 88.)
While residing in Moscow, Pendrak had returned to Ukraine briefly to visit his family. At
that time, he feared he would be served with a court martial for deserting the army. Although he did
not receive one, he said “they were sending a letter [stating] that I have to appear.” (A.R. 84.)
In his asylum application, Pendrak wrote that “I was told that I would be tran[s]ferred to the war zone (which is Chechnya) to do guard duties there. I did not want to go because I see no point in this war in Chechnya, so I deserted.” (A.R. 153.) The official who conducted Pendrak’s credible- fear interview stated that Pendrak “abandoned his post after learning that he would be guarding a factory near Chechnya, because he did not want to be in danger.” (A.R. 136.) The government pointed out that under the terms of the contract, Pendrak was allowed to terminate the contract “on the grounds of family circumstances or any other significant reasons as provided by regulations of administration of Ukraine.” (A.R. 83, 93.) B. Immigration Proceedings
In February 2001, Pendrak entered the United States using a fake visa. (A.R. 65.) He was
served with a Notice to Appear on April 24, 2001, charging him with removability under 1) Section
212(a)(7)(A)(i)(I) of the Immigration and Nationality Act (INA) (8 U.S.C. § 1182(a)(7)(A)(i)(I)), as
an immigrant who, at the time of admission, did not possess a valid entry document, and 2) Section
212(a)(6)(C)(i) of the INA (8 U.S.C. § 1182(a)(6)(C)(i)), as an alien who fraudulently or willfully
misrepresented a material fact when he procured documentation for admission into the United States.
(A.R. 322-23.) An IJ found Pendrak removable, and Pendrak thereafter filed an application for
asylum, withholding of removal, and protection under the CAT.
Although Pendrak had filed his application with the assistance of counsel, he attended his
April 13, 2007 merits hearing pro se. After the hearing, the IJ issued an oral decision denying
Pendrak’s application and ordering him removed to Ukraine. (A.R. 32-41.) The IJ found Pendrak
credible. However, the IJ concluded that Pendrak’s fears were “subjective,” and that “there is no
evidence . . . based upon an objective standard that [Pendrak] would be given severe punishment that
would amount to persecution under the Act or violation of [the] torture convention.” (A.R. 38.) The
IJ noted that the Ukranian mafia engaged in similar bullying activities against other businesses, and
that Pendrak was not specifically targeted. The IJ found that such general harsh conditions had no
relation to any particular status of Pendrak’s, and, thus, did not amount to persecution under the Act.
(A.R. 39.) The IJ found that Pendrak had deserted the army after three months because he no longer
wished to serve.5 The IJ found that the Ukranian government has the right to require Pendrak to
The IJ’s exact finding is somewhat unclear from the transcript: Pendrak “remained in the army for three months because he did not want to go to or remain in the army for any other reason. . .” (A.R. 38.) It may be that the key word “Chechnya” was omitted, making the actual statement, Pendrak “remained in the army for three months because he did not want to go to Chechnya or remain in the army for any other reason . . .” Accordingly, a fair reading of the IJ’s conclusion is that meet his contractual obligations, and that any court martial to which Pendrak might be subject would
be “prosecution and not persecution.” (A.R. 39-40.) The IJ noted that it had taken into account the
most recent State Department report for Ukraine and concluded that there was no evidence that
Pendrak’s punishment would be disproportionately severe. (A.R. 37, 40.) Finally the IJ rejected
Pendrak’s CAT claim, finding that Pendrak had not met the more-likely-than-not standard, and in
fact that Pendrak had presented “no credible evidence that he would suffer torture at the hands of the
Ukranian Government if he were returned to the Ukraine.” (A.R. 40.)
Again represented by counsel, Pendrak appealed to the BIA, which affirmed the IJ’s decision
without opinion on September 24, 2008. (A.R. 10.) Pendrak timely sought review in this court and
filed a motion for stay of removal pending appeal. The motion was granted on March 6, 2009.
II. ANALYSIS
A. Legal Standards
Because the BIA affirmed the IJ’s decision without an opinion we review the IJ’s decision
directly. Denko v. INS, 351 F.3d 717, 730 (6th Cir. 2003) (“we evaluate the IJ’s explanation as that
of the Board”). In general, the IJ’s legal conclusions are reviewed de novo, Ramirez-Canales v.
Mukasey, 517 F.3d 904, 907 (6th Cir. 2008), and factual findings are reviewed for substantial
evidence, Hassan v. Gonzales, 403 F.3d 429, 434 (6th Cir. 2005). Under the substantial evidence
standard, factual findings are treated as “conclusive unless any reasonable adjudicator would be
compelled to conclude to the contrary.” Id. The IJ’s findings receive significant deference; a
reviewing court cannot reverse “simply because it is convinced that it would have decided the case
differently.” Sylla v. INS, 388 F.3d 924, 925 (6th Cir. 2004).
Pendrak did not want to go to Chechnya and/or Pendrak simply did not want to serve anymore. In any event, it is clear that the IJ found that Pendrak deserted the army for reasons that did not justify his leaving. Under the INA, asylum can be granted to an alien who qualifies as a “refugee,” defined as
someone “who is unable or unwilling to return to, and is unable or unwilling to avail himself or
herself of the protection of, [his or her home country] because of persecution or a well-founded fear
of persecution on account of race, religion, nationality, membership in a particular social group, or
political opinion.” 8 U.S.C. § 1101(a)(42)(A). An applicant is required to show three things to
demonstrate a well-founded fear of future persecution:
(1) that he has a fear of persecution in his home country on account of race, religion, nationality, membership in a particular social group, or political opinion; (2) that there is a reasonable possibility of suffering such persecution if he were to return to that country; and (3) that he is unable or unwilling to return to that country because of such fear.
Singh v. Ashcroft, 398 F.3d 396, 401 (6th Cir. 2005) (quoting Pilica v. Ashcroft, 388 F.3d 941, 950
(6th Cir. 2004)). To show a “reasonable possibility” of persecution, the applicant need not prove
persecution by a preponderance of the evidence. See INS v. Cardoza-Fonseca, 480 U.S. 421, 431
(1987) (“One can certainly have a well-founded fear of an event happening when there is less than
a 50% chance of the occurrence taking place.”).
Eligibility for withholding of removal is based on the same grounds that form the basis of
an asylum claim—fear of persecution based on race, religion, nationality, membership in a particular
social group, or political opinion. See Singh v. Ashcroft, 398 F.3d at 401. Although the decision to
grant asylum is a matter of the Attorney General’s discretion, if a petitioner meets the requirements,
withholding of removal is mandatory. Id. However, in order to qualify for withholding of removal,
the petitioner must meet a higher standard—a “clear probability,” or more likely than not, that he
would be subject to persecution in the proposed country of removal. Almuhtaseb v. Gonzales, 453
F.3d 743, 749 (6th Cir. 2006); See 8 U.S.C. § 1231(b)(3). In order to establish a CAT claim, an applicant must show that it is more likely than not that
the applicant would be tortured if removed to the proposed country of removal. 8 C.F.R.
§ 1208.16(c)(2). A petitioner need not show that the torture is based on one of the five protected
grounds. See Almuhtaseb, 453 F.3d at 751. Torture is “an extreme form of cruel and inhuman
treatment.” 8 C.F.R. § 1208.18(a)(2). “Specifically, it is ‘any act by which severe pain or suffering,
whether physical or mental, is intentionally inflicted’ to extract information, punish, intimidate,
coerce, or otherwise discriminate, ‘when such pain or suffering is inflicted by or at the instigation
of or with the consent or acquiescence of a public official or other person acting in an official
capacity.’” Haider v. Holder, 595 F.3d 276, 289 (6th Cir. 2010) (quoting 8 C.F.R. § 1208.18(a)(1)).
Significantly, “lawful sanctions” that do not defeat the object and purpose of the CAT are excluded
from the definition of torture. See Pavlyk v. Gonzales, 469 F.3d 1082, 1090 (7th Cir. 2006)
(“[t]orture does not include pain or suffering arising only from, inherent in or incidental to lawful
sanctions . . . includ[ing] judicially imposed sanctions and other enforcement actions authorized by
law”) (quoting § 208.18(a)(3)).
B. Analysis
As a preliminary matter, because Pendrak did not pursue his claims concerning the Ukranian
mafia before the BIA or in his briefing in this court, we will not address them. See Kalaj v.
Gonzales, 137 F. App’x 851, 852 n.2 (6th Cir. 2005) (unpublished) (petitioner briefing only asylum
issue waived non-argued claims).
Turning to the desertion issue, the IJ’s conclusion that Pendrak did not face persecution under
the Act is supported by substantial evidence. Though Pendrak argues for the first time on appeal that he was a conscientious objector to the war in Chechnya, and that he deserted on that basis,6 there is
nothing in the record to indicate that Pendrak’s decision to desert was based on his political views
or membership in an otherwise protected group. Contra Vujisic v. INS, 224 F.3d 578, 581-82 (7th
Cir. 2000) (petitioner singled out for persecution over other deserters because of his Slovenian
background and the perception that he would spy for Slovenia). Because Pendrak has failed to show
that any future persecution would be on the basis of one of the five protected grounds, his asylum
claim fails. See Singh, 398 F.3d at 401. Pendrak’s withholding of removal claim has the same
requirement, see id., so that claim fails on the same basis.
Turning to Pendrak’s torture claim, we have repeatedly recognized that the punishment that
a deserter or a draft dodger faces does not ordinarily meet even the less stringent “persecution”
standard. See Pascual v. Mukasey, 514 F.3d 483, 487 (6th Cir. 2007) (“[I]t is hardly unusual, much
less a form of persecution, for governments to conscript their citizens into military service, then to
punish those who do not fulfill their duty. Such conduct does not by itself ordinarily rise to the level
of persecution on the basis of political opinion.”); Vuljaj v. INS, 77 F. App’x 793, 798 (6th Cir.
2003) (unpublished) (detention for evading military service not persecution because governments
have right to require military service and penalize noncompliance); Elias v. INS, 108 F.3d 1376 at
*3 (6th Cir. 1997) (unpublished) (“[I]t is well-settled that punishment for failure to comply with a
country’s compulsory military service is prosecution, not persecution.”) (quotation marks omitted);
see also Gojcevic v. Gonzales, 142 F. App’x 257, 261 (6th Cir. 2005) (unpublished) (“[R]efusal to
perform military service in one’s native country is not ordinarily a valid basis for establishing asylum
“[I]n some cases, refusal to enter the army may render one a refugee if[,] for instance, the reason for refusal is a genuine political, religious or moral conviction or to valid reasons of conscience.” Gojcevic v. Gonzales, 142 F. App’x 257, 261 (6th Cir. 2005) (unpublished) (internal quotation marks omitted). eligibility.”) (quotation marks omitted). The persecution standard may be met in those “rare cases
where a disproportionately severe punishment would result.” See Elias at 108 F.3d at *2. But it is
significantly more difficult to show that it is more likely than not that the petitioner will be tortured.
See, e.g., Pavlyk, 469 F.3d at 1090-91 (torture standard not met where petitioner faced potential
conviction and imprisonment in overcrowded facilities that lacked adequate sanitation where police
reportedly regularly beat prisoners).
Although Pendrak submitted additional materials on appeal, the administrative record
contains only the State Department’s country reports for Ukraine, and we are limited to reviewing
the administrative record. See Gishta v. Gonzales, 404 F.3d 972, 979 (6th Cir. 2005) (refusing to
consider extra-record information). The most recent report in the record, which the IJ said he
reviewed, was the 2006 report, which stated that prison conditions in Ukraine were poor, but slowly
improving as a result of reform. (A.R. 98.) The report details several individual instances of harsh
treatment – including prisoners being searched, beaten, and their food destroyed – and notes that
conditions in pretrial detention centers were harsher than in low and medium security prisons. (A.R.
98.) Tuberculosis infection is a concern, as is overcrowding. (A.R. 98.) Although the government
allowed prison visits by human rights observers, observers sometimes had difficulty getting full
access. According to the 2006 country report for Ukraine, prisoners were permitted to file
complaints with a human rights ombudsman about conditions, but sometimes were punished for
doing so. (A.R. 99.) The 2006 report did reveal significant improvement in the prison system since
2001, though.7
The 2001 report started off the relevant section by simply stating: “[P]olice and prison officials regularly tortured and beat detainees and prisoners, and there were numerous reports of such abuse.” (A.R. 159.) Even in light of the evidence of poor conditions in Ukranian prisons, we cannot say that any
reasonable adjudicator would be compelled to find it more likely than not that Pendrak will be
tortured. Pendrak testified that he had not received a court martial before leaving Ukraine, and the
record is silent as to his current status. Uncertainty as to whether a petitioner will face punishment
upon return is a factor to be considered. See Pavlyk, 469 F.3d at 1090-91 (poor conditions in
Ukrainian prisons do not entitle petitioner to CAT relief where, among other things, “[i]t is not . . .
assured that [petitioner] would be convicted if returned to Ukraine”).
Even assuming that, as Pendrak claims, he likely faces a court martial and prison time, this
does not entitled him to CAT relief. In Pavlyk, the Seventh Circuit evaluated whether the conditions
in Ukranian prisons, including overcrowding, lack of adequate sanitation and medical facilities, and
reports of police beatings, amounted to torture. See 469 F.3d at 1090. The court concluded that the
“pain and suffering” caused by such conditions would fall within 8 CFR § 208.18(a)(3)’s lawful-
sanction exception to torture where the petitioner faced a bribery conviction carrying two to fifteen
years in prison. Id. at 1090-91. The Pavlyk court was evaluating the Ukranian system under the
2004 State Department report. The conditions in our record (as described two years later) are
similar. Under these circumstances, we cannot say that the harsh conditions that Ukranian prisoners
potentially face amount to a more-likely-than-not chance that Pendrak will experience severe pain
or suffering that is intentionally inflicted to punish, coerce, or otherwise discriminate, by or with the
consent of a public official. See Haider, 595 F.3d at 289. III. CONCLUSION
We cannot conclude that any reasonable adjudicator would be compelled to find contrary to
the IJ’s determination. Accordingly, we DENY Pendrak’s petition for review of the BIA’s decision. |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-1926
U NITED S TATES OF A MERICA, Plaintiff-Appellee, v.
C HRISTOPHER R. T HOMPSON, Defendant-Appellant.
Appeal from the United States District Court for the Northern District of Illinois, Western Division. No. 3:00-cr-50002-1—Philip G. Reinhard, Judge.
A RGUED F EBRUARY 9, 2010—D ECIDED M ARCH 19, 2010
Before P OSNER, R OVNER, and S YKES, Circuit Judges. S YKES, Circuit Judge. Christopher Thompson violated the conditions of his supervised release in late Feb- ruary 2009, and the district court held a revocation hearing in March of that year. Rule 32.1(b)(2) of the Federal Rules of Criminal Procedure establishes the pro- cedures that apply in a supervised-release revocation hearing, and the judge followed these procedures—with one exception. Although Thompson, his attorney, and 2 No. 09-1926
the prosecutor were present in the federal courthouse in Rockford, Illinois, the judge participated via video- conference from Key West, Florida. Thompson’s appeal requires us to confront a question of first impres- sion for federal courts of appeals: whether holding a supervised-release revocation hearing by videocon- ference violates Rule 32.1(b)(2). We hold that it does. Accordingly, we vacate Thompson’s term of reimprison- ment.
I. Background In November and December 1999, Christopher Thomp- son robbed two banks near Rockford, Illinois. He pleaded guilty and was sentenced to 102 months’ imprisonment and 5 years’ supervised release. After serving his prison term, he was released on supervision; within months he was caught using illegal drugs. Supervised release was revoked and he was returned to prison for six months. Not long after completing this brief term of reimprison- ment, Thompson was arrested again—this time for driving under the influence of alcohol, operating an uninsured motor vehicle, driving with a suspended license, speeding, and improper lane usage. He also failed to notify his probation officer of his arrest within 72 hours, as required by his conditions of release. The government again sought to revoke supervised release and return Thompson to prison. On March 18, 2009, the district court held an initial hearing, appointed a federal defender to represent Thomp- son, and scheduled a revocation hearing for March 25. No. 09-1926 3
Although all parties were present in the Rockford court- house for this initial hearing, the judge participated by videoconference from Key West, Florida. At the revoca- tion hearing a week later, the judge again appeared by videoconference from Key West; everyone else was assembled in the judge’s courtroom in Rockford. Thomp- son’s counsel objected, contending that this procedure violated Rule 32.1. The district court overruled the ob- jection, commenting: The court will state for the record that, of course, everybody is in the court in Rockford except for me. I’m in the courthouse in Key West, Florida. We’re doing this by video conferencing. I can both see and hear everybody in the courthouse in Rockford and can comprehend everything that has transpired. The court believes that video conferencing for a super- vised release hearing meets the standards of due process, that there’s no case law that would prohibit it nor any rule or statute that would prohibit it under the circumstances of the supervised release. . . . [I]t is the court’s ruling that we can proceed, and I will overrule the defendant’s objection.1 Thompson admitted the allegations except for the drunk- driving charge, and the district court heard statements
The record does not indicate whether the videoconferencing technology permitted the individuals in the Rockford court- house to see the judge or whether those individuals could only hear the judge. For purposes of discussion, we assume that all parties could see and hear one another. 4 No. 09-1926
from counsel for both parties and from Thompson himself. Although the probation officer recommended eight months’ reimprisonment, the judge revoked supervised release and imposed a term of twelve months in prison and one year of supervised release. Thompson appealed, challenging the judge’s decision to conduct the revoca- tion hearing by videoconference.
II. Discussion The issue on appeal—whether the use of video- conferencing to conduct a supervised-release revocation hearing violates the Federal Rules of Criminal Procedure or alternatively, the Fifth Amendment’s Due Process Clause—is a question of law that we review de novo.2 United States v. Clark, 538 F.3d 803, 808 (7th Cir. 2008). Rule 32.1 governs supervised-release revocation hearings and provides in relevant part: Unless waived by the person, the court must hold the revocation hearing within a reasonable time in the district having jurisdiction. The person is entitled to . . . an opportunity to appear, present evidence, and question any adverse witness unless the court
The government confesses error, conceding that holding Thompson’s revocation hearing by videoconference violated Rule 32.1; its brief does not address Thompson’s alternative due- process argument. Because of this concession, we appointed an amicus to defend the district court’s procedure. We thank Barry Levenstam, Andrew Weissmann, and Sharmila Sohoni of Jenner & Block for ably discharging this responsibility. No. 09-1926 5
determines that the interest of justice does not require the witness to appear[,] . . . and an opportunity to make a statement and present any information in mitigation. F ED. R. C RIM. P. 32.1(b)(2). Rather than commencing his analysis with the language of this rule, Thompson looks first to Rule 43, which provides that a defendant “must be present” at “sentencing.” FED. R. C RIM. P. 43(a)(3).3 Three circuits have held that Rule 43’s “presence” require- ment commands that all parties and the judge be physi- cally present in the same courtroom for sentencing. See United States v. Torres-Palma, 290 F.3d 1244, 1247-48 (10th Cir. 2002) (remanding for resentencing where judge appeared via videoconference); United States v. Lawrence, 248 F.3d 300, 305 (4th Cir. 2001) (vacating sentence where defendant appeared via videoconference); United States v. Navarro, 169 F.3d 228, 238-39 (5th Cir. 1999) (vacating sentence where judge appeared via video- conference). Thompson argues that a supervised-release revocation hearing at which the judge may impose a prison term is indistinguishable from an initial sentencing pro- ceeding. Accordingly, he reasons, Rule 43 applies to revocation hearings, and because Rule 43 requires the defendant’s physical presence before the judge, the district court was prohibited from conducting the re- vocation hearing by videoconference. This argument
The government also bases its argument in part on the application of Rule 43 to revocation proceedings. 6 No. 09-1926
misses the mark. The problem is not with Thompson’s contention that Rule 43 requires the physical presence of all participants in the same courtroom; he may well be right that it does, although we need not decide today whether to join the consensus among the circuits on this point. Instead, the flaw in Thompson’s argument is its assumption that Rule 43 applies to revocation hearings. By its own terms, Rule 43 governs only “(1) the initial appearance, the initial arraignment, and the plea; (2) every trial stage, including jury impanelment and the return of the verdict; and (3) sentencing.” If Rule 43 were meant to apply to revocation hearings, it would say so explicitly. Indeed, the Advisory Committee Notes to Rule 43 explain that the rule does not apply to “hearings on motions made . . . after trial.” FED. R. C RIM. P. 43 advisory committee’s note 1. A supervised-release revocation hearing is obviously a posttrial proceeding. Nor, as Thompson asserts, is the revocation of supervised release the precise equivalent of a sentencing hearing; the rights at stake in each proceeding are distinguishable. The Supreme Court long ago noted that “[r]evocation deprives an individual, not of the absolute liberty to which every citizen is entitled, but only of the conditional liberty properly dependent on observance of special parole restrictions.” Morrissey v. Brewer, 408 U.S. 471, 480 (1972). Because a revocation hearing is not part of a criminal prosecution, a defendant at a revocation hearing is not owed the “full panoply of rights” due a defendant at sentencing. Id. Although the revocation hearing is some- times referred to colloquially as a “resentencing,” the controlling statute does not use that term; instead, 18 No. 09-1926 7
U.S.C. § 3583(e)(3) authorizes the court, once a violation of supervised release is proven, to “revoke a term of supervised release, and require the defendant to serve in prison all or part of the term of supervised release autho- rized by statute.” By its terms—and based on the well- established difference in the procedural scope of these proceedings—Rule 43 is inapplicable to supervised- release revocation hearings. Thompson also offers an alternative argument grounded in the text of Rule 32.1—the place where his analysis should have started. Recall that Rule 32.1(b)(2) provides that before revoking a defendant’s super- vised release, the court must give the defendant “an opportunity to appear” for purposes of presenting evi- dence, questioning witnesses, arguing in mitigation, and making a statement to the court. Thompson argues that the “appearance” mandated by Rule 32.1(b)(2) requires the defendant and the judge to be physically present in the same courtroom. His contention is correct; this reading of the rule is consistent with the meaning of “appear” as used in this context as well as the tradi- tional understanding of an accused person’s “appearance” before a court empowered to deprive him of his liberty. More specifically, Rule 32.1(b)(2) provides that prior to revocation of supervised release, a defendant is “entitled to” an “opportunity to appear,” to “present evidence[] and question any adverse witness,” and to “make a statement and present any information in mitigation.” FED. R. C RIM. P. 32.1(b)(2) (emphasis added). As used in this context, the word “appear” means “to 8 No. 09-1926
come formally before an authoritative body.” W EBSTER’S T HIRD N EW INTERNATIONAL D ICTIONARY 103 (1981). Black’s Law Dictionary further defines “appearance” as “[a] coming into court as a party or interested person, or as a lawyer on behalf of a party or interested person.” B LACK’S L AW D ICTIONARY 113 (9th ed. 2009). These definitions suggest that the “appearance” required by this rule occurs only if the defendant comes into the physical—not virtual—presence of the judge. Moreover, a defendant’s “opportunity to appear” under this rule exists not in isolation but in conjunction with his right to “present evidence,” to “question any adverse witness,” and to “make a statement and present any information in mitigation.” A defendant’s appearance in court is the means by which he effectuates the other rights conferred by the rule; appearing before the court allows the defendant to plead his case personally to the judge who will decide whether to revoke supervised release and return him to prison. This is particularly true in light of the defendant’s right to “make a state- ment and present any information in mitigation.” FED. R. C RIM. P. 32.1(b)(2)(E). This subsection guarantees a right of allocution before revocation; we have held that the right of allocution at a revocation hearing is essentially the same as the right of allocution at sentencing guaranteed by Rule 32(i)(4)(A)(ii). See United States v. Pitre, 504 F.3d 657, 662 (7th Cir. 2007) (holding that the right to allocution in Rule 32.1 “is not substantively different than the right [to allocution] created by Rule 32”). This common-law right, codified in both rules, ensures that the defendant has the opportunity to “personally No. 09-1926 9
address the court” before punishment is imposed. United States v. Barnes, 948 F.2d 325, 328 (7th Cir. 1991). This face- to-face meeting between the defendant and the judge permits the judge to experience “those impressions gleaned through . . . any personal confrontation in which one attempts to assess the credibility or to evaluate the true moral fiber of another.” Del Piano v. United States, 575 F.2d 1066, 1069 (3d Cir. 1978) (discussing allocution); see also Green v. United States, 365 U.S. 301, 304 (1961) (“The most persuasive counsel may not be able to speak for a defendant as the defendant might, with halting eloquence, speak for himself.”). Without this personal interaction between the judge and the defen- dant—which videoconferencing cannot fully replicate—the force of the other rights guaranteed by Rule 32.1(b)(2) is diminished. The Sixth Circuit’s recent decision in Terrell v. United States, 564 F.3d 442 (6th Cir. 2009), supports this interpreta- tion of Rule 32.1(b)(2)’s “opportunity to appear.” Terrell involved a hearing before the U.S. Parole Commission; the issue was whether the use of videoconferencing satisfied 18 U.S.C. § 4208(e)’s requirement that “[t]he prisoner shall be allowed to appear and testify on his behalf at the parole determination proceeding.” The Sixth Circuit held that “to appear mean[s] to be physically present.” Terrell, 564 F.3d at 451. Although the question in Terrell was whether the defendant’s appearance via videoconference violated the parole statute, the result must be the same when it is the judge whose presence is virtual. The important point is that the form and sub- stantive quality of the hearing is altered when a key 10 No. 09-1926
participant is absent from the hearing room, even if he is participating by virtue of a cable or satellite link. This is particularly true when the one who is absent has the power to impose a prison term. Our reading of Rule 32.1(b)(2) also comports with the traditional legal understanding of a person’s “appear- ance” before a court when his liberty is at stake in the pro- ceeding; in this situation, to “appear” has generally been understood to require the defendant to come per- sonally before a judicial officer. Not only is this intu- itive—videoconferencing technology was obviously unknown at common law—but the Supreme Court’s decision in Escoe v. Zerbst, 295 U.S. 490 (1935) (Cardozo, J.), confirms this understanding. In Escoe the Court considered the propriety of a judge’s order summarily revoking a criminal defendant’s probation without a hearing. The Court held that an ex parte revocation of probation violated the applicable federal probation statute, which required the probationer to be “brought before the court” before probation could be revoked and a prison term imposed. Id. at 492. The Court held that “the end and aim of an appearance before the court” under the statute was to “enable an accused probationer to explain away the accusation,” id. at 493, and this re- quired “bringing the probationer into the presence of his judge,” id. at 494. Although a hearing by video- conference is not the same as no hearing at all, the Court’s interpretation of the statute at issue in Escoe informs our interpretation of the “appearance” required by Rule 32.1(b)(2). No. 09-1926 11
The rules of procedure specifically mention the use of videoconferencing in other contexts, and the treatment of this alternative form of “appearance” also supports our conclusion that the opportunity to appear guaranteed by Rule 32.1(b)(2) is not satisfied by videoconferencing. For example, Rule 5, which governs initial appearances, permits videoconferencing only if the defendant consents. See F ED. R. C RIM. P. 5(f). Similarly, Rule 10 permits the use of videoconferencing for arraignments, but again only when the defendant consents.4 F ED. R. C RIM. P. 10(c). That videoconferencing is permitted only pursuant to a specifically enumerated exception and with the defen- dant’s consent demonstrates that the use of this tech- nology is the exception to the rule, not the default rule
We note as well that the treatment of videoconferencing in the Rules of Civil Procedure also suggests that video- conferencing is the exception rather than the rule. Rule 43 provides: “For good cause in compelling circumstances and with appropriate safeguards, the court may permit testimony in open court by contemporaneous transmission from a dif- ferent location.” F ED . R. C IV . P. 43(a). Despite this provision, the Advisory Committee Note to the rule evinces a strong preference for live, in-court testimony as opposed to video- conferencing. F ED . R. C IV . P. 43 advisory committee’s note 1996 amend.; see also Navarro, 169 F.3d at 239 (making this point). Read in context with relevant criminal rules, Civil Rule 43 suggests that “where the drafters believe that video con- ferencing is appropriate, the drafters will make provision in the Rules for the use of the technology.” Navarro, 169 F.3d at 239. 12 No. 09-1926
itself.5 Accordingly, we read the “opportunity to appear” in Rule 32.1(b)(2) to exclude an “appearance” by videoconference. The district judge’s participation in Thompson’s revocation hearing via videoconference violated the rule. This violation, however, is subject to harmless-error analysis. See F ED. R. C RIM. P. 52(a). Remand is therefore necessary only if the government—or in this case, the amicus—demonstrates that the procedural error did not affect the outcome. See United States v. Eubanks, 593 F.3d 645, 655 (7th Cir. 2010). Yet the amicus has not ex- plained why the error is harmless; this failure is telling. The judge’s absence from the courtroom materially changes the character of the proceeding, and the amicus bears a heavy burden in showing that such a significant procedural shift was harmless. Rule 32.1(b)(2) establishes a procedure that requires the defendant’s physical pres- ence before the judge, and videoconferencing is not an adequate substitute. As one court has noted, “virtual reality is rarely a substitute for actual presence and . . . watching an event on the screen remains less than the
The Advisory Committee is currently considering a proposed amendment to Rule 32.1. If adopted, the amendment, which would be codified as Rule 32.1(f), would provide: “On a defen- dant’s request, the court may allow the defendant to participate in proceedings under this rule through video teleconferencing.” The committee notes also state, “[t]he amendment does not address whether victims, witnesses, or others may participate in any hearing under Rule 32.1 through video teleconferencing or other means.” No. 09-1926 13
complete equivalent of actually attending it.” Lawrence, 248 F.3d at 304. In short, there is no way to know what the judge would have done had he been present in Rockford and face-to-face with Thompson; we cannot conclude that the error was harmless.6 A judge’s decision whether to send a defendant to prison requires a careful, qualitative, and individualized assessment of the offense and the offender; no matter how simple the case, this is never a mechanical or rote determination. At the end of the day, Rule 32.1(b)(2) reflects a conclusion that a judge cannot properly assess the defendant without the defendant’s in-person appear- ance before the court. The rule’s strictures are “mandatory in meaning as well as mandatory in form,” Escoe, 295 U.S. at 494, and the form of the hearing required by the rule excludes videoconferencing. V ACATED and R EMANDED.
Because we hold that the judge’s participation by video- conference violated Rule 32.1, we need not address Thompson’s argument that holding the hearing by videoconference vio- lated the Fifth Amendment’s Due Process Clause.
3-19-10 |
In the
United States Court of Appeals For the Seventh Circuit
No. 09-1180
C ARNELITA S TOKES and N YOKIA S TOKES,
Plaintiffs-Appellants,
v.
B OARD OF E DUCATION OF T HE C ITY OF C HICAGO, a municipal corporation, and JOHNNY B ANKS,
Defendants-Appellees.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 CV 493—Suzanne B. Conlon, Judge.
A RGUED D ECEMBER 10, 2009—D ECIDED M ARCH 19, 2010
Before P OSNER, M ANION, and H AMILTON, Circuit Judges. H AMILTON, Circuit Judge. On January 23, 2007, Principal Johnny Banks encountered what looked like a fight among several adult women in the office of his Chicago elementary school. At Principal Banks’ request, the police arrested four women. After criminal charges 2 No. 09-1180
were dropped, two of the women sued Principal Banks and the Board of Education of the City of Chicago. Plain- tiffs Nyokia and Carnelita Stokes are the mother and grandmother, respectively, of four children who attended the school at the time of the incident. The Stokes brought suit under 42 U.S.C. § 1983 alleging that Banks violated their Fourth Amendment rights by swearing to false complaints of disorderly conduct and causing false arrests. Plaintiffs added state-law claims for false arrest, false imprisonment, malicious prosecution, and intentional infliction of emotional distress. The district court granted summary judgment for the defendants on all claims. Plaintiffs appealed, and we affirm.
I. The Facts for Purposes of Summary Judgment We review the district court’s grant of summary judg- ment de novo, construing all facts and reasonable infer- ences in the light most favorable to the non-moving parties. Casna v. City of Loves Park, 574 F.3d 420, 424 (7th Cir. 2009). We will affirm a grant of summary judgment if the evidence establishes that there are no genuine issues of material fact, leaving the moving parties entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Many factual details are disputed in this case, but a factual dispute is material only if its resolution might change the suit’s outcome under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual issue is genuine only if there is sufficient evidence for a reasonable jury to return a verdict in favor No. 09-1180 3
of the non-moving party on the evidence presented. See id. In deciding a motion for summary judgment, neither the district court nor this court may assess the credibility of witnesses, choose between competing reasonable inferences, or balance the relative weight of conflicting evidence. The courts must view all the evidence in the record in the light reasonably most favorable to the non- moving parties. See id. at 249-50. We state the facts in light of the standard for summary judgment and without vouching for the objective truth of this account, especially as it might reflect on those who are not parties to this case. In the weeks before the fight, Nyokia Stokes’ third-grade daughter experienced conflict with another girl in her class. The conflict escalated to the parents. The night before the incident that resulted in arrests, the other girl’s mother (Ebony Scott) and a male companion went to Nyokia’s home and threatened her. The police were called, but they deferred to school authorities. The next morning, January 23, 2007, Nyokia and Carnelita met with the police and Principal Banks at the school. Banks said that he would set up a meeting between the Stokes and Scott. Around 2:30 p.m. that day, Nyokia and Carnelita re- turned to the school to pick up Nyokia’s daughter in kindergarten and to check on the status of the proposed meeting with Scott. They waited in the school office, which is where kindergarten children are picked up and which is adjacent to Principal Banks’ office. While they were waiting, Scott entered with a female com- panion identified only as “Scott’s cousin Pony.” Scott 4 No. 09-1180
approached Nyokia aggressively and yelled at her for telling Principal Banks about the events of the previous night. Nyokia responded by saying only, “that’s not why we’re here.” Scott and Pony then set upon Nyokia, grabbing her hair and tearing out her artificial braids, causing her to bleed and suffer significant pain and distress. By the time the attack ended, Scott and Pony had pulled approximately eight braids (and the natural hair to which they were attached) from Nyokia’s scalp. Nyokia estimated that the attack lasted 20 minutes, though that seems highly improbable under the circum- stances. By all later accounts of witnesses, Scott and Pony were the aggressors, and neither Nyokia nor Carnelita retaliated verbally or physically. Carnelita called 911 to summon the police, apparently as the altercation was ending. During the attack, approximately 30 kindergartners were dismissed from school and entered the office to- gether. They became extremely agitated by the scene they encountered and began to yell. Nyokia testified that they were “hollering for 20 minutes” until Principal Banks arrived. One student was knocked over as a result of the adults’ assault. Principal Banks arrived in the office either as the fight was breaking up or immediately after it had broken up. Nyokia testified that he entered the office “at the last minute” when “everything was over with.” Carnelita testified that up until the moment that Banks entered the office, Scott was on the floor with her hands gripping Nyokia’s hair. Nyokia was still upright, and Scott was No. 09-1180 5
attempting to pull her to the floor with her. It is unclear exactly how Pony was positioned, but her hands were also in Nyokia’s hair. Nyokia was using her hands to try to remove her attackers’ hands from her hair. Carnelita further testified that when Principal Banks approached, Scott and Pony let go of Nyokia’s hair and backed away. Nyokia described a noisy, chaotic scene in the office, crowded with adults and children even after her attackers were disentangled from her. Banks testified that he entered the school office from his adjoining office, while others testified that he entered the school office via the hallway. Upon entering, Banks instructed Scott and Pony to go into his office, and he told the Stokes to go to another room down the hall. Carnelita and Nyokia Stokes eventually did so, accompanied by teacher Mylea Fossett. Fossett and Banks testified that at this stage, Principal Banks was attempting to assess the situation but had difficulty doing so because Carnelita refused to leave the office and yelled at Banks for an extended period of time. Fossett testified that Carnelita remained near Banks and continued yelling while Banks was trying to keep the parties separate and was trying to ask certain individuals, including Nyokia, about the circumstances of the attack. Fossett further testified that Carnelita yelled at Banks when he came to talk to the Stokes while they waited for him in a room down the hall. Both Fossett and Banks testified that Carnelita’s behavior interfered with Banks’ ability to keep the parties separate and to regain control of the school. 6 No. 09-1180
Carnelita’s testimony disputes this account, but only to a limited extent. She contends that she said nothing at all to Banks until he came to see them in the nearby room. She did not testify about and has not disputed the defendants’ evidence that she was yelling in the moments immediately following the attack, that she did not immediately comply with Banks’ request that she go with Nyokia to the room down the hall, and that she was yelling at Banks once he entered that room. Fossett and the Stokes waited together for Banks in the nearby room. Banks entered with police officers and told them to arrest both Nyokia and Carnelita. According to the Stokes’ testimony, the following exchange occurred: The police asked Banks why he wanted them arrested. Banks responded: “First of all, I want her [Carnelita] arrested.” When Carnelita asked why, Banks replied: “Because you’re not supposed to be here.” Nothing in the record indicates that Carnelita had been denied permission to be at the school. Nyokia pleaded with Banks not to have her mother arrested, saying that Carnelita had nothing to do with the altercation. Nyokia told Banks: “Don’t lock her up. Take me to jail. Because she’s sick, my mom is sick.” Banks responded: “I’m going to have to lock both of you up.” The police again asked Banks if he was sure about his decision. His reply was affirmative. Banks and the officers then left the room to complete paperwork. Banks swore out criminal complaints with the police against Ebony Scott, “Pony,” and both of the Stokes. The complaint against Carnelita stated that she No. 09-1180 7
“did knowingly and intentionally fight with another person, use loud profane language causing a crowd to gather in such an unreasonable manner as to alarm and disturb the calm of the school and provoke a breach of the peace.” The complaint against Nyokia stated that she “did knowingly and intentionally fight with another person and refused to stop [and] used loud profane language causing a crowd of students to gather thereby disturbing the calm of the School thereby provoking a breach of the peace.” While it is undisputed that Banks tried to ascertain more information about the incident before he signed the complaints, the court must assume that Banks did not attempt to determine which parties were the aggressors. Nyokia and Carnelita were escorted into the hallway, where they were arrested and handcuffed within sight of Nyokia’s children. Before the police took them away, janitor Michael Bell spoke with Banks and told him that he did not think Nyokia or Carnelita should be arrested. Banks responded, “they can’t do this on school property.” The Stokes were released late that night, at about 3:00 or 4:00 a.m. The criminal charges against them were dis- missed, and Banks later told Carnelita Stokes that he had made a mistake and should have had only the other women arrested. The district court granted summary judgment on all claims. The court acknowledged the conflicting testimony regarding what Banks actually witnessed, the history of conflict between the Stokes and Scott, and what happened after the women were separated. The court determined 8 No. 09-1180
that these factual disputes were immaterial to the central issue: whether Banks had “a reasonable basis to believe the Stokes were involved in disturbing the school and upsetting 30 schoolchildren when he called the police and caused their arrest?” The court granted summary judgment on the Fourth Amendment claims. The court also granted summary judgment on the state-law claims, finding that the plaintiffs “failed to proffer any admissible evidence that Banks’ decision to call the police or cause their arrests was maliciously motivated, and not based on probable cause, or that he intentionally inflicted emo- tional distress.” The Stokes appealed.
II. Fourth Amendment False Arrest Claims The Stokes argue that genuine issues of material fact barred summary judgment against them on their Fourth Amendment false arrest claims. They assert that Principal Banks did not have probable cause to swear out the criminal complaints against them causing their arrest for the offense of disorderly conduct as defined under Illinois law. See 720 Ill. Comp. Stat. 5/26-1(a)(1). Probable cause is an absolute bar to a claim of false arrest asserted under the Fourth Amendment and section 1983. McBride v. Grice, 576 F.3d 703, 707 (7th Cir. 2009) (affirming summary judgment for defendant police officer). We may reverse the district court’s grant of summary judgment only if we find that the Stokes offered sufficient evidence to create a genuine dispute of material fact regarding the existence of probable cause. No. 09-1180 9
Probable cause exists if, at the time of the arrest, the facts and circumstances within the defendant’s knowl- edge “are sufficient to warrant a prudent person, or one of reasonable caution, in believing, in the circumstances shown, that the suspect has committed . . . an offense.” E.g., Chelios v. Heavener, 520 F.3d 678, 686 (7th Cir. 2008) (reversing summary judgment for arresting officer). A court evaluates probable cause not with the benefit of hindsight, and not on the facts as perceived by an omni- scient observer, but on the facts as they appeared to a reasonable person in the defendant’s position, even if that reasonable belief turned out to be incorrect. Id.; Kelley v. Myler, 149 F.3d 641, 646 (7th Cir. 1998) (affirming sum- mary judgment for arresting officer). A police officer’s probable cause determination depends on the elements of the applicable criminal statute. Pourghoraishi v. Flying J, Inc., 449 F.3d 751, 761 (7th Cir. 2006) (reversing summary judgment for officer who arrested plaintiff for violating Indiana disorderly con- duct statute). Illinois law defines disorderly conduct as “knowingly [doing] any act in such unreasonable manner as to alarm or disturb another and to provoke a breach of the peace[.]” 720 Ill. Comp. Stat. 5/26-1(a)(1). The offense is intended to guard against “an invasion of the right of others not to be molested or harassed, either mentally or physically, without justification.” People v. Davis, 413 N.E.2d 413, 415 (Ill. 1980) (affirming convict- ion where defendant entered home of elderly invalid and implicitly threatened her with harm if she testified against his brother). Whether conduct is reasonable depends on the facts and circumstances of the case. 10 No. 09-1180
People v. Queen, 859 N.E.2d 1077, 1085 (Ill. App. 2006) (finding that officer had reasonable grounds to arrest for disorderly conduct, although officer cited a different statute to justify arrest). A person’s conduct must actually bring about a breach of the peace, not merely tend to do so. In re D.W., 502 N.E.2d 419, 421 (Ill. App. 1986) (affirming conviction where defendant threatened to beat up classmate at school). The issue here is not whether the Stokes actually committed the crime of disorderly conduct. We must determine only whether the facts taken in the light reasonably most favorable to the Stokes show that a reasonable person in Principal Banks’ position could have had probable cause to believe that the Stokes engaged in disorderly conduct. See Kelley, 149 F.3d at 646. To form a belief of probable cause, an arresting officer is not required, and certainly a complaining witness like Principal Banks is not required, to act as a judge or jury to determine whether a person’s conduct satisfies all of the essential elements of a particular statute. See Driebel v. City of Milwaukee, 298 F.3d 622, 645 (7th Cir. 2002) (affirm- ing summary judgment for arresting officer). Rather, probable cause involves the exercise of judgment, which “turn[s] on the assessment of probabilities in particular factual contexts—not readily, or even usefully, reduced to a neat set of legal rules.” Maxwell v. City of Indianapolis, 998 F.2d 431, 434 (7th Cir. 1993), quoting Illinois v. Gates, 462 U.S. 213, 232 (1983). While this determination is often left to the jury, the court may decide whether probable cause existed if the facts material to the probable cause determination are not in dispute. E.g., Neiman v. Keane, 232 F.3d 577, 580-81 (7th Cir. 2000) (affirming summary No. 09-1180 11
judgment for officer who had probable cause for arrest for theft of services); Sheik-Abdi v. McClellan, 37 F.3d 1240, 1246-48 (7th Cir. 1994) (affirming summary judgment for officers who had probable cause for arrest for battery and had no duty to conduct further investigation); Gramenos v. Jewel Cos., 797 F.2d 432, 438-42 (7th Cir. 1986) (affirming summary judgment for officers who had probable cause for arrest for shoplifting and had no duty to conduct any investigation). Even when all genuine factual disputes are resolved in the Stokes’ favor, Principal Banks entered the office from the hallway, where he could hear children screaming and unidentified adult female voices shouting obsceni- ties. When Banks entered the office, he found Nyokia, Scott, and Pony still tangled together in a violent ex- change. Nyokia was upright and positioned over Scott, who was on the floor. Scott’s and Pony’s hands were in Nyokia’s hair, and she was using her hands to try to fend off her assailants. Nyokia was yelling loudly, in an “hys- terical” state. The room was full of many other people, including 30 young kindergarten students, who were also yelling in response to the distressing scene. The chaos was continuing up to the time Banks arrived. Scott and Pony released their grip on Nyokia once Banks had fully entered the office. However, the accounts of Nyokia and Carnelita do not contradict Banks’ asser- tion that before he fully entered the office, he saw the three women entangled with arms “reaching and swinging and punching.” With the benefit of hindsight on summary judgment, we must assume that Nyokia was 12 No. 09-1180
an innocent victim of an assault. Nevertheless, the undis- puted facts show that a reasonable person in Principal Banks’ position at the time could easily have viewed her as an equal participant in the fight. Accordingly, Banks had probable cause to sign a criminal complaint against Nyokia Stokes for disorderly conduct. See Mustafa v. City of Chicago, 442 F.3d 544, 547-48 (7th Cir. 2006) (affirming summary judgment for officer who had proba- ble cause to arrest plaintiff for disorderly conduct when he arrived at the scene to find “ ‘commotion’ and ‘agita- tion’ in progress, with [claimant] at its center, at a crowded ticket counter at an international airport,” even though claimant had been acting peaceably); 720 Ill. Comp. Stat. 5/26-1(a)(1). While plaintiffs emphasize Banks’ concession that he did not recall Carnelita Stokes “being involved in the physi- cal,” the crime of disorderly conduct does not require an element of physical force. A person engages in disor- derly conduct if he or she “knowingly: (1) Does any act in such unreasonable manner as to alarm or disturb another and to provoke a breach of the peace.” 720 Ill. Comp. Stat. 5/26-1(a)(1). Banks entered a chaotic elemen- tary school office crowded with young and distressed children. While Carnelita was not physically entangled with the other women, she was very much at the center of the scene. Banks also knew she was the mother of Nyokia, who was in the physical swarm. A reasonable person in his position could have inferred that Carnelita shared some responsibility for the incident. Carnelita’s behavior reasonably led Banks to believe that she would continue to be an agitating factor who would limit his ability to No. 09-1180 13
regain peace and order in the school. Both Banks and teacher Fossett testified that Carnelita was yelling con- stantly after the physical altercation had ended and that she refused to comply with Banks’ requests that she leave the area. While Carnelita denies ever saying anything to Banks, her testimony does not contradict the assertions of Banks and Fossett that she was yelling hysterically after the fight had broken up and that this conduct interfered with Banks’ ability to restore order in the school.1 Carnelita has not testified that she remained calm or quiet or that she immediately complied with Banks’ request to go down the hall to separate the adults. Given Carnelita’s proximity and her family connection to the brawl, her hysterical yelling after it had ended, and Banks’ responsibility to restore order to the school, a reason- able person in Banks’ position could have perceived Carnelita as unreasonably alarming or disturbing others and provoking a breach of the peace. Plaintiffs have not met their burden of coming forward with evidence showing that Banks did not have probable cause to believe that Carnelita had engaged in disorderly conduct. Plaintiffs argue further that Banks failed to investigate the incident. They say that if he had properly gathered
Plaintiffs point to the transcript of Carnelita’s 911 call as evidence that she was acting calmly. While the 911 transcript suggests that Carnelita remained calm during the call and that Banks was present for part of the call, it does nothing to inform us about her behavior before or after the brief time period covered by the transcript. 14 No. 09-1180
more information by questioning witnesses, he would have learned that the Stokes bore no responsibility for the disturbance and did not engage in disorderly conduct. We see no basis for imposing such obligations on a school principal to investigate before asking police officers to take steps to restore order in a public school.2 The law gives a police officer latitude to make rea- sonable judgments in light of the circumstances. While an officer may not close his or her eyes to clearly exculpa- tory facts, the Fourth Amendment does not require an officer with probable cause to arrest to wait while pur- suing further investigation. McBride v. Grice, 576 F.3d 703, 707-08 (7th Cir. 2009) (officer had probable cause to arrest both participants in a physical altercation after talking to participants and viewing an inconclusive surveillance video; officer had no duty to interview witnesses or to
It is unusual to see a Fourth Amendment false arrest claim against a civilian school principal who did not arrest the plaintiffs himself, though defendants have not tried to portray Principal Banks as a typical civilian witness. Banks was acting under color of state law in his capacity as principal. We have held, by way of comparison, that a police officer may be liable for a constitutional false arrest claim by signing a false criminal complaint that led to the claimant’s arrest. Acevedo v. Canterbury, 457 F.3d 721, 723 (7th Cir. 2006); McCullah v. Gadert, 344 F.3d 655, 660-61 (7th Cir. 2003). Since the police gave Banks the authority to sign a criminal complaint, he could be liable for false arrest if he lacked probable cause to allege the criminal acts detailed in the complaint. See Acevedo, 457 F.3d at 723. No. 09-1180 15
examine additional evidence); Mustafa v. City of Chicago, 442 F.3d at 548 (affirming summary judgment for officers; police have no duty to investigate extenuating circumstances or to search for exculpatory evidence once they have probable cause to arrest). In some situations, an officer may be required to conduct some investigation before making an arrest; in others, an officer may have probable cause for arrest without any need for investiga- tion. Relevant factors include the information available to the officer, the gravity of the alleged crime, the danger of its imminent repetition, and the amount of time that has passed since the alleged crime. See Mason v. Godinez, 47 F.3d 852, 856 (7th Cir. 1995) (“amount of information the police are required to gather before establishing probable cause for an arrest is in inverse proportion to the gravity of the crime and the threat of its imminent repeti- tion”); BeVier v. Hucal, 806 F.2d 123, 127 (7th Cir. 1986) (same, finding no probable cause where it was unclear whether a crime had actually occurred, and if it had, there was no threat of its imminent repetition); Gramenos v. Jewel Cos., 797 F.2d 432, 438 (7th Cir. 1986) (finding defen- dant officers did not need to conduct investigation and stating: “Probable cause can be a matter of degree, varying with both the need for prompt action and the quality of information at hand.”); see also Sheik-Abdi v. McClellan, 37 F.3d 1240, 1247 (7th Cir. 1994) (explaining that where there is “a lapse of time between the alleged lawbreaking and the arrest, . . . we find it more likely that some type of investigation—for example, the questioning of wit- nesses—will be appropriate,” but finding no need for investigation where the alleged crime had just occurred and the officers arrived to find a chaotic scene). 16 No. 09-1180
We apply these factors to a reasonable person in the defendant’s position. When considering the amount of information available to Banks, we must recall that he is an elementary school principal, not a police officer. A principal is responsible for maintaining order and pro- tecting the children in his or her charge. The principal is not responsible for performing police investigations and deciding just how to allocate fault for the violent and disruptive actions of adults present in the school. The amount of information that Banks could reasonably be expected to gather was limited. A full investigation here would have taken a significant amount of time. There were four possible arrestees and dozens of potential witnesses. Many young children were present and were agitated and distressed. Banks’ job was to manage the school and to restore the order that the adults had destroyed. He did not have the time or the duty to carry out a police investigation. There is no evi- dence that Banks ignored information that would have undermined probable cause. While janitor Bell told Banks that he thought the Stokes should not be arrested, he said so after the probable cause determination had been made and with only a one-sentence personal opinion, unaccompanied by any specific facts. The need for prompt action was high, given the potential for further harm to students and the prospect that the fight could start up again. While disorderly conduct is not usually considered a grave offense, it can be a prelude to serious violence. And it can be a particularly serious matter when the conduct involves violence and No. 09-1180 17
loud profanity in the presence of young children, espe- cially in a school. At least one kindergarten student was knocked down by the brawl. Many others showed they were distressed at the sight of such violence right in front of them at school. The children and their parents had a right to expect the principal and the police to act swiftly to restore order. The situation jeopardized the physical safety of the students, the staff, and the four women involved. It also threatened the psycho- logical well-being of many young children. It was not unreasonable for Banks to act immediately to remove any further threat of physical or psychological harm, and to ask the police to do so without further investigation at the time. If the police had qualms about the arrests, they were capable of investigating further if they thought it necessary. See BeVier v. Hucal, 806 F.2d at 128 (affirming judgment for plaintiffs arrested without probable cause for child neglect; it was not witness’s duty to supply information relevant to probable cause but was the duty of the “investigating and arresting police officer . . . to extract that information.”). The undisputed facts show that Principal Banks had probable cause to sign criminal complaints for disorderly conduct against Nyokia and Carnelita Stokes.
III. State-Law Claims Lack of probable cause is a common element of the Illinois claims of false arrest, false imprisonment, and malicious prosecution. See, respectively, Ross v. Mauro Chevrolet, 861 N.E.2d 313, 317 (Ill. App. 2006); Reynolds v. Menard, Inc., 850 N.E.2d 831, 837 (Ill. App. 2006); and 18 No. 09-1180
Fabiano v. City of Palos Hills, 784 N.E.2d 258, 265 (Ill. App. 2002). The fact that Banks had probable cause to sign the criminal complaints for the Stokes’ arrest means that defendants are also entitled to summary judgment on these supplemental state-law claims. To survive summary judgment on the remaining claim for intentional infliction of emotional distress, plaintiffs must present evidence showing that (1) the defendant’s conduct was truly extreme and outrageous, (2) the defen- dant either intended to inflict emotional distress or knew there was at least a high probability that he would cause severe emotional distress, and (3) the conduct in fact caused severe emotional distress. E.g., Feltmeier v. Feltmeier, 798 N.E.2d 75, 80 (Ill. 2003); McGrath v. Fahey, 533 N.E.2d 806, 809 (Ill. 1988). The Stokes have offered no evidence supporting the first element, truly extreme and outrageous conduct. To satisfy this element, a defendant’s conduct must be “so extreme as to go beyond all possible bounds of decency and be regarded as intolerable in a civilized community.” Feltmeier, 798 N.E.2d at 83. Even when the facts are taken in the light reasonably most favorable to the Stokes, Principal Banks’ actions to secure the arrest of plaintiffs based on probable cause, designed to restore order to a public school, did not come close to being “truly extreme and outrageous,” even though he was mistaken about these plaintiffs’ roles in the distur- bance. We affirm summary judgment on the claim for intentional infliction of emotional distress. The judgment of the district court is A FFIRMED.
3-19-10 |
In the
United States Court of Appeals For the Seventh Circuit
No. 08-1171
B RUCE N. B ROWN, Petitioner-Appellant, v.
S TEVE W ATTERS, Respondent-Appellee.
Appeal from the United States District Court for the Eastern District of Wisconsin. No. 2:06-cv-00753-LA—Lynn Adelman, Judge.
A RGUED D ECEMBER 5, 2008—D ECIDED M ARCH 19, 2010
Before R IPPLE, K ANNE and T INDER, Circuit Judges. R IPPLE, Circuit Judge. In 1998, a Wisconsin court ordered that Bruce Brown be committed civilly as a “sexually violent person” (“SVP”) pursuant to Chapter 980 of the Wisconsin Statutes. In 2006, Mr. Brown filed a petition for habeas corpus in the United States District Court for the Eastern District of Wisconsin. He contended that his continued state custody deprived him of his right to due process of law. The district court denied the writ but issued a certificate of appealability on that issue. For the 2 No. 08-1171
reasons set forth in this opinion, we affirm the judgment of the district court.
I BACKGROUND A. Since 1974, Mr. Brown has been incarcerated frequently for crimes that are sexual in nature.1 Between 1974 and
The record of Mr. Brown’s commitment proceedings in Wisconsin was not presented in the district court. It was offered by counsel for the State, with the caveat that, because “the sole claim in Brown’s petition is unexhausted and does not state a constitutional violation, [the State] does not believe that any of the transcripts are relevant to the resolu- tion of Brown’s petition at this time.” R.11 at 5. The district court declined to order preparation of the transcripts or other state record evidence. We determined that, in order to properly review the due process challenges raised by Mr. Brown with regard to the scientific evidence presented at his commitment trial, review of the state court record was appropriate. Although we gen- erally decline to supplement the record on appeal with materials not before the district court, we have not applied this position categorically. See, e.g., Ruvalcaba v. Chandler, 416 F.3d 555, 562 n.2 (7th Cir. 2005) (in habeas case, supplementing the records with certain state court documents and otherwise accepting the parties’ undisputed representations about the content of unprovided records); accord Thompson v. Bell, 373 F.3d 688, 690-91 (6th Cir. 2004) (in habeas case, acknowledging (continued...) No. 08-1171 3
1978, his actions resulted in convictions for attempted sexual perversion and several counts of first-degree sexual assault. Three of his later offenses were com- mitted while he was on parole in connection with the 1974 offense and involved serious threats to the victims’ safety. The charging document for a 1978 case, for example, indicates that Mr. Brown committed the offense while threatening the victim with a knife as she lay in her bed with her young grandchild next to her. In February 1984, just two months after his release from custody in connection with his prior offenses, Mr. Brown committed two other serious crimes against two separate victims within the space of four days; the first of these acts, committed on a juvenile with use of a knife, resulted in another conviction for first-degree sexual assault and a sentence of 20 years’ imprisonment. The second offense of reckless endangerment resulted in a sentence of three years’ imprisonment, to be served consecutively.2
(...continued) that “courts of appeals have the inherent equitable power to supplement the record on appeal, where the interests of justice require” and collecting cases), overruled on other grounds, 545 U.S. 794 (2005). “In the interest of completion,” Ruvalcaba, 416 F.3d at 562 n.2, we ordered sua sponte the parties to supple- ment the record in this case with the record before the state appellate court. The parties have done so, and we have con- ducted a full review of Mr. Brown’s commitment record. The records introduced at his Wisconsin commitment pro- ceeding also reveal a significant history of other non-sexually- (continued...) 4 No. 08-1171
As his mandatory release date approached in 1996, the State declined, for reasons undisclosed by the record, to file a petition to have Mr. Brown committed as a SVP pursuant to Chapter 980. Consequently, Mr. Brown was released on parole in 1996. Shortly thereafter, his parole again was revoked, and he was returned to state custody. According to the state court records, his parole revocation violations included using alcohol, marijuana and cocaine and staying overnight at an unapproved residence. He again was released from custody, this time with an elec- tronic monitoring device, but he cut it off and absconded. He was out of custody for more than a year before he again was apprehended. In addition to his conduct while out of prison, Mr. Brown’s custodial records reveal that he received approximately 100 conduct reports, several of which related to sexual conduct. The incidents included an occasion where Mr. Brown made a sexually suggestive comment to a nurse during a physical examination and numerous incidents where he was disciplined for conduct with a visitor, such as inappropriate touching, “excessive kissing and hugging” or “fondling a visitor’s breasts.” Wis. R.92 at 54.3
(...continued) based offenses including, among other things, burglary, posses- sion of a controlled substance, carrying a concealed weapon and attempted armed robbery. We shall use the abbreviation “Wis. R.” to refer to docket entries in the state court commitment proceeding that were not (continued...) No. 08-1171 5
B. In 1998, as Mr. Brown’s new release date neared, Wiscon- sin began Chapter 980 proceedings, seeking to have him committed civilly as a SVP. After extensive pretrial pro- ceedings challenging various proposed experts, proffered testimony and supporting documents, the matter was tried to a jury. See Wis. Stat. § 980.05(2) (providing that civil commitment may be tried to a jury at the request of the State or the respondent). In support of its case, the State called Dennis Doren, Ph.D., a clinical psychologist employed by the Wisconsin Department of Corrections who had been working with sex offenders since 1983. Dr. Doren testified that he had reviewed approximately 1,500 pages of documents from Mr. Brown’s corrections record, including presen- tence investigation reports, social worker reports, social history information, treatment behaviors, disciplinary reports and other similar materials. Dr. Doren testified that, after analyzing the documents available to him, he had diagnosed Mr. Brown with two conditions that he believed satisfied the Wisconsin standard of a “mental disorder,” 4 namely, a paraphilia not otherwise specified involving nonconsenting persons (“paraphilia
(...continued) made a part of the record in the district court proceeding and thus have no separate federal record number. See Wis. Stat. § 980.01(2) (defining a “mental disorder” for purposes of the SVP statute as “a congenital or acquired condition affecting the emotional or volitional capacity that predisposes a person to engage in acts of sexual violence”). 6 No. 08-1171
NOS nonconsent”) and Antisocial Personality Disorder (“APD”). With respect to the paraphilia diagnosis, Dr. Doren began by noting that the term generally describes a condi- tion that involves “recurrent, intense sexual fantasies, sexual urges, and[/]or behaviors” involving “something other than consenting adults.” Wis. R.94, Tr.Z at 6. In reaching the specific paraphilia NOS nonconsent diagnosis, Dr. Doren testified that he had relied upon a number of facts in Mr. Brown’s record. First, Dr. Doren noted that, at various times, Mr. Brown “effectively acknowledged a sexual problem,” id. at 10, that he had “given . . . to God,” id. at 11. Next, Dr. Doren found significant that one of Mr. Brown’s offenses occurred after “he had sex twice earlier in the day,” id. at 11; the behavior pattern suggested that Mr. Brown was not simply looking for a “sexual outlet,” since this was available to him with consenting partners, id. at 18. This evidence, coupled with Mr. Brown’s documented sexual arousal during the attacks, was instead indicative of a specific interest in nonconsensual sex. See id. at 13, 18. In addition, the speed with which Mr. Brown returned to his criminal sexual conduct after being released suggested to Dr. Doren that Mr. Brown “is driven towards the behavior despite the fact [that he] has had a consequence for it.” Id. at 13. Although Mr. Brown’s offense pattern began as primarily non-sexual in his youth, his later criminal history involved offenses that were mostly sexual in nature, demonstrating a “continued ambush toward . . . sex offending.” Id. at 18. In addition to the record evidence that suggested that Mr. Brown could be diagnosed with paraphilia NOS No. 08-1171 7
nonconsent, Dr. Doren also testified about clinical indica- tors that he believed were not particularly pronounced in Mr. Brown’s case: no clear “script” from offense to offense, no great diversity among victims and no proclivity for offending in circumstances in which he was likely to be caught. Id. at 19-21. Evaluating the records in light of “general indicators” from his clinical experience, however, Dr. Doren’s conclusion was that a diagnosis of paraphilia NOS nonconsent was appropriate. Id. at 21. In Mr. Brown’s case, according to Dr. Doren, his paraphilia “impairs his decision-making process and makes it more difficult for him to control his behavior” and further impairs his ability “for having a degree of empathy or degree of remorse with his potential victims.” Id. at 22. With regard to the diagnosis of APD, Dr. Doren testified that the condition was generally marked by “disregard for and violation of the rights of others.” Id. at 24. Mr. Brown’s criminal history, stretching back to age eighteen, both sexual and non-sexual in nature, reflected a failure to conform to social norms. His social, employment and criminal history also reflected a characteristic impulsivity such that his “life was about . . . . going from moment to moment.” Id. at 27. His crimes manifested aggression, and he had further admitted that “he hit women for purposes of controlling them on a regular basis to enforce their compliance . . . with his desires.” Id. at 29. In Dr. Doren’s view, Mr. Brown exhibited five of the seven criteria identified in the Diagnostic and Statistical Manual of 8 No. 08-1171
Mental Disorders (“DSM”) 5 as indicative of APD, although the DSM only requires three of seven be satisfied for a diagnosis. Dr. Doren also testified that APD affected both Mr. Brown’s emotional and volitional capacity, causing a lack of remorse and an impairment of “his ability to control his behavior.” Id. at 34. On cross-examination, Dr. Doren admitted that the indicators used to reach a diagnosis of paraphilia NOS nonconsent were not identified in the DSM; instead, they were indicators Dr. Doren himself had identified to “bridge the gap or deficiency [that] . . . exist[s] in the DSM[]” that he had “offered to the field” in his own book on the subject of civil commitment. Wis. R.95, Tr.AA at 32, 34. When asked for a professional organiza- tion that accepted his clinical indicators for the diagnosis of paraphilia NOS nonconsent, Dr. Doren further admitted that there “isn’t a single one.” Id. at 33. Finally, Dr. Doren testified that, in his view, each of Mr. Brown’s conditions, that is, paraphilia NOS noncon- sent and APD, “creates a substantial probability that he will engage in a sexually violent offense in the future.” Id. at 18. He acknowledged that, although he employed actuarial risk assessment models, he also considered his
All references to the DSM refer to the Diagnostic and Statisti- cal Manual of Mental Disorders, Fourth Edition, Text Revi- sion, published by the American Psychiatric Association in 2000. In the profession, the text is sometimes referred to as the DSM-IV-TR. For the sake of simplicity, we use the shorthand “DSM.” No. 08-1171 9
own set of clinical considerations not recognized in the literature. Based on these additional factors, he had made upward adjustments to the results of reoffense probabilities that resulted from use of the standardized actuarial models. In response, Mr. Brown presented significant contrary expert testimony. First, he called Marc Goulet, who holds a doctorate in mathematics. Dr. Goulet testified about the limitations of the actuarial instruments Dr. Doren had used to make predictions about Mr. Brown’s likeli- hood of recidivism. Dr. Goulet also questioned specific features of Dr. Doren’s own methodology in interpreting an individual’s scores. He concluded that the tools used were “fundamentally statistically flawed.” Wis. R.96, Tr.BB at 39. Next, Mr. Brown called Lynn Maskel, M.D., a private forensic psychiatrist. Dr. Maskel testified that, because of its absence from the DSM, “psychiatrically the disorder [of paraphilia NOS nonconsent] does not exist.” Id. at 75. Moreover, she considers APD a “circular diagno- sis” that is “descriptive of many criminals, but doesn’t really tell [an evaluator] much.” Id. at 79. She further testified that in her experience, she never has seen a case of APD that she would identify as a “predisposing dis- order within the operative definition in Wisconsin law,” id. at 78; she noted that the psychiatric profession does not generally view individuals with APD “as people who have serious difficulty in controlling their behavior,” id. at 83. Finally, the defense called Stephen Hart, Ph.D., a professor of clinical and forensic psychology. He had assisted in the development of one of the actuarial tools employed by Dr. Doren, but testified that, in his 10 No. 08-1171
view, “it’s inappropriate to use actuarials to make absolute probability assessments.” Wis. R.97, Tr.CC at 40. He further testified about the ethical obligations for psychologists and his view that Dr. Doren had “create[d] [a] fictional mental disorder[]” in identifying paraphilia NOS nonconsent. Id. at 56. At the close of the evidence, the jury was instructed that, to declare Mr. Brown a sexually violent person, it must find that (1) he had been convicted of a sexually violent offense, (2) he had a mental disorder and (3) his disorder made him dangerous to others. See Wis. Stat. § 980.02(2). The court further instructed the jury that a mental disorder is “a condition affecting the emotional or volitional capacity that predisposes a person to engage in acts of sexual violence and causes serious difficulty in controlling behavior. Mental disorders do not include merely deviant behaviors that conflict with prevailing societal standards.” Wis. R.98, Tr.DD at 10. Mr. Brown had requested a special verdict form identifying the mental disorder with which the jury concluded Mr. Brown was afflicted, laying out the elements of the statute separately and requiring the jury to affirmatively link the disorder to dangerousness, but the trial court denied his request. During deliberations, the jury sent out a note requesting a copy of the DSM, but the court denied the request. The jury returned a general verdict declaring Mr. Brown a sexually violent person. No. 08-1171 11
C. Mr. Brown appealed his commitment to the Court of Appeals of Wisconsin. In his direct appeal, Mr. Brown contended that he was denied due process by the admis- sion of the challenged actuarial evidence and by failing to require proof of a recent overt act demonstrating his current dangerousness. He also pressed his challenge to the failure to provide his requested special verdict form. The Court of Appeals affirmed his commitment, and the Supreme Court of Wisconsin denied review.
D. After his direct appeal, Mr. Brown filed a petition in the district court seeking a writ of habeas corpus. R.1; see 28 U.S.C. § 2254. In his petition, Mr. Brown argued that he was denied due process when the state court relied on evidence that was not supported by scientific knowledge or accepted in the medical community. Mr. Brown also argued that his APD diagnosis was overly broad and could not justify his confinement. The district court concluded that Mr. Brown had failed to exhaust his state court remedies and stayed the petition. R.24. The court noted that, while dismissal is the ordinary fate for unexhausted claims, where a petitioner had good cause, the court had discretion to stay the federal pro- ceeding. In its ruling granting a stay, the district court acknowledged that states have “considerable leeway” in defining mental abnormalities rendering an individual eligible for civil commitment, but that it “ha[d] some doubt” about the particular diagnosis in Mr. Brown’s case. R.24 at 3. 12 No. 08-1171
Mr. Brown next apparently initiated a state habeas proceeding in Wisconsin state courts.6 His petition was denied on procedural grounds. Mr. Brown returned to the district court, where the stay was lifted and the proceedings reopened. After various additional submissions from the parties, the district court issued an order denying the federal writ. The district court held the claims to have been defaulted and found that Mr. Brown had not established cause and prejudice to excuse the default. Finding the issue of how to apply the fundamental miscarriage of justice exception to the procedural default rule more complicated, the district court determined that it need not be resolved because Mr. Brown’s claims failed on the merits. At the outset of its analysis, the court again noted that states have wide latitude in defining the relevant condi- tions for civil confinement and that the State’s chosen criteria need not reflect the prevailing views in the mental health community. R.38 at 6. That he had a disor- der, and that his disorder caused an inability to control behavior, the court ruled, was an issue sufficiently resolved against Mr. Brown by the jury. The court con- tinued: This is not to say anything goes. I presume that a psychologist could render an opinion that an individual has a disorder characterized by an inability to avoid criminal behavior that is so
The record of the Wisconsin collateral review proceeding is not before us. No. 08-1171 13
irrational or unpersuasive that it would not sup- port indefinite confinement consistent with the Due Process Clause. However, this case does not present such a diagnosis. Id. at 7. The court held that, despite the contrary evidence presented and despite its “novel[ty],” paraphilia NOS nonconsent was “consistent with recognized diagnostic principles.” Id. It further noted that NOS categories are listed in the DSM and that courts in Wisconsin and other states have upheld commitments on the basis of such diagnoses. The court found the challenge to the diagnosis of APD similarly insufficient. Mr. Brown, again proceeding pro se, filed a motion for a certificate of appealability. The district court granted the motion as to both the procedural and substantive questions Mr. Brown presents to this court. In its order, the court noted that its decision had been based on a reading of the relevant precedent “as giving states a tremendous amount of freedom in creating categories of mental disorders so long as states define disorders with reference to difficulty controlling behavior.” R.47 at 4. However, the court continued, “there must be some line to be drawn.” Id. The precise boundaries, the court con- cluded, were matters about which reasonable jurists could disagree.
II PROCEDURAL DEFAULT Mr. Brown challenges the diagnoses underlying his 14 No. 08-1171
commitment as a SVP. Mr. Brown concedes that he did not pursue this issue before the state courts. The parties are in agreement, at this stage in the pro- ceedings, that there is no remaining state court remedy, and that, accordingly, Mr. Brown’s claims are procedurally defaulted. See Lewis v. Sternes, 390 F.3d 1019, 1026 (7th Cir. 2004) (“A habeas petitioner who has exhausted his state court remedies without properly asserting his federal claim at each level of state court review has pro- cedurally defaulted that claim.”). We are barred from considering procedurally defaulted claims unless the petitioner “can establish cause and prejudice for the default or that the failure to consider the claim would result in a fundamental miscarriage of justice.” Johnson v. Hulett, 574 F.3d 428, 430 (7th Cir. 2009) (internal quotation marks omitted). Mr. Brown argues that he has satisfied both of these exceptions to the procedural default bar.
A. Mr. Brown first asserts that appellate counsel was ineffective for failure to raise his due process claims on direct appeal and that counsel’s performance amounts to cause for any default. When preserved, meritorious claims of ineffective assistance can excuse default. Murray v. Carrier, 477 U.S. 478, 488-89 (1986). A constitutional right to effective assistance must be the predicate to any such claim. See Coleman v. Thompson, 501 U.S. 722, 752 (1991). Mr. Brown provides no authority establishing a constitu- No. 08-1171 15
tional right to appellate counsel to challenge a civil com- mitment. Where, as here, the right to counsel is a creation of state statute only, see Wis. Stat. § 980.03(2)(a), it follows that denial of that right does not establish the necessary cause to excuse the default of any underlying claims. See Wainwright v. Torna, 455 U.S. 586, 587-88 (1982) (per curiam) (holding that, where there is no constitu- tional right to counsel, there can be no deprivation of effective assistance); Coleman, 501 U.S. at 752-54 (rejecting a claim that procedural default is excused by “inef- fective assistance” when the proceedings in question did not entail a constitutional right to counsel).7
Because we do not recognize a constitutional right to counsel in these circumstances, we cannot accept the cause-and-preju- dice analysis urged by Mr. Brown, in which ineffective assis- tance provides the requisite cause. Accordingly, we also do not address whether the failure to raise attorney ineffec- tiveness in the petition procedure outlined by the Supreme Court of Wisconsin in State v. Knight, 484 N.W.2d 540 (Wis. 1992), is a sufficiently “firmly established” procedure that the failure to make use of it defaults the ineffectiveness claim. See Ford v. Georgia, 498 U.S. 411, 423-24 (1991) (“[O]nly a firmly established and regularly followed state practice may be interposed by a State to prevent subsequent review by this Court of a federal constitutional claim.” (internal quotation marks omitted)); Murray v. Carrier, 477 U.S. 478, 488-89 (1986) (holding that attorney effectiveness generally must be raised in state proceedings before it can serve as cause to excuse default of another claim). 16 No. 08-1171
B. Mr. Brown further contends that he is actually innocent of SVP status, and thus that failure to excuse his default works a fundamental miscarriage of justice. We need not resolve squarely in this case whether the actual innocence exception to the general rule of proce- dural default applies in the context of civil commitment proceedings. In Lambrix v. Singletary, 520 U.S. 518, 524 (1997), the Supreme Court noted that its cases have “suggest[ed] that the procedural-bar issue should ordi- narily be considered first.” Nevertheless, added the Court, it did “not mean to suggest that the procedural-bar issue must invariably be resolved first; only that it ordi- narily should be.” Id. at 525. We believe that the situation before us counsels that we follow the latter course. The correct application of the actual innocence exception to civil commitment cases is a difficult one. We have no explicit guidance from the Supreme Court or from our sister circuits.8 Moreover, because the parties are in agreement that the actual innocence exception applies (although they disagree on how it applies to the facts of this case), they have not briefed extensively all the nuances involved in the migration of this exception from the
In Levine v. Torvik, 986 F.2d 1506, 1517 n.9 (6th Cir. 1993), abrogated on other grounds by Thompson v. Keohane, 516 U.S. 99 (1995), the Sixth Circuit expressed, in dictum in a footnote, that the exception could apply “where the constitutional violation demonstrated by [the petitioner] has resulted in the confinement of one who is actually not mentally ill.” No. 08-1171 17
criminal context to the civil commitment context.9 We also believe that, given our recent decision in McGee v. Bartow, 593 F.3d 556 (7th Cir. 2010), the constitutional norms applicable to a merits decision are clear and warrant affirmance. Therefore, as we did in Johnson v. Pollard, 559 F.3d 746, 752 (7th Cir. 2009), we shall pretermit a discussion of this aspect of the procedural default analysis and proceed to adjudicate the merits.1 0
For instance, they have not addressed squarely the problem noted by our colleague in the district court as to whether the “new evidence” language of Schlup v. Delo, 513 U.S. 298, 327 (1995), is necessarily portable to the civil commitment context. Our course of proceeding here is not only in accordance with Lambrix v. Singletary, 520 U.S. 518, 524-25 (1997), but in accor- dance with the established practice in the other circuits. See Miller v. Mullin, 354 F.3d 1288, 1297 (10th Cir. 2004) (“In the interest of judicial economy, [w]e need not and do not address these issues, however, because the case may be more easily and succinctly affirmed on the merits.” (internal quotation marks omitted; modification in original)); Wilson v. Ozmint, 352 F.3d 847, 868 (4th Cir. 2003) (declining to decide the case on the basis of a procedural bar never raised by the state when the merits could be easily disposed of against the peti- tioner); Hudson v. Jones, 351 F.3d 212 (6th Cir. 2003) (bypassing a “complicated question” of state law in a procedural default inquiry to resolve the case against the petitioner on the merits); Franklin v. Johnson, 290 F.3d 1223, 1232 (9th Cir. 2002) (“[A]ppeals courts are empowered to, and in some cases should, reach the merits of habeas petitions if they are, on their (continued...) 18 No. 08-1171
III ANALYSIS As briefed to this court, Mr. Brown’s due process chal- lenge has three elements. First, he challenges the diag- noses themselves. Mr. Brown claims that the diagnosis of paraphilia NOS nonconsent is lacking in scientific founda- tion and that the diagnosis of APD is overbroad and imprecise; in his view, the use of either diagnosis, alone or in combination, as the basis for a civil commitment, violates due process. He further contends that the diag- nosis of APD cannot be used by the State of Wisconsin as a basis for confinement because the State does not allow a defendant to invoke the disorder as part of an insanity plea. Finally, he contends that Wisconsin’s per- missive standards for the admissibility of expert testi- mony should be replaced, in the context of civil commit- ment, with a Daubert-like test. See Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 593-94 (1993). We address these contentions in turn. In our recent opinion in McGee, we set forth the con- trolling precedent in detail. 593 F.3d at 567-72. For the sake of brevity, we assume familiarity with McGee’s
(...continued) face and without regard to any facts that could be developed below, clearly not meritorious despite an asserted procedural bar.”); Barrett v. Acevedo, 169 F.3d 1155, 1162 (8th Cir. 1999) (seeing no need to “belabor” the “difficult question” of a procedural bar when the claim was easily resolvable against the petitioner on the merits). No. 08-1171 19
discussion of the state of the law as it concerns the due process requirements for civil commitment.
A. As in all habeas corpus proceedings under 28 U.S.C. § 2254, the successful petitioner must demonstrate that he “is in custody in violation of the Constitution or laws or treaties of the United States.” 28 U.S.C. § 2254(a). For claims actually “adjudicated on the merits in State court proceedings,” the statute commands that we under- take a limited review. Id. § 2254(d). We evaluate the record to discern only whether the state court’s adjudica- tion of the claim (1) “was contrary to, or involved an unreasonable application of, clearly established Federal law, as determined by the Supreme Court of the United States,” id. § 2254(d)(1), or (2) “was based on an unrea- sonable determination of the facts in light of the evidence presented,” id. § 2254(d)(2). These narrow and deferential standards of review do not apply here, however, because the relevant state courts did not adjudicate the claims presented on a federal habeas petition. Cheeks v. Gaetz, 571 F.3d 680, 684-85 (7th Cir. 2009). In such cases, we apply the general stan- dard of review contained in 28 U.S.C. § 2243, which directs that we “dispose of the matter as law and justice require.” Id.;11 see McGee, 593 F.3d at 564.
We have equated this standard with de novo review. See Carlson v. Jess, 526 F.3d 1018, 1024 (7th Cir. 2008). 20 No. 08-1171
B. We begin with Mr. Brown’s challenge to the suffi- ciency of his paraphilia NOS nonconsent diagnosis for due process purposes. His argument is, in all material respects, identical to the challenge raised by the peti- tioner in McGee. In that case, we rejected the claim, McGee, 593 F.3d at 579-81, concluding that the Supreme Court has directed “that states must have appropriate room to make practical, common-sense judgments” in the arena of civil commitment, particularly as regards qualifying mental conditions, id. at 580. We reviewed the professional literature, and acknowledged the existence of a significant debate about the validity, from a psychiatric standpoint, of a paraphilia NOS nonconsent diagnosis. We further noted, however, that “ ‘the science of psychiatry, which informs but does not control ultimate legal determinations, is an ever-advancing science, whose distinctions do not seek precisely to mirror those of the law.’ ” Id. at 571 (quoting Kansas v. Crane, 534 U.S. 407, 413 (2002)); see also Kansas v. Hendricks, 521 U.S. 346, 359 (1997) (“Legal definitions . . . which must take into account such issues as individual respon- sibility . . . and competency, need not mirror those ad- vanced by the medical profession.” (internal quotation marks omitted; second modification in original)). Despite the considerable leeway afforded to states in this context, we acknowledged that: a medical diagnosis can be based on so little evi- dence that bears on the controlling legal criteria that any reliance upon it would be a violation of No. 08-1171 21
due process. Therefore, a particular diagnosis may be so devoid of content, or so near-universal in its rejection by mental health professionals, that a court’s reliance on it to satisfy the “mental disor- der” prong of the statutory requirements for commitment would violate due process. McGee, 593 F.3d at 577 (internal citation omitted). We concluded that the diagnosis of paraphilia NOS nonconsent did not cross this line. Id. at 580. Although we accepted the diagnosis as minimally sufficient for due process purposes, we noted that the existence of a psychiatric debate about its validity “is a relevant issue in commitment proceedings and a proper consideration for the factfinder in weighing the evidence that the defendant has the ‘mental disorder’ required by statute.” Id. at 581. We also noted that the “methodology and the outcome of any mental health evaluation offered as evidence is a proper subject for cross-examination, and we would expect that, in the ordinary case, such efforts would expose the strengths and weaknesses of the professional medical opinions offered.” Id. at 577. We again reject the challenge to the paraphilia NOS nonconsent diagnosis as so lacking in scientific validity that to rely upon it for civil commitment amounts to a denial of due process. Our conclusion is strengthened where, as here, able assistance of counsel actually did expose the professional debate to the jury and substantial contrary professional opinions were offered. 22 No. 08-1171
C. Mr. Brown next challenges the diagnosis of APD as constitutionally insufficient to support civil commitment. He claims the diagnosis is too imprecise and overbroad to provide meaningful evidence of a qualifying mental disorder. He also claims that the State of Wisconsin is judicially estopped from petitioning for commitment on the basis of APD when it has concluded that APD is not a permissible basis for a defendant to raise in an insanity plea.
1. Chapter 980 of the Wisconsin statutes defines a SVP as: a person who has been convicted of a sexually violent offense, has been adjudicated delinquent for a sexually violent offense, or has been found not guilty of or not responsible for a sexually violent offense by reason of insanity or mental disease, defect, or illness, and who is dangerous because he or she suffers from a mental disorder that makes it likely that the person will engage in one or more acts of sexual violence. Id. § 980.01(7) (emphasis added). In a prior challenge, the State of Wisconsin determined that APD can serve as the “mental disorder” that supports civil commitment consis- tent with due process. See In re Commitment of Adams, 588 N.W.2d 336, 341 (Wis. Ct. App. 1998). Furthermore, we upheld that conclusion in a federal habeas chal- lenge, governed by the deferential standards in 28 U.S.C. No. 08-1171 23
§ 2254(d)(1), as a reasonable interpretation of Kansas v. Hendricks, 521 U.S. 346 (1997), and Foucha v. Louisiana, 504 U.S. 71 (1992). See Adams v. Bartow, 330 F.3d 957, 963 (7th Cir. 2003). We reexamine the question now, when, for reasons explained above, our review is de novo.1 2 Like the petitioner in Adams, Mr. Brown contends that the Supreme Court’s decision in Foucha suggests that APD is an invalid basis for civil commitment. See 504 U.S. at 78- 79 (noting that Foucha had an antisocial personality, but ordering that his commitment be overturned as he was “not suffering from a mental disease or illness”). As we noted in Adams, we disagree that Foucha should be so read. In Foucha, the State of Louisiana had conceded that Foucha was not mentally ill, id. at 78; the Supreme Court was asked to decide whether, given a lack of mental illness, the state scheme that permitted his continued confinement on the basis of dangerousness alone was constitutional, id. at 82. In the case now before us, the State sought to prove—indeed, it elicited testimony from Dr. Doren stating directly—that APD did satisfy the
We note that in Adams v. Bartow, 330 F.3d 957, 962 (7th Cir. 2003), because of the applicable standard of review, we were concerned only with the law that was “clearly estab- lished” at the time the Wisconsin courts decided the matter. For that reason, our consideration of Kansas v. Crane, 534 U.S. 407 (2002), was limited to its usefulness to “inform our under- standing of” Kansas v. Hendricks, 521 U.S. 346 (1997). Adams, 330 F.3d at 962. Because we are not engaged in a deferential review in this case, we consider Crane and its development of the issues before us in full. 24 No. 08-1171
criteria under Wisconsin Chapter 980 of a qualifying “mental disorder.” Moreover, since Foucha, the Supreme Court has decided Crane, in which APD was one of two diagnoses sup- porting commitment. See Crane, 534 U.S. at 411. Although the Court remanded Crane’s commitment, it did so on the basis of its conclusion that the Kansas commitment scheme had failed to require a finding of some inability to control behavior. Id. at 412-13. In the case before us, Dr. Doren testified that Mr. Brown’s APD caused both emotional and volitional impairments, and the jury was instructed that in order to find him eligible for com- mitment, it must find that he suffered from a disorder, as defined by statute, that caused such an impairment. Mr. Brown further contends that, even if the Supreme Court’s treatment of APD itself does not indicate that it is an impermissible basis for civil commitment, the diag- nosis fails to satisfy the due process requirements for civil commitment. By virtue of its over-inclusiveness, he contends, it is not “sufficient to distinguish the danger- ous sexual offender whose serious mental illness, abnor- mality, or disorder subjects him to civil commitment from the dangerous but typical recidivist convicted in an ordinary criminal case.” Crane, 534 U.S. at 413. Like the diagnosis of paraphilia NOS nonconsent, the diagnosis of APD is the subject of some significant profes- sional debate. The existence of the disorder is not debated; indeed, it is a listed disorder with diagnostic criteria identified in the DSM. See DSM at 701. The subject of the professional debate as it has been No. 08-1171 25
presented to us is not, therefore, whether it is a real or imagined diagnosis, but whether the diagnosis can bear the weight of a civil commitment. 1 3 As we noted in McGee and already have repeated here, however, the existence of a professional debate about a diagnosis or its use in the civil commitment context does not signify its insufficiency for due process purposes, particularly where, as here, that debate has been evaluated by the factfinder. McGee, 593 F.3d at 580-81. Mr. Brown intro- duced his own expert who testified that, in her profes- sional view, APD did not satisfy the Wisconsin statutory requirement of a “mental disorder” that could serve as the predicate for civil commitment. See id. at 577 (“The meth-
See Brett Trowbridge & Jay Adams, Sexually Violent Predator Assessment Issues, 26 Am. J. Forensic Psychol. 29, 46-47 (2008) (noting the considerable controversy about the diagnosis as a basis for commitment, the potential that it is “over-inclusive” and the studies showing poor inter-rater reliability); Shoba Sreenivasan et al., Expert Testimony in Sexually Violent Predator Commitments: Conceptualizing Legal Standards of “Mental Disor- der” and “Likely to Reoffend,” 31 J. Am. Acad. Psychiatry & L. 471, 477 (2003) (noting that, although based on a “misinter- pret[ation] [of] the law” as it currently stands, “[t]he use of [APD] to justify civil commitment is unlikely to find general acceptance among mental health professional groups”); Jack Vognsen & Amy Phenix, Antisocial Personality Disorder is Not Enough: A Reply to Sreenivasan, Weinberger, and Garrick, 32 J. Am. Acad. Psychiatry & L. 440, 442 (2004) (noting that while reliance on APD for a SVP determination is not precluded by law, neither is a “caffeine-related disorder[],” but that neither is “clinically appropriate”). 26 No. 08-1171
odology and the outcome of any mental health evaluation offered as evidence is a proper subject for cross-examina- tion, and we would expect that, in the ordinary case, such efforts would expose the strengths and weaknesses of the professional medical opinions offered.”). We acknowledge the studies demonstrating that a significant percentage of the male prison population is diagnosable with this condition. See Crane, 534 U.S. at 412 (citing statistics of forty to sixty percent).1 4 Mr. Brown focuses on the prevalence of the disorder among those incarcerated as evidence that it does not distinguish a subgroup of offenders for whom preventive detention is appropriate. We believe his contention misses the mark. As the Supreme Court emphasized in Crane: [T]here must be proof of serious difficulty in controlling behavior. And this, when viewed in light of such features of the case as the nature of the psychiatric diagnosis, and the severity of the mental abnormality itself, must be sufficient to distinguish between the dangerous sexual offender whose serious mental illness, abnormality, or
Mr. Brown suggests that, with this brief reference, the Court “suggested, albeit obliquely, that a diagnosis of APD alone might be too imprecise and overbroad to survive constitutional scrutiny.” Appellant’s Br. 30. We need not resolve that question, as the case before us does not involve a diagnosis of APD alone, but a diagnosis that couples APD with a sexually- related disorder. See Crane, 534 U.S. at 411 (noting the diagnoses of APD and exhibitionism). No. 08-1171 27
disorder subjects him to civil commitment from the dangerous but typical recidivist convicted in an ordinary criminal case. Id. at 413. That is, it is not the diagnosis alone, in the abstract, that is the focus in assessing the constitu- tionality of a civil commitment. Instead, we are concerned with how the mental disorder manifests itself in the individual, particularly as regards its effect on his ability to control his behavior. As we stated in McGee, “the factfinder has the ultimate responsibility to assess how probative a particular diagnosis is on the legal question of the existence of a ‘mental disorder’; the status of the diagnosis among mental health professionals is only a step on the way to that ultimate legal determination.” McGee, 593 F.3d at 577 (emphasis in original). Although a clinical diagnosis by a professional plays a significant role in civil commitment, it is not the end of the matter. If for the offender in question, the condition of APD is serious enough to cause an inability to control sexually violent behavior,15 the standards set by the Supreme
As the Court of Appeals of Wisconsin noted: [H]e brings his challenges in large part because the disorder affects so many who are not sexually violent. But, even assuming that the diagnosis of “antisocial personality disorder” is relatively common, the count- less citizens who suffer from it are not ipso facto vulner- able to commitment under ch. 980, stats. Only the relatively few who also satisfy the remaining criteria of § 980.01(7), stats., may be found to be “sexually violent persons.” (continued...) 28 No. 08-1171
Court would be satisfied. Although the statistics that indicate that APD is a common condition in prison cer- tainly warrant attention in light of Crane’s admonition, those figures do not demonstrate that the diagnosis never can bear the weight of a civil commitment con- sistent with due process. Finally, we need not decide whether a diagnosis of APD alone suffices for due process purposes: Mr. Brown was diagnosed with a paraphilic disorder as well, and testi- mony at his commitment trial supported the view that both diagnoses caused, in Mr. Brown, significant emotional and volitional impairments. Cf. Crane, 534 U.S. at 411, 413 (noting the dual diagnoses of APD and exhibitionism, although citing the statistics about the prevalence of APD in the male prison population).
2. Mr. Brown next contends that the State of Wisconsin is judicially estopped from asserting APD as the basis for civil commitment when it has refused to allow criminal defendants to raise the disorder as part of an insanity plea. See Appellant’s Br. 33 (citing State v. Lindh, 457 N.W.2d 564, 568 (Wis. Ct. App. 1990), rev’d on other grounds, 468 N.W.2d 168 (Wis. 2001)). Judicial estoppel prevents a party from an “about-face,” Butler v. Village of Round Lake,
(...continued) In re Commitment of Adams, 588 N.W.2d 336, 341 (Wis. Ct. App. 1998) (emphasis in original). No. 08-1171 29
585 F.3d 1020, 1023 (7th Cir. 2009); it is “an equitable concept providing that a party who prevails on one ground in a lawsuit may not . . . in another lawsuit repudi- ate that ground,” Johnson v. ExxonMobil Corp., 426 F.3d 887, 891 (7th Cir. 2005) (internal quotation marks omitted; modification in original). Among other require- ments, however, in order for judicial estoppel to apply, “the latter position must be clearly inconsistent with the earlier position.” Urbania v. Cent. States, SE & SW Areas Pension Fund, 421 F.3d 580, 589 (7th Cir. 2005). We do not believe this to be the case here, where the statutory standards for insanity and SVP status are different in material respects. In particular, the definition of mental disease or defect in the insanity statute excludes “abnormalit[ies] manifested only by criminal or other- wise antisocial conduct.” Wis. Stat. § 971.15(2) (emphasis added). That different substantive standards apply is not surprising in view of the different purposes of the two types of proceedings in which the question of a “mental disease or defect” or a “mental disorder” arise. A criminal proceeding adjudicates guilt and metes out punishment for prior offenses. A civil commitment pro- ceeding instead invokes the police power of the state to protect the community from potentially dangerous persons who are mentally ill and, by reason of their disorders, may commit future harmful acts; it also asserts the state’s parens patriae powers to provide critical services to those with mental illnesses. See Addington v. Texas, 441 U.S. 418, 425-29 (1979). The questions of “mental disease or defect” and “mental disorder,” therefore, also aim at different ends. The first is a mechanism for avoid- 30 No. 08-1171
ance of criminal liability; while the second is primarily aimed at protection of both the individual and the public at large. A person whose mental disease or defect results in a successful insanity plea is relieved of criminal responsibility if he was afflicted with the mental disease or defect at the time of the commission of the offense. That same person may be a candidate for commitment if the commitment criteria of a mental disorder and dangerous- ness at the time of commitment are satisfied. This decision is subject to reevaluation periodically. See Wis. Stat. § 980.07. The statutory schemes therefore perform very different functions and understandably employ dif- ferent standards. In an attempt to cast an estoppel argument in a light appropriate to our task in this habeas proceeding, without arguing that judicial estoppel is itself an element of due process, Mr. Brown asserts that the State’s “inconsistent” positions “further undermine[] the diagnosis’s scientific validity.” Appellant’s Br. 34. For the reasons stated in the previous section, we are not persuaded that the scien- tific validity of APD is so patently lacking that consider- ation of it in a civil commitment proceeding violates due process.
D. Finally, Mr. Brown contends that Dr. Doren’s testimony was so unreliable that it would have been inadmissible in a federal proceeding under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). He urges us to No. 08-1171 31
view Daubert’s standards for the admission of expert testimony as “a practical and appropriate proxy” for due process in this context. Appellant’s Br. 38-39. We are not persuaded by this argument. Mr. Brown points to no authority in which the Daubert standard has been imposed on states as a requirement of due process in any context, including criminal trials. Indeed, as we have stated on habeas review of a criminal conviction: Absent a showing that the admission of the evi- dence violated a specific constitutional guarantee, a federal court can issue a writ of habeas corpus on the basis of a state court evidentiary ruling only when that ruling violated the defendant’s right to due process by denying him a fundamentally fair trial. The standard, then, is not whether the testi- mony satisfied the Frye [v. United States, 293 F. 1013 (D.C. Cir. 1923),] or Daubert tests—neither of which purports to set a constitutional floor on the admissibility of scientific evidence—but rather is whether the probative value of the state’s evidence was so greatly outweighed by its prejudice to [the defen- dant] that its admission denied him a fundamen- tally fair trial. Milone v. Camp, 22 F.3d 693, 702 (7th Cir. 1994) (citation omitted; emphasis added). In our view, the real substance of Mr. Brown’s request that this court view Daubert as the due process floor in this context merely echoes his claim that the diagnoses at issue are so lacking in scientific pedigree or so over- 32 No. 08-1171
inclusive that their use in his commitment proceedings violated due process. Having concluded that the diag- noses, as implemented in this case, satisfy the require- ments set forth by the Supreme Court, the disposition of his secondary argument, cast as an evidentiary chal- lenge, necessarily follows.
Conclusion As we have stated, “[t]he primary due process concern of the Supreme Court in the area of civil commitment is the necessity of distinguishing between the typical dangerous recidivist and the offender whose dangerous- ness is caused by some identifiable mental condition that impairs his ability to refrain from activity dangerous to others.” McGee, 593 F.3d at 581. The State of Wisconsin acted within these bounds when it ordered the commit- ment of Mr. Brown as a SVP based on his diagnoses of paraphilia NOS nonconsent and APD. At his commitment trial, expert testimony supported the conclusion that he suffered from two “mental disorders” as defined by the Wisconsin statute, and that each of these disorders caused him to have an inability to control his sexually violent behavior. The diagnoses, although subject to some profes- sional controversy, and the evidence upon which the diagnoses were based, provided constitutionally adequate bases under existing Supreme Court precedent to sup- port Mr. Brown’s commitment. Because Mr. Brown has not demonstrated that he is “actually innocent” of being a SVP, the default of his claims cannot be ex- cused and, in any event, the claims fail on the merits. No. 08-1171 33
Accordingly, the judgment of the district court denying the writ of habeas corpus must be affirmed. A FFIRMED
3-19-10 |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ________________
No. 08-3505 ________________
Ruth L. Jobe, * * Appellant, * * Appeal from the United States v. * District Court for the * Western District of Missouri. Medical Life Insurance Company, * Now known as Fort Dearborn Life * [PUBLISHED] Insurance Company, * * Appellee. *
________________
Submitted: June 10, 2009 Filed: March 19, 2010 ________________
Before BYE, HANSEN, and BENTON, Circuit Judges. ________________
HANSEN, Circuit Judge.
Ruth L. Jobe appeals the district court's ruling, on cross-motions for summary judgment, rejecting her challenge of the denial of her claim for long-term disability benefits. Jobe appeals both the district court's holding that the plan administrator was entitled to discretion in adjudicating her claim and the court's holding that the administrator did not abuse its discretion. We agree that the plan administrator was not entitled to discretion, and we therefore reverse the district court's grant of summary judgment and remand for the district court to review the administrator's decision de novo.
I.
Jobe was employed by Lake Regional Health System as a medical transcriptionist, and she became eligible for disability benefits under an insurance policy issued by Fort Dearborn Life Insurance Company (Fort Dearborn).1 The parties agree that the Fort Dearborn policy is part of a health and welfare plan ("the plan") that is subject to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA).
As required by ERISA, 29 U.S.C. § 1102(a)(1), the plan is in writing. As is often the case with ERISA plans, the plan is embodied in more than one document. See Admin. Comm. of the Wal-Mart Stores, Inc. v. Gamboa, 479 F.3d 538, 542 (8th Cir. 2007). The first plan document, called the Group Insurance Policy or the "policy," defines key terms and explains the benefits of the plan. The policy contains the following provision, which Fort Dearborn labels an "integration" clause:
COMPLETE CONTRACT - POLICY CHANGES 1. This policy is the complete contract. It consists of: a. all of the pages; b. the attached Application of the policyholder; c. the participating employers' Applications for Group Voluntary benefits; or d. each Employee's application for insurance (Employee retains his own copy).
As indicated in the caption, Fort Dearborn was formerly known as Medical Life Insurance Company.
2. This policy may be changed in whole or in part. Only an officer or a registrar of the Company can approve a change. The approval must be in writing and endorsed on or attached to this policy. 3. Any other person, including an agent, may not change this policy or waive any part of it.
(J.A. vol. II at 22.) The next clause of the policy informs the policyholder that the insurer "will provide a Certificate to the participating employer for delivery to each insured. If the terms of a Certificate and this policy differ, this policy will govern." Id.
The certificate of coverage was provided to Jobe as part of a document titled "Voluntary Long-Term Disability Insurance; Employee Benefit Booklet." (Id. at 28.) The Employee Benefit Booklet describes the coverage provided by the policy. Appended to the Employee Benefit Booklet is a page titled "ERISA Information Statement." (Id. at 39.) The ERISA Information Statement provides:
The benefits described in your certificate and this ERISA Information Statement (collectively the "Summary Plan Description" a/k/a the SPD) are insured by a Policy issued by Medical Life Insurance Company. This SPD describes the provisions of the Plan in effect as of the Effective Date of the Policy. . . . In the case of any item not covered by the SPD, or in the event of any conflict between the SPD and the Policy, the Plan will always control. . . . Your right to any benefit depends on the actual facts and terms and conditions of the particular Plan; no rights accrue by reason of or arising out of any statement shown in or omitted from, this SPD.
(Id.) The ERISA Information Statement also states that, "The Plan Administrator has full discretionary authority and control over the Plan." (Id.) No such grant of discretion appears in the policy.
While Jobe was enrolled in the health and welfare plan, she complained of numerous physical ailments and eventually ceased working as a medical transcriptionist. She filed a claim seeking long-term disability benefits. Fort Dearborn employed a company named Disability RMS ("DRMS"), a third party administrator, to process the claim. DRMS collected medical records from Jobe's medical providers and engaged multiple health care professionals, including three physicians and a vocational consultant, to review the record and to evaluate Jobe's claim.
Ultimately, DRMS denied the claim and Jobe filed this lawsuit. The lawsuit asserts that Fort Dearborn wrongfully denied Jobe benefits under the long-term disability policy, in violation of ERISA. In the district court, both parties moved for summary judgment. The district court held that the plan administrator's decision to deny benefits was subject to review for an abuse of discretion. Finding no abuse of discretion, the district court granted summary judgment in favor of Fort Dearborn. Jobe appeals.
II.
"We review de novo the district court's summary judgment ruling and whether the district court applied the appropriate standard of review to the administrator's decision." Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 580 (8th Cir. 2008) (citations omitted). The district court reviews the administrator's decision for an abuse of discretion only "when an ERISA plan grants discretionary authority to the plan administrator to determine eligibility for benefits." Id. (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)). Jobe argues the district court should
have applied a de novo standard of review because the plan does not vest the plan administrator with the power to exercise discretionary authority in making benefits determinations.2 We agree.
III.
The dispute over the standard of review arises from the parties' conflicting conclusions regarding the legal effects of the two documents that comprise the ERISA-governed health and welfare plan. The policy is silent regarding the plan administrator's discretion to determine eligibility for plan benefits, while the summary plan description purports to grant such discretion. Jobe essentially argues that the summary plan description—granting discretion where the policy is silent—amounts to an unauthorized amendment of the policy in contravention of the procedures for amendment laid out by the policy itself. The district court rejected Jobe's argument, apparently favoring Fort Dearborn's proffered rationale that the summary plan description is part of the ERISA plan documents, so no formal amendment was necessary for the summary plan description to control.
Fort Dearborn's argument is premised upon this court's statement that summary plan descriptions "are considered part of the ERISA plan documents." Jensen v. SIPCO, Inc., 38 F.3d 945, 949 (8th Cir. 1994), cert. denied, 514 U.S. 1050 (1995). To be sure, we have noted on more than one occasion that summary plan descriptions form part of the written documents required by ERISA. See Gamboa, 479 F.3d at 544; Hughes v. 3M Retiree Med. Plan, 281 F.3d 786, 790 (8th Cir. 2002); Barker v. Ceridian Corp., 122 F.3d 628, 633 (8th Cir. 1997); Jensen, 38 F.3d at 949. Although Fort Dearborn contends that the summary plan description does not conflict with the
Jobe also argues that the abuse of discretion standard of review is not applicable because an inherent conflict of interest existed and procedural irregularities occurred, demanding the less deferential, de novo standard of review. In light of our conclusion that the plan does not grant discretion, we do not address this issue.
policy, the company attempts to bolster the importance of the summary plan description by pointing out that we have held that "[a summary plan description] provision prevails if it conflicts with a provision of a plan." Jensen, 38 F.3d at 952.
As Fort Dearborn points out, we have held that a summary plan description prevails in cases where the summary granted a beneficiary certain rights or privileges that the policy did not. For example, in Marolt v. Alliant Techsystems, Inc., 146 F.3d 617, 621 (8th Cir. 1998), a summary plan description entitled the beneficiary to "bridge" a break in her service time for retirement benefit purposes. The formal plan document ruled out such bridging. Id. Based on the importance of disclosure to employees, an objective underlying ERISA, we held that the summary plan description governed and the beneficiary was entitled to the benefit of the bridging provision. Id. ("The accessible provisions govern because adequate disclosure to employees is one of ERISA's major purposes." (quotation and internal marks omitted)). Fort Dearborn argues the same rule should apply in the converse situation, where a summary plan description secures additional rights to a plan administrator.
Fort Dearborn cites only one prior opinion by this court that has held that a summary plan description sufficed to secure rights to the plan administrator which were not otherwise contained in a plan document. In Gamboa, we analyzed an employer's right to recoup health care benefits the employer paid under a self-funded ERISA health and welfare plan where the beneficiary later obtained a settlement from a tortfeasor, arising out of the same accident. 479 F.3d at 540. The summary plan description was the only plan document providing health benefits. Id. at 544-45. No separate written policy existed. Id. Nonetheless, the employer provided over $175,000 in health care benefits after a drunk driver injured the employee's spouse in an auto accident. Id. at 540. The employee later settled with the tortfeasor for one million dollars. Id. The summary plan description provided the employer the right to recoup the benefits paid if the beneficiary later settled with the tortfeasor. Id. The employee argued she did not need to repay the benefits because the reimbursement
provision appeared only in the summary plan description, not in a formal plan document. Id. at 541. We held that "[w]here no other source of benefits exists, the summary plan description is the formal plan document." Id. at 544. We also noted that "if a dispute had arisen over the amount of benefits due, the [insurer] would no doubt have been bound to provide benefits in accordance with [the summary plan description]." Id. at 545. Such being the case, we reasoned that "what is good for the goose is good for the gander" and refused to allow the employee, who had received benefits by virtue of the summary plan description, "to deny the corresponding responsibilities and obligations." Id. We reversed the district court's summary judgment, allowing the employer's claim for reimbursement to go forward. Id. at 544.
Gamboa is distinguishable on two grounds. First, in Gamboa, there was no written policy underlying the summary plan description. In light of ERISA's requirement that such a writing exist, 29 U.S.C. § 1102(a)(1), we held the summary plan description was the policy. Gamboa, 479 F.3d at 544. We also noted the obvious inconsistency of the employee's attempt to avoid the adverse consequences of the summary plan description while accepting the benefits only it provided. Id. at 545. In contrast, a detailed written policy comprehensively delineates the rights and responsibilities of the parties in this case. Jobe is not seeking benefits only available through the virtues of the writing she simultaneously wishes to foreswear. For that reason, Gamboa is not dispositive of the present question.3
In Groves v. Metropolitan Life Insurance Co., 438 F.3d 872, 874 (8th Cir. 2006), we also held a plan booklet, summarizing the plan, was sufficient to grant discretionary authority to the plan administrator. Just as in Gamboa, however, the record did not contain an underlying policy. Id. at 874 n.2. Similarly, in Jackson v. Prudential Insurance Co. of America, 530 F.3d 696, 701 (8th Cir. 2008), we cited Groves and applied a deferential standard of review. Jackson does not discuss the underlying policy, and the issue of the proper standard of review was not raised because the parties agreed as to the standard of review. Id. at 701 & n.6.
Perhaps more fundamentally, the distinct circumstances of this case implicate, in a correspondingly distinct way, the ERISA requirements and ERISA's underlying policies that originally led us to hold that a summary plan description can prevail over a conflicting policy. From the very first time we indicated a summary plan description provision would prevail over a conflicting policy provision, we justified the proposition by reference to "the importance of disclosure to the [ERISA] statutory regime." See Jensen, 38 F.3d at 952 (citing other circuit courts of appeals for the rule but not applying it because the rule "does not apply when [as in Jensen] the plan document is specific and the [summary plan description] is silent on a particular matter"). The first decision to apply the rule and bind an employer to a promise made in a summary plan description reasoned that "[a]dequate disclosure to employees is one of ERISA's major purposes" and, "[b]ecause of the importance of disclosure, in the event of a conflict between formal plan provisions and summary plan provisions, the summary plan description provisions prevail." Barker, 122 F.3d at 633. Again, in Marolt, we applied the rule where "[a] plan document required by law to be plainspoken for the benefit of average plan participants, 29 U.S.C. § 1022(a)(1), and furnished to participants, see id. § 1024(b)(1), says one thing, and an obscure passage in a transactional document only lawyers will read and understand says something else," and we held "[t]he accessible provisions govern because adequate disclosure to employees is one of ERISA's major purposes." 146 F.3d at 621 (internal quotations and marks omitted).
The disclosure purpose will not always be advanced, however, by holding that the summary plan description prevails over the policy in all circumstances. Where the entity seeking enforcement of the summary provision drafted the more detailed policy and can be presumed to know its terms, allowing that party to rely on the summary plan description—which it also drafted—would do little to enhance either party's understanding of their legal rights and responsibilities. Conversely, the employee can be expected to rely on the summary plan description. As we have said, a summary plan description "'is intended to be a document easily interpreted by a layman; an
employee should not be required to adopt the skills of a lawyer and parse specific undefined words throughout the entire document to determine whether they are consistently used in the same context.'" Barker, 122 F.3d at 634 (quoting Chiles v. Ceridian Corp., 95 F.3d 1505, 1517-18 (10th Cir. 1996)).
The circumstances of this case demonstrate how application of a rule that the summary plan description always prevails will often contradict the rationale supporting application of the rule in other contexts. Here, the two plan documents are in conflict regarding the extent of the administrator's authority to interpret the plan. Contrary to Fort Dearborn's contention, a grant of discretion to the administrator is a critical provision. A full two decades ago, "the Supreme Court established that a denial of benefits is to be reviewed under the de novo standard unless the plan gives the administrator (or fiduciary) discretion to determine benefits and to construe the terms of the plan." Schwartz v. Prudential Ins. Co. of Am., 450 F.3d 697, 698 (7th Cir. 2006) (citing Bruch, 489 U.S. at 115). Thus, if no summary plan description existed in this case, the default standard of review would be de novo. The policy does not provide discretion, while the summary does. Thus, the two documents conflict.
If an employee, realizing the discrepancy and attempting to resolve it, were to look elsewhere in the two plan documents, she could reasonably determine that the documents uniformly tell her the policy prevails over the summary plan description.4 She could then look back to the policy and conclude—justifiably—that the administrator possessed no discretion to interpret the policy and no entitlement to
The summary plan description provides: "In the case of any item not covered by the [summary plan description], or in the event of any conflict between the [summary plan description] and the Policy, the Plan will always control. . . . [N]o rights accrue by reason of or arising out of any statement shown in or omitted from, this [summary plan description]." (J.A. vol. II at 39.) Likewise, the policy provides: "If the terms of a Certificate and this policy differ, this policy will govern." (Id. at 22.) The policy describes the certificate as a summary (id. at 3), and the summary plan description includes the certificate (id. at 39).
deferential review. Thus, to hold that the summary plan description always prevails over the policy—even where the summary plan description indicates the policy prevails—would only invite further confusion for employees.
This illustrates that our cases holding that a summary plan description prevails over the formal policy did not squarely address, and likely did not contemplate, the situation presented here.5 In other words, whether a summary plan description prevails over the formal policy where the summary grants to a plan administrator rights not present in the formal policy, yet also indicates that the policy prevails if the two documents conflict, is an issue of first impression in this circuit.
Other circuits have squarely confronted the question, and have done so in cases that are factually analogous to this case. At least three circuits have held that a grant of discretion to the plan administrator, appearing only in a summary plan description, does not vest the administrator with discretion where the policy provides a mechanism for amendment and disclaims the power of the summary plan description to alter the plan. See Schwartz, 450 F.3d at 699; Shaw v. Conn. Gen. Life Ins. Co., 353 F.3d 1276, 1283-84 (11th Cir. 2003); Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1161-62 (9th Cir. 2001).6 We join our three sister circuits in holding that
In Sturges v. Hy-Vee Employee Benefit Plan & Trust, 991 F.2d 479 (8th Cir. 1993) (per curiam), we confronted an ERISA plan including a summary plan description that restricted the employee's beneficiary's health insurance benefits. We favorably cited Glocker v. W.R. Grace & Co., 974 F.2d 540, 542-43 (4th Cir. 1992), for the proposition that "when [a] summary favors [the] employer, [the] employer cannot disavow a disclaimer in the summary stating the plan controls." Sturges, 991 F.2d at 480-81. We agreed with the district court that the employer abused its discretion in interpreting the plan to deny coverage based on the summary's restriction of benefits. Id. at 480. Although Sturges appears to support our decision in this case, its brevity makes it unclear whether the panel addressed the arguments made here. In contrast, the court in Murphy v. IBM Corp., 23 F.3d 719, 721 (2d Cir.) cert. denied, 513 U.S. 876 (1994), assumed that a grant of discretion in a summary plan
the summary plan description does not vest the administrator with discretion under such circumstances.
In urging us to part ways with those circuits, Fort Dearborn views the summary plan description to be a trump card. Under Fort Dearborn's view of ERISA, a formal amendment was not necessary because the summary plan description is a plan document, just like the underlying policy the summary describes. While that conclusion is superficially congruent with our previous cases holding that a summary plan description prevails over conflicting language in the policy, it loses sight of the rationale underlying § 1022 and related case law. As we noted above, "one of ERISA's central goals is to enable plan beneficiaries to learn their rights and obligations at any time." Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83-84 (1995). The summary plan description is meant to further that goal. See id. (noting the purpose of the summary plan description is "to communicate to beneficiaries the essential information about the plan . . . 'written in a manner calculated to be understood by the average plan participant.'" (quoting 29 U.S.C. § 1022(a)(1))). "[T]he implication of § 1022 is that the [summary plan description] will be an accurate summary, not an unnegotiated enlargement of the administrator's authority." Schwartz, 450 F.3d at 700. Due to the policy's silence in the face of a decades-old Supreme Court ruling establishing a default de novo standard of review, the summary plan description does not summarize a provision of the policy related to discretion, but instead enlarges the administrator's authority.
At the same time, Fort Dearborn's interpretation of § 1022 would undermine the § 1102(b)(3) requirement that each policy provide a mechanism for amendment. ERISA requires every plan to provide a procedure governing amendment of the plan.
description sufficed to grant discretion. Sperandeo v. Lorillard Tobacco Co., 460 F.3d 866, 872 (7th Cir. 2006), describes Murphy as "assuming without analysis" that a grant of discretion in a summary plan description is operative. Sperandeo also notes Murphy "did not describe the remainder of the documents." Id.
29 U.S.C. § 1102(b)(3). In this case, the policy provided an amendment procedure. ERISA, following trust law principles, mandates "that whatever level of specificity a company ultimately chooses, in an amendment procedure or elsewhere, it is bound to that level." Curtiss-Wright Corp., 514 U.S. at 85. Fort Dearborn does not argue that the summary plan description provision putatively granting discretion amounts to a procedurally proper amendment of the policy. To hold that the summary plan description nonetheless granted the administrator discretion in this case would be to endorse the practice of issuing ERISA policies that are silent on key provisions and later issuing summary plan descriptions filling the gaps with terms favoring the employer. While the Supreme Court has said the amendment requirement is not a disclosure requirement, Curtiss-Wright Corp., 514 U.S. at 84, there would nonetheless be little need to follow formal amendment procedures if key terms could be changed by a summary plan description.
Rather than blindly apply a rule that the summary plan description always prevails, we must give the language of the two documents a "common and ordinary meaning." Barker, 122 F.3d at 632. We must construe the documents "as a reasonable person in the position of the [plan] participant, not the actual participant, would have understood the words." Id. The summary plan description expressly states that no rights accrue by reason of the summary. We believe the average plan participant would read that provision and conclude that the policy prevails if it conflicts with the summary, and that the summary could not, standing alone, grant Fort Dearborn the discretion it claims to have.
Fort Dearborn argues we should rebuff Jobe's attempt to rely on such an "integration" clause to avoid application of rights found in a summary plan description. While courts have rejected employers' attempts to use language disclaiming employee rights and employer responsibilities granted in a summary plan description, see, e.g., Pierce v. Sec. Trust Life Ins. Co, 979 F.2d 23, 27-28 (4th Cir. 1992), the same courts have allowed employees recourse to similar language and
justified their approach by reference to ERISA's goal that the summary plan description accurately convey the employee's rights and responsibilities, see Glocker, 974 F.2d at 541-43.
Because the policy's failure to grant discretion results in the default de novo standard, the policy controls over the inconsistent grant of discretion to the administrator in the summary plan description. Accordingly, the administrator was not entitled to discretionary authority in determining eligibility for benefits or construing the plan's provisions. Consequently, the district court should not have reviewed the administrator's decision for abuse of discretion but, rather, should have reviewed it de novo. As the more deferential discretionary standard of review could have affected any facet of the district court's analysis, we are far from certain the district court would have arrived at the same conclusions applying a de novo standard of review. See Wallace v. Firestone Tire & Rubber Co., 882 F.2d 1327, 1330 (8th Cir. 1989) ("As [the arbitrary and capricious standard] of review is interwoven into almost all of the court's factual findings, we cannot be sure it would have made the same factual conclusions if it had employed the required de novo standard of review."). The district court is the proper forum to conduct the appropriate de novo review in the first instance.
IV.
Accordingly, the judgment of the district court is reversed, and the case is remanded for a de novo review of the plan administrator's decision. _____________________ |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ___________
No. 09-1100 ___________
United States of America, * * Appellee, * * Appeal from the United States v. * District Court for the * District of Nebraska. Calvin Williams, * * [PUBLISHED] Appellant. * ___________
Submitted: October 23, 2009 Filed: March 19, 2010 ___________
Before RILEY, SMITH, and GRUENDER, Circuit Judges. ___________
PER CURIAM.
Calvin Williams pleaded guilty to one count of conspiracy to distribute crack cocaine, in violation of 21 U.S.C. § 846 and 18 U.S.C. § 2, pursuant to a plea agreement. After granting Williams's motion for a downward departure, the district court1 sentenced Williams to 235 months' imprisonment based upon his status as a career offender. Williams appealed, and we remanded for resentencing in light of United States v. Booker, 543 U.S. 220 (2005). On remand, the district court sentenced Williams to 144 months' imprisonment pursuant to a plea agreement. Subsequently,
The Honorable Lyle E. Strom, United States District Judge for the District of Nebraska. Williams sought a further reduction in sentence based upon amendments to the United States Sentencing Guidelines for crack cocaine offenses. The district court denied the reduction based upon his career offender status. Williams now appeals arguing that he was not actually sentenced as a career offender. We affirm.
I. Background In his original sentencing, Williams contested his classification as a career offender. At the resentencing hearing, the district court found that Williams's base offense level was 37 based on his status as a career offender. The district court did, however, find that Williams's criminal history was overstated and reduced his criminal history classification to category V. This placed Williams's sentencing range at 235 to 293 months' imprisonment. Absent the career offender enhancement, Williams's sentencing range after the criminal history reduction would have been 210 to 262 months' imprisonment. The district court also overruled Williams's objection that the Guidelines were unconstitutional. The court then sentenced Williams to 235 months' imprisonment.
Following imposition of his initial sentence, we filed an opinion in United States v. Mooney, No. 02-3388, 2004 WL 1636960 (8th Cir. July 23, 2004), vacated and reh’g en banc granted. Based on Mooney, Williams filed a motion to stay the entry of his judgment. The district court granted the motion and set the case for further sentencing on September 3, 2004. Prior to the new sentencing hearing date, this court vacated the decision in Mooney. On September 3, 2004, the district court lifted the stay previously imposed and pronounced its previous sentence of 235 month's imprisonment.
Williams appealed the constitutionality of his sentence, and in light of the decision in Booker, we remanded his case for resentencing. Prior to Williams's resentencing, the parties entered into a new written plea agreement. This plea agreement provided that Williams would be sentenced to 144 months' imprisonment
and that he would waive any right to appeal his conviction and sentence in any post-conviction proceedings. The district court accepted the plea agreement and sentenced Williams to 144 months' imprisonment.
On November 1, 2007, new amendments to the Guidelines went into effect which lowered the sentencing ranges for crack offenses by two levels. On December 11, 2007, the United States Sentencing Commission voted to make the two-level reduction retroactive. On September 9, 2008, Williams filed a motion seeking a modification of his sentence pursuant to 18 U.S.C. § 3582(c)(2) and requesting an evidentiary hearing. The district court denied Williams's request for an evidentiary hearing on his motion to reduce his sentence and ruled that the modifications to the Guidelines did not apply to his case because he was sentenced as a career offender.
II. Discussion On appeal, Williams maintains that the district court erred in concluding that he was sentenced as a career offender and thus ineligible for a sentence reduction pursuant to the modifications to the Guidelines. Williams argues that the new amendments to the sentencing Guidelines apply to him because his sentence was based on U.S.S.G. § 2D1.1 and not on the career offender statute.
A district court's legal conclusion regarding its authority to reduce a sentence is reviewed de novo. United States v. Kelley, 956 F.2d 748, 751 (8th Cir. 1992). "[T]he extent of a downward departure in the defendant's favor lies within the district court's discretion and is virtually unreviewable on a defendant's appeal, absent an unconstitutional motive animating the district court." United States v. Dalton, 478 F.3d 879, 881 (8th Cir. 2007).
We hold that Williams is not entitled to a further sentence reduction under the modified crack cocaine Guidelines. Although it is not entirely clear whether the district court sentenced Williams as a career offender or simply found that he fit that
status, that issue is not dispositive because we find that Williams's sentence was based on a binding Rule 11(c)(1)(C) plea agreement.
Williams does not contend that his plea agreement was not under Rule 11(c)(1)(C) or dispute its binding nature. Consequently, our recent decision in United States v. Scurlark, 560 F.3d 839 (8th Cir. 2009) controls. In Scurlark we stated:
[Once the court accepted the agreement] [u]nder Rule 11(c)(1)(C), the court therefore was bound to sentence Scurlark pursuant to the terms of the parties' agreement, and § 3582(c)(2) became inapplicable because Scurlark's sentence was based on the agreement and not a sentencing range that had subsequently been lowered by the Sentencing Commission.
Id. at 842. (internal quotations, alterations, and citations omitted). We further found that "a plea agreement under Rule 11(c)(1)(C), like all plea agreements, is binding on both the government and the defendant, but Rule 11(c)(1)(C) plea agreements are unique in that they are also binding on the court after the court accepts the agreement." Id. (internal quotations, alterations, and citations omitted). Williams's plea agreement is similarly binding and is not subject to § 3582(c)(2).
III. Conclusion The judgment of the district court is affirmed. ______________________________ |
United States Court of Appeals FOR THE EIGHTH CIRCUIT ________________
No. 09-1599 ________________
United States of America, * * Appellee, * * Appeal from the United States v. * District Court for the * District of North Dakota. Kevin Joseph Nadeau, * * [PUBLISHED] Appellant. *
________________
Submitted: February 9, 2010 Filed: March 19, 2010 ________________
Before WOLLMAN, HANSEN, and MELLOY, Circuit Judges. ________________
HANSEN, Circuit Judge.
Following a jury trial, Kevin Joseph Nadeau was convicted of one count of assault resulting in serious bodily injury, in violation of 18 U.S.C. §§ 113(a)(6) and 1153, and one count of assault with a dangerous weapon, in violation of 18 U.S.C. §§ 113(a)(3) and 1153. Nadeau appeals his convictions, arguing that the district court1 erred in admitting a metal pipe, identified at trial as Government Exhibit 3, into evidence at trial. For the following reasons, we affirm.
The Honorable Daniel L. Hovland, then Chief Judge, United States District Court for the District of North Dakota. I.
On November 8, 2007, a group of five individuals (James Bruce, Bradley Bruce, Donald Decoteau, Leon Peltier, and Brian Poitra, Jr.) spent the evening at Norman's Bar in Belcourt, North Dakota. At the end of the evening, they left in a vehicle driven by James Bruce and owned by Joey Short. While in the car, one of the men needed to answer the call of nature, so James Bruce pulled over on a gravel road near the home of Kevin and Kristy Nadeau. Kristy Nadeau was formerly married to John Short, Joey Short's brother, and the Nadeaus had a history of conflict with the Short family. Thus, when the Nadeaus saw Joey Short's vehicle near their home, they believed the Shorts had come back to cause problems.
Kevin and Kristy Nadeau and two minors, R.N. and J.V., got into a car, and there was testimony that Nadeau had retrieved a pipe or bar and had it with him in the car. Other witnesses said that the pipe was already in the car. The Nadeau group followed the car that James Bruce was driving. James Bruce pulled over after the car containing the Nadeaus flashed its lights at him. As James Bruce walked towards the vehicle that flashed its lights at him, one witness testified that Nadeau struck James in the face with the pipe. James Bruce was taken to the hospital and suffered from a fracture of the left cheek bone, which required surgery.
Responding to a call, police came to the Nadeau home and observed a maroon Oldsmobile, identified as the vehicle Nadeau had ridden in on the night of the attack, parked in Nadeau's yard. Inside the car was the pipe later identified at the trial as Government Exhibit 3, and the police removed it through an open window.
A grand jury charged Nadeau with one count of assault resulting in serious bodily injury and one count of assault with a dangerous weapon. Before the trial, Nadeau filed a motion in limine to prevent the Government from introducing the metal pipe found in the car. Nadeau argued that the pipe should not be admitted into
evidence because the officers who seized the pipe did not see anything on the pipe indicating the presence of blood or human tissue and police did not find fingerprints on the pipe that could be used for comparison purposes. Nadeau argued the pipe was not relevant because nothing connected it to the criminal conduct with which he was charged. The district court denied the motion in limine, finding the pipe to be relevant evidence. At the trial, Nadeau objected when the Government offered the pipe as Government Exhibit 3. The district court overruled Nadeau's objection and admitted the pipe into evidence.
Nadeau was convicted on both counts and was sentenced to 51 months' imprisonment on each of the counts, to be served concurrently. Nadeau appeals the district court's denial of his motion in limine and the overruling of his objection at trial.
II.
Nadeau argues that the pipe was not relevant and not admissible because there was insufficient evidence connecting it to Nadeau or to the assault and that the admission of the pipe was unfairly prejudicial.
"In assessing a district court's evidentiary rulings, we review for an abuse of discretion." United States v. Jiminez, 487 F.3d 1140, 1145 (8th Cir. 2007).
First, Nadeau asserts that the pipe was not relevant and the Government failed to present evidence connecting it to Nadeau or the assault because there was no hair, blood, or fingerprints on the pipe. "'The trial court has broad discretion in determining the relevancy and admissibility of evidence.'" Id. (quoting United States v. Wallace, 722 F.2d 415, 416 (8th Cir. 1983)). Relevant evidence is defined as "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without
the evidence." Fed. R. Evid. 401. "The threshold for relevance is 'quite minimal.'" United States v. Holmes, 413 F.3d 770, 773 (8th Cir. 2005) (quoting United States v. Guerrero-Cortez, 110 F.3d 647, 652 (8th Cir.), cert. denied, 522 U.S. 1017 (1997)). "All relevant evidence is admissible, except as otherwise provided by the Constitution, legislation, or applicable evidentiary rules, and conversely, all irrelevant evidence is inadmissible." Id.
Here, Nadeau was charged with assault with a dangerous weapon. There was much testimony throughout the trial that Nadeau assaulted James Bruce with a pipe- like object. Bradley Bruce testified that he saw Nadeau hit James Bruce with an object in his hand and later hit him with what he described as a silver object. Leon Peltier testified that he observed James Bruce being struck by two men and they were hitting him with a pole and what looked like a red tire iron. He further testified that Nadeau came at Peltier with the pole. He identified the pipe admitted into evidence as Government Exhibit 3 as one of the objects that could have been used to strike James Bruce. Donald Decoteau testified that Nadeau hit James Bruce in the head with a pipe, which he described as a round bar. Brian Poitra, Jr., testified that two men were hitting James Bruce with bar-type weapons. He testified that although he was not able to get a good look at the object used to strike James Bruce, the pipe admitted as Government Exhibit 3 looked pretty close to what had been used. Nadeau's minor nephew, R.N., testified that he was present when Nadeau struck James Bruce with the pipe. He testified that Nadeau brought a bar or bar-like tool along in the car when they followed James Bruce's vehicle and the pipe admitted as Government Exhibit 3 was the pipe Nadeau used to strike James Bruce on the head and back. The pipe was removed from a car identified as the vehicle Nadeau was riding in on the night of the attack, and Kristy Nadeau and Nadeau's minor niece, J.V., testified that the pipe was in the vehicle on the night of the attack. The evidence was relevant because it had the tendency to make the existence of Nadeau's attack on James Bruce more probable and it had a tendency to prove that the attack was carried out by employing a dangerous weapon. See Fed. R. Evid. 401.
While Nadeau correctly notes that there was no blood, tissue, or fingerprints on the pipe, that was a matter for the jury to consider when it determined what weight, if any, to give to the pipe. It also was a factor for the court to consider in determining the pipe's admissibility, but it certainly did not make the pipe irrelevant to the issues before the jury. See, e.g., United States v. Garrison, 168 F.3d 1089, 1094 (8th Cir. 1999) ("[Defendant's] complaints go to the weight, not the admissibility, of the evidence, and any inconsistencies between the records and the testimony were for the jury to resolve."). There was sufficient evidence presented which tied the pipe both to Nadeau and to the charged crimes to warrant its admission for the jury's consideration.
Nadeau also contends that the admission of the pipe as evidence was unfairly prejudicial because it required the jury to draw inferences based on speculation and conjecture. Even if evidence is relevant, it still "may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice." Fed. R. Evid. 403. "We give deference to a district court's decision under the Rule 403 balancing test and reverse only for a clear abuse of discretion." Guerrero-Cortez, 110 F.3d at 652. "Unfair prejudice 'speaks to the capacity of some concededly relevant evidence to lure the factfinder into declaring guilt on a ground different from proof specific to the offense charged.'" Id. (quoting Old Chief v. United States, 519 U.S. 172, 180 (1997)). Unfair prejudice does not occur, however, merely because a piece of evidence damages a defendant's case. Id.
The district court did not clearly abuse its discretion in determining that the pipe's probative value was not substantially outweighed by the danger of unfair prejudice. Again, the inference—that Nadeau used the pipe in the assault—is one for the jury to draw, and the lack of blood, tissue, and fingerprints on the pipe is something for the jury to consider in determining how much weight to give the pipe. The pipe was useful in establishing that an object matching the witnesses' description was found in the car Nadeau was riding in on the night of the attack. Beyond claiming
that the pipe required the jury to make too many inferences, Nadeau offered nothing to demonstrate that admission of the pipe was unfairly prejudicial, and there is no reason to believe that the pipe would have lured the jury into declaring guilt on an improper basis. Accordingly, Nadeau failed to prove that the probative value of the pipe was substantially outweighed by the danger of unfair prejudice. Thus, the district court did not abuse its discretion in denying Nadeau's motion in limine before trial or in overruling Nadeau's objection at trial. See Jiminez, 487 F.3d at 1145.
III.
Accordingly, the judgment of the district court is affirmed. ______________________________ |
United States Court of Appeals FOR THE EIGHTH CIRCUIT
___________
No. 09-2823 ___________
Barbara Mrzlak Brundo, Ed.D., * * Appellant, * * Appeal from the United States v. * District Court for the * District of Nebraska. Rev. Stephen Stillmunks, Registered * Agent, Christ the King Catholic School * [UNPUBLISHED] & Church; Laraine Conway, * Principal, Christ the King School; * Chris Segrell, Assistant Principal, * Christ the King School, * * Appellees. * ___________
Submitted: March 10, 2010 Filed: March 19, 2010 ___________
Before WOLLMAN, COLLOTON, and GRUENDER, Circuit Judges. ___________
PER CURIAM.
Barbara Brundo appeals the district court’s1 dismissal and imposition of sanctions under Fed. R. Civ. P. 11 in her employment-discrimination suit. Defendants have filed a motion for damages and costs under Fed. R. App. P. 38.
The Honorable Richard G. Kopf, United States District Judge for the District of Nebraska. We find that the district court properly dismissed Brundo’s complaint. See Goss v. City of Little Rock, 90 F.3d 306, 308 (8th Cir. 1996) (de novo review of dismissal for failure to state a claim); see also Bales v. Wal-Mart Stores, Inc., 143 F.3d 1103, 1111 (8th Cir. 1998) (liability under Title VII borne by employers, not individuals); Birkback v. Marvel Lighting Corp., 30 F.3d 507, 510 (4th Cir. 1994) (individuals are not subject to suit under ADEA); Billingsley v. BFM Liquor Mgmt. Inc., 613 N.W.2d 478, 484 (Neb. 2000) (NFEPA is modeled on ADEA). We also hold that Brundo has not given this court any reason to find that the district court abused its discretion in imposing sanctions under Rule 11, or that the amount the district court awarded was unreasonable. See Fed. R. Civ. P. 11(b), (c); Clark v. United Parcel Serv., Inc., 460 F.3d 1004, 1008-11 (8th Cir. 2006) (standard of review; describing Rule 11 procedures).
Accordingly, we affirm. See 8th Cir. R. 47B. Because we have determined that Brundo’s appeal is wholly without merit, we grant defendants’ Rule 38 motion, and award damages and costs in the requested amount of $5,196. See 28 U.S.C. § 1912 (when judgment is affirmed, court may, in its discretion, award just damages and costs to prevailing party); Fed. R. App. P. 38 (if court finds appeal frivolous, it may award just damages and single or double costs to appellees); see also Newhouse v. McCormick & Co., 130 F.3d 302, 305 (8th Cir. 1997) (per curiam order) (appeal is frivolous when result is obvious or when appellant’s argument is wholly without merit). ________________________________ |
United States Court of Appeals FOR THE EIGHTH CIRCUIT
___________
No. 09-3084 ___________
Barbara Mrzlak Brundo, Ed.D., * * Appellant, * * v. * * Nebraska Catholic Conference, * Mr. James R. Cummingham, Executive * Appeal from the United States Director; Archdiocese of Omaha, * District Court for the Most Rev. Elden F. Curtiss, 100 N. * District of Nebraska. 62nd St., Omaha, NE 68132; Christ * the King Catholic School & Church, * [UNPUBLISHED] Rev. Steven Stillmunks, Registered * Agent, 654 South 86th Street, Omaha, * Nebraska 68114; Diocese of Lincoln, * Most Rev. Fabian W. Bruskewitz, * Chancery Office, 3400 Sheridan * Boulevard, P.O. Box 80328, Lincoln, * Nebraska 68501; Diocese of Grand * Island, Most Rev. William J. * Dendinger, P.O. Box 1531, 2708 Old * Fair Road and/or 311 W. 17th Street, * Grand Island, NE 68802, * * Appellees. * ___________
Submitted: March 10, 2010 Filed: March 19, 2010 ___________ Before WOLLMAN, COLLOTON, and GRUENDER, Circuit Judges. ___________
PER CURIAM.
Barbara Brundo appeals the district court’s1 dismissal and imposition of sanctions under Fed. R. Civ. P. 11 in her employment-discrimination suit. Defendants have filed a motion for damages and costs under Fed. R. App. P. 38.
We find that the district court properly dismissed Brundo’s complaint. See Goss v. City of Little Rock, 90 F.3d 306, 308 (8th Cir. 1996) (de novo review of dismissal for failure to state a claim); see also Bales v. Wal-Mart Stores, Inc., 143 F.3d 1103, 1111 (8th Cir. 1998) (liability under Title VII borne by employers, not individuals); Birkback v. Marvel Lighting Corp., 30 F.3d 507, 510 (4th Cir. 1994) (individuals are not subject to suit under ADEA); Billingsley v. BFM Liquor Mgmt. Inc., 613 N.W.2d 478, 484 (Neb. 2000) (NFEPA is modeled on ADEA). We also hold that Brundo has not given this court any reason to find that the district court abused its discretion in imposing sanctions under Rule 11, or that the amount the district court awarded was unreasonable. See Fed. R. Civ. P. 11(b), (c); Clark v. United Parcel Serv., Inc., 460 F.3d 1004, 1008-11 (8th Cir. 2006) (standard of review; describing Rule 11 procedures).
Accordingly, we affirm. See 8th Cir. R. 47B. Because we have determined that Brundo’s appeal is wholly without merit, we grant defendants’ Rule 38 motion, and award damages and costs in the requested amount of $4,783.50. See 28 U.S.C. § 1912 (when judgment is affirmed, court may, in its discretion, award just damages and costs to prevailing party); Fed. R. App. P. 38 (if court finds appeal frivolous, it may award just damages and single or double costs to appellees); see also Newhouse v.
The Honorable Laurie Smith Camp, United States District Judge for the District of Nebraska.
McCormick & Co., 130 F.3d 302, 305 (8th Cir. 1997) (per curiam order) (appeal is frivolous when result is obvious or when appellant’s argument is wholly without merit). ______________________________ |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, Plaintiff-Appellee, v. No. 06-50485 EARL ANTHONY NEVILS, a/k/a EARL NEVILS, JR., EARL BOWMAN, EARL D.C. No. CR-03-01269-CBM JOHNSON, ALFRED JOHNSON, OPINION “BABYCRIPTOE,” “LILAMIGO” and “BABY FROG,” Defendant-Appellant. Appeal from the United States District Court for the Central District of California Consuelo B. Marshall, District Judge, Presiding
Argued and Submitted September 22, 2009—San Francisco, California
Filed March 19, 2010
Before: Alex Kozinski, Chief Judge, Pamela Ann Rymer, Sidney R. Thomas, Barry G. Silverman, Raymond C. Fisher, Ronald M. Gould, Richard C. Tallman, Johnnie B. Rawlinson, Richard R. Clifton, Milan D. Smith, Jr. and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Ikuta
4578 UNITED STATES v. NEVILS
COUNSEL
Elizabeth A. Newman, Deputy Federal Public Defender, for the appellant.
Sandy N. Leal, Assistant United States Attorney, and Daniel B. Levin, Assistant United States Attorney, for the appellee. UNITED STATES v. NEVILS 4579 OPINION
IKUTA, Circuit Judge:
Earl Anthony Nevils appeals from his conviction for being a felon in possession of firearms and ammunition in violation of 18 U.S.C. § 922(g)(1).1 Nevils argues that the evidence presented at trial is constitutionally insufficient to support his conviction because it is susceptible to an innocent explana- tion. Contrary to Nevils’s argument that we should construe the evidence in the light most favorable to innocence, we are obliged to construe the evidence “in the light most favorable to the prosecution,” and only then determine whether “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319 (1979). Here, viewing the evidence as required by Jackson, we hold there was sufficient evidence to permit a rational juror to conclude beyond a reasonable doubt that Nevils knowingly possessed firearms and ammunition. We therefore affirm.
I
Late in the evening of April 14, 2003, three officers of the Los Angeles Police Department’s Special Enforcement Unit were on patrol in a high-crime area of south Los Angeles. Driving past an apartment building known for criminal activ- ity associated with the “Rollin’ 30s” gang, the officers encountered three men and two women standing on the side- walk. Officer Jason De La Cova asked the group about its 18 U.S.C. § 922(g) provides, in relevant part: It shall be unlawful for any person—(1) who has been convicted in any court of, a crime punishable by imprisonment for a term exceeding one year . . . to ship or transport in interstate or foreign commerce, or possess in or affecting commerce, any firearm or ammunition; or to receive any firearm or ammunition which has been shipped or transported in interstate or foreign commerce. 4580 UNITED STATES v. NEVILS activities that evening. One of the men answered that they were doing “[n]othing.” Upon being asked whether any of the group lived in the apartment building, the same man responded “It’s okay. We’re out of here right now.” He abruptly turned and ran “at a high rate of speed” down the center path of the apartment complex. Officer De La Cova and his partner Officer Jason Clauss followed the man up the apartment walkway and observed him turn left in the walk- way to grasp the door-handle of Apartment 6. Upon seeing the officers in his wake, the man quickly let go of the door, crossed the walkway to Apartment 2, and entered. He then closed and locked the door.
After trying and failing to convince the man to open the door to Apartment 2, the officers turned their attention to Apartment 6. First, they asked two women standing in the walkway who lived there; the women indicated that no one did. Approaching the door to Apartment 6, Officer De La Cova noted that the black security gate was ajar by several inches, and that the main wooden door was open and leaning off its hinges against the living-room wall. Looking through the security door, Officer De La Cova was able to see into the well-lit apartment. There, lying upon the couch, was Nevils, apparently asleep, with his right leg dangling off of the couch. A “machine gun” sitting on Nevils’s lap was clearly in view from De La Cova’s position at the front door. A handgun leaning against Nevils’s right leg was also visible.
Officer De La Cova gave a hand-sign to his partner and the two jointly entered the apartment, weapons drawn. No one else was there. As the officers approached Nevils, he woke up, and as Officer Clauss testified, “his eyes . . . fully opened and for a brief second he appeared like he was going to, you know, grab towards his lap and then he stopped and put his hands up.” On command of the officers, Nevils got on the ground, leaving the firearms lying on the couch. Officer De La Cova retrieved the firearms, discovering that both were loaded. A coffee table, laden with marijuana packaged for UNITED STATES v. NEVILS 4581 sale, ecstasy, over $500 in cash, and a cell-phone, was situ- ated one foot away from the couch where Nevils had been sleeping.
Other officers arrived on the scene shortly thereafter, including Sergeant Jean Coleman, who asked Nevils whether he was injured or sick. Nevils indicated he was not, and instead cursed absent cohorts, saying that he couldn’t believe that “[they] left me sleeping and didn’t wake me.” The loaded firearms found in Nevils’s possession later were identified as a Tec-9 semi-automatic weapon, loaded and chambered with 14 live rounds of ammunition, and a .40-caliber handgun, also loaded and chambered with 13 live rounds of ammunition.
Initially booked on charges of possession of marijuana for sale, Nevils was charged on a single count of being a felon in possession of firearms and ammunition in violation of 18 U.S.C. § 922(g)(1). At trial, the defense stipulated to Nevils’s prior felony conviction, and did not attempt to rebut testimony that the weapons and ammunition had traveled in interstate commerce. Rather, the defense pursued a theory that Nevils could not have known of the loaded firearms because he was drunk and asleep.
To support this theory, Nevils offered the testimony of Jon- netta Campbell. Campbell testified that in the early afternoon of April 14, she and Nevils attended a baby shower for a friend. After the baby shower ended, she, Nevils, and several other people lingered to drink alcohol (in Nevils’s case, “a lot” of Remy Martin). Sometime after dark, though Campbell could not remember exactly when, Nevils got “[r]eal drunk,” to the point that “[h]e couldn’t stand.” Campbell and two female friends carried Nevils into Apartment 6 and laid him on his side on the couch. Campbell testified that she saw no firearms or drugs in the apartment when she left Nevils there, and that she and her friends closed the front door to Apart- ment 6 when they departed. On cross examination, Campbell clarified that at no time did she see Nevils “passed out,” that 4582 UNITED STATES v. NEVILS she continued drinking after leaving Nevils in Apartment 6, and that she did not have any further interaction with him that evening.
During the jury charge, the jury was permitted to hold and examine the firearms that had been found on or near Nevils’s body in Apartment 6, as well as the ammunition with which they were loaded. The jurors examined that evidence again during their deliberations. After three days of deliberations, the jury returned a unanimous verdict, finding Nevils guilty of the single count of possession with which he was charged.
The district court sentenced Nevils to 77 months’ imprison- ment, at the lowest limit of the applicable range specified by the Sentencing Guidelines. During the sentencing hearing, the district court discussed the need to avoid unwarranted sen- tence disparities among defendants. The court noted that there was possibly a “difference in the sentence the defendant might have received in state court for the same offense and the sentence in federal court,” but stated that “[w]e’re not per- mitted to consider the state court [sentence] when we impose our [sentence].” Defense counsel did not raise any objection to this ruling.
Nevils filed a timely notice of appeal, raising two issues. First, Nevils argues that the government failed to produce evi- dence sufficient to prove every element of his crime beyond a reasonable doubt. Second, Nevils contends that the district court erred in refusing to consider analogous state sentences in its calculations, and therefore the sentence imposed by the district court was unreasonable. We address these contentions in turn.
II
[1] The federal felon-in-possession statute makes it unlaw- ful for a person “who has been convicted in any court of, a crime punishable by imprisonment for a term exceeding one UNITED STATES v. NEVILS 4583 year” to “possess in or affecting commerce, any firearm or ammunition” which “has been shipped or transported in inter- state or foreign commerce.” 18 U.S.C. § 922(g). Conviction under this provision requires that the government prove three elements: “(1) that the defendant was a convicted felon; (2) that the defendant was in knowing possession of a firearm [or ammunition]; and (3) that the firearm [or ammunition] was in or affecting interstate commerce.” United States v. Beasley, 346 F.3d 930, 933-34 (9th Cir. 2003). “To establish that a defendant acted ‘knowingly,’ the prosecution need not prove that the defendant knew that his possession of a firearm was unlawful; the prosecution need only prove that the defendant consciously possessed what he knew to be a firearm.” Id. at 934. For purposes of this appeal, Nevils contests only this ele- ment of knowledge. According to Nevils, the government failed to prove beyond a reasonable doubt that he knowingly possessed the firearms and ammunition at issue because there was insufficient evidence to establish that he was aware of the loaded firearms found on or near his body in the apartment.
A
[2] Our review of the constitutional sufficiency of evi- dence to support a criminal conviction is governed by Jackson v. Virginia, 443 U.S. at 319, which requires a court of appeals to determine whether “after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Id.; see also McDaniel v. Brown, 130 S. Ct. 665, 673 (2010) (reaffirming this standard). Jackson thus establishes a two-step inquiry for considering a challenge to a conviction based on sufficiency of the evidence. First, a reviewing court must consider the evidence presented at trial in the light most favorable to the prosecution. Jackson, 443 U.S. at 319. This means that a court of appeals may not usurp the role of the finder of fact by considering how it would have resolved the conflicts, made the inferences, or considered the evidence at trial. See id. at 318-19. Rather, when “faced with 4584 UNITED STATES v. NEVILS a record of historical facts that supports conflicting infer- ences” a reviewing court “must presume—even if it does not affirmatively appear in the record—that the trier of fact resolved any such conflicts in favor of the prosecution, and must defer to that resolution.” Id. at 326; see also McDaniel, 130 S. Ct. at 673-74.
[3] Second, after viewing the evidence in the light most favorable to the prosecution, the reviewing court must deter- mine whether this evidence, so viewed, is adequate to allow “any rational trier of fact [to find] the essential elements of the crime beyond a reasonable doubt.” Jackson, 443 U.S. at 319. This second step protects against rare occasions in which “a properly instructed jury may . . . convict even when it can be said that no rational trier of fact could find guilt beyond a reasonable doubt[.]” Id. at 317. More than a “mere modicum” of evidence is required to support a verdict. Id. at 320 (reject- ing the rule that a conviction be affirmed if “some evidence” in the record supports the jury’s finding of guilt). At this sec- ond step, however, a reviewing court may not “ask itself whether it believes that the evidence at the trial established guilt beyond a reasonable doubt,” id. at 318-19 (quoting Woodby v. INS, 385 U.S. 276, 282 (1966)) (internal quotation marks omitted), only whether “any” rational trier of fact could have made that finding, id. at 319.
Because the government does not need to rebut all reason- able interpretations of the evidence that would establish the defendant’s innocence, or “rule out every hypothesis except that of guilt beyond a reasonable doubt” at the first step of Jackson, id. at 326, a reviewing court may not ask whether a finder of fact could have construed the evidence produced at trial to support acquittal.2 Only after we have construed all the Indeed, at step one of Jackson, the Supreme Court has given little weight to a defendant’s innocent explanation of the evidence. In Wright v. West, 505 U.S. 277 (1992), for example, all the justices agreed “there was more than enough evidence” to support the defendant’s conviction for UNITED STATES v. NEVILS 4585 evidence at trial in favor of the prosecution do we take the second step, and determine whether the evidence at trial, including any evidence of innocence, could allow any rational trier of fact to find the essential elements of the crime beyond a reasonable doubt. Id. at 319. At this second step, we must reverse the verdict if the evidence of innocence, or lack of evidence of guilt, is such that all rational fact finders would have to conclude that the evidence of guilt fails to establish every element of the crime beyond a reasonable doubt. See id.
Over the years, we have struggled with the correct approach to construing evidence produced at trial, in accor- dance with the first step of Jackson. Almost three decades before Jackson, we reached a conclusion directly contrary to its holding, namely that “evidence is insufficient to sustain [a] verdict . . . if we can conclude as a matter of law that reason- able minds, as triers of the fact, must be in agreement that rea- sonable hypotheses other than guilt could be drawn from the evidence.” Stoppelli v. United States, 183 F.2d 391, 393 (9th Cir. 1950). Under this rule, if a reasonable finder of fact could construe the evidence at trial in a manner that supported the defendant’s innocence, the verdict could not stand. Id. Fol- lowing Stoppelli, we frequently invoked this test, holding that convictions must be reversed unless “reasonable minds could find the evidence excludes every hypothesis but that of guilt.” United States v. Nelson, 419 F.2d 1237, 1243 (9th Cir. 1969) (internal quotation marks omitted) (citing cases).
grand larceny under Jackson, although the only evidence produced by the state was that stolen items had been discovered in the defendant’s home, and the defendant testified that he had bought the goods from various flea markets in which he regularly bought and sold merchandise. Id. at 295 (Thomas, J., joined by Rehnquist, C.J. and Scalia, J.); see also id. at 297 (White, J., concurring in the judgment); id. (O’Connor, J., joined by Blackmun and Stevens, JJ., concurring in the judgment); id. at 310 (Ken- nedy, J., concurring in the judgment); id. (Souter, J., concurring in the judgment). The jury was entitled to infer under state law that the person who possessed stolen goods was the thief, and “to disbelieve [the defen- dant’s] uncorroborated and confused testimony” to the contrary. Id. at 296. 4586 UNITED STATES v. NEVILS In United States v. Nelson, however, we abandoned this approach, on the ground that it had been rejected by the Supreme Court in Holland v. United States as “confusing and incorrect.” 419 F.2d at 1243-44 (quoting Holland, 348 U.S. 121, 140 (1954)). Nelson noted that the approach adopted in Stoppelli had led “to serious departures from the proper appel- late role in evaluating the sufficiency of evidence,” because reviewing courts were invited to “divide the evidence into separate lines of proof, and analyze and test each line of proof independently of others.” Id. at 1245. As a result, “[t]he suffi- ciency of the evidence is often tested against theoretical and speculative possibilities not fairly raised by the record, and inferences are sometimes considered which, though entirely possible or even probable, are drawn from evidence which the jury may have disbelieved.” Id.
Instead, Nelson held that a court reviewing the sufficiency of evidence must determine whether “there is ‘relevant evi- dence from which the jury could properly find or infer, beyond a reasonable doubt, that the accused is guilty.’ ” Id. at 1242 (quoting Am. Tobacco Co. v. United States, 328 U.S. 781, 787 n.4 (1946)). The reviewing court must “inquire whether the evidence, considered most favorably to the gov- ernment, was such as to permit a rational conclusion by the jury that the accused was guilty beyond a reasonable doubt.” Id. As we subsequently explained, “[i]n determining the suffi- ciency of circumstantial evidence, the question is not whether the evidence excludes every hypothesis except that of guilt but rather whether the trier of fact could reasonably arrive at its conclusion.” United States v. Eaglin, 571 F.2d 1069, 1076 (1977) (internal quotation marks omitted). Although Nelson predated Jackson by a decade, the test we adopted in Nelson was consistent with that ultimately mandated by Jackson.
[4] Notwithstanding the Supreme Court’s decision and our own precedent, we subsequently strayed from our obligation under step one of the Jackson standard to construe the evi- dence at trial in the light most favorable to the prosecution, UNITED STATES v. NEVILS 4587 returning instead to an approach similar to that of Stoppelli. This process began in United States v. Bishop, 959 F.2d 820 (9th Cir. 1992), which indicated that a reviewing court must consider whether the evidence at trial was susceptible to an innocent interpretation, and then determine whether a reason- able juror “could choose the hypothesis that supports a find- ing of guilt rather than hypotheses that are consistent with innocence.” Id. at 830. Applying this approach, Bishop deter- mined that the defendant’s behavior was “perfectly consistent with that of an innocent person,” and therefore the govern- ment failed to prove its case. Id. at 831 (quoting United States v. Penagos, 823 F.2d 346, 349 (9th Cir.1987)). By construing the evidence in favor of an innocent explanation, and deter- mining if such an explanation was equally or more reasonable than the government’s incriminating explanation, Bishop mis- applied the first step of Jackson, which limits the reviewing court to construing the evidence in the light most favorable to the prosecution. See Jackson, 443 U.S. at 319, 326. Only at the second step of Jackson does the reviewing court deter- mine whether any rational juror could hold that the evidence, construed in favor of the prosecution, establishes guilt beyond a reasonable doubt. Id. at 319.
Some subsequent cases have followed Bishop, and simi- larly considered whether evidence at trial could be construed in a manner that supports innocence, contrary to the first step of Jackson. In United States v. Vasquez-Chan, 978 F.2d 546, 548-49 (9th Cir. 1992), for instance, we considered the suffi- ciency of the evidence to support the convictions of two defendants found guilty of conspiracy to sell cocaine. The evi- dence introduced at trial established that one defendant knew that the cocaine was stored in her bedroom and that her fin- gerprints were found on six of the cocaine storage containers, including one print inside of a container. Id. at 549. We deter- mined that the evidence could be construed in a manner sup- porting innocence, explaining that “it is reasonable to assume that [the defendant] touched [the containers] at some time, including on one occasion the inside lid of a cannister, as she 4588 UNITED STATES v. NEVILS passed in and out of the room or made space in the small bed- room so that she and her infant child could have a comfort- able place in which to sleep.” Id. at 551. Again, this approach misapplied the first step of Jackson, which limits us to con- struing the evidence in a manner favoring the prosecution. Based on this error, we then concluded at the second step of Jackson that the government had failed to “establish [the defendant’s] guilt beyond a reasonable doubt” because the “evidence presented at [defendant’s] trial did not establish any reason to believe that an innocent explanation of that evidence was any less likely than the incriminating explanation advanced by the government.” Id. at 551. We have made the same misstep in construing the evidence produced at trial in cases following Vasquez-Chan. See, e.g., United States v. Wiseman, 25 F.3d 862, 866-67 (9th Cir. 1994) (holding that the evidence was insufficient to convict the defendant, in part because “the only evidence submitted by the government is wholly susceptible to innocent explanations”); United States v. Corral-Gastelum, 240 F.3d 1181, 1184-85 (9th Cir. 2001) (reversing drug-trafficking conviction based in part on the reviewing court’s exculpatory construction of evidence). As Nelson warned, considering whether the evidence produced at trial may be innocently explained has led reviewing courts to “divide the evidence into separate lines of proof, and analyze and test each line of proof independently of others,” to test the sufficiency of the evidence “against theoretical and specula- tive possibilities not fairly raised by the record,” and to rely on hypotheses “drawn from evidence which the jury may have disbelieved.” Nelson, 419 F.2d at 1245; see, e.g., Vasquez-Chan, 978 F.2d at 551-52.
The Supreme Court’s recent decision in McDaniel v. Brown, reversing a decision by this court, highlights our error. 130 S. Ct. at 673-74. In McDaniel, the defendant had been convicted of sexual assault of a child. Id. at 666. On appeal, we concluded that the evidence was insufficient to establish defendant’s guilt beyond a reasonable doubt. See Brown v. Farwell, 525 F.3d 787, 797-98 (9th Cir. 2008). In so holding, UNITED STATES v. NEVILS 4589 we discounted the government’s argument that the defendant had washed his clothes when he returned home in order to destroy physical evidence of the rape, stating that while the government’s theory was “plausibly consistent with him being the assailant,” the defendant had provided an alternative reason for washing his clothes. Id. at 797. The Supreme Court rejected this analysis, holding that had we reviewed the evi- dence as required by Jackson, we would have concluded that “the evidence supports an inference that [defendant] washed the clothes immediately to clean blood from them,” rather than adopting an exculpatory explanation. McDaniel, 130 S. Ct. at 674. The Court concluded that “the Court of Appeals’ analysis failed to preserve ‘the factfinder’s role as weigher of the evidence’ by reviewing ‘all of the evidence . . . in the light most favorable to the prosecution.’ ” Id. (alteration in origi- nal) (emphasis omitted) (quoting Jackson, 443 U.S. at 319).
[5] Accordingly, to the extent Bishop and its progeny con- strued evidence in a manner favoring innocence rather than in a manner favoring the prosecution, and required reversal when such a construction was not “any less likely than the incriminating explanation advanced by the government,” Vasquez-Chan, 978 F.2d at 551, they strayed from the test established in Jackson, and made “plausible” exculpatory constructions disapproved of in McDaniel v. Brown. We now overrule them.
In reaching this conclusion, however, we acknowledge our obligation under Jackson to identify those rare occasions in which “a properly instructed jury may . . . convict even when it can be said that no rational trier of fact could find guilt beyond a reasonable doubt[.]” Jackson, 443 U.S. at 317. Although Jackson requires the reviewing court initially to construe all evidence in the favor of the government, the evi- dence so construed may still be so supportive of innocence that no rational juror could conclude that the government proved its case beyond a reasonable doubt. Moreover, the evi- dence construed in favor of the government may be insuffi- 4590 UNITED STATES v. NEVILS cient to establish every element of the crime. We have held, for example, that evidence is insufficient to support a verdict where mere speculation, rather than reasonable inference, supports the government’s case, see Juan H. v. Allen, 408 F.3d 1262, 1277-79 (9th Cir. 2005), or where there is a “total failure of proof of [a] requisite” element, Briceno v. Scribner, 555 F.3d 1069, 1079 (9th Cir. 2009). Further, we have long held that evidence of mere proximity to contraband, or associ- ation with a person having possession of such contraband, is insufficient standing alone to support a finding of possession of that contraband. See United States v. Chambers, 918 F.2d 1455, 1459 (9th Cir. 1990); see also Arellanes v. United States, 302 F.2d 603, 606 (9th Cir. 1962).
We consider Nevils’s challenge to the sufficiency of the evidence in his case pursuant to these principles.
B
Nevils claims the evidence produced at trial was insuffi- cient to prove his guilt beyond a reasonable doubt for two rea- sons. First, Nevils asserts that the government failed to prove every element of its case because Nevils presented an inno- cent explanation for his actions at trial: namely, that he was merely present in Apartment 6, rather than knowingly in pos- session of any of the contraband found on and around him. Second, Nevils argues that the evidence was insufficient to sustain a finding that he had knowledge of the loaded firearms in his possession, because uncontroverted evidence indicated he was incapacitated by alcohol when he entered the apart- ment and asleep at the time officers found him.
We first turn to Nevils’s argument that the evidence pro- duced at trial was not sufficient to eliminate the possibility that he was merely present in the apartment. Under our case law, as noted above, if evidence produced at trial established UNITED STATES v. NEVILS 4591 only Nevils’s presence in the vicinity of contraband, it would be insufficient standing alone to support a finding of knowing possession of firearms and ammunition beyond a reasonable doubt. See Chambers, 918 F.2d at 1459; see also United States v. Sanchez-Mata, 925 F.2d 1166, 1169 (9th Cir. 1991) (holding that knowledge that drugs are present in a car is not enough to prove involvement in a drug conspiracy); United States v. Behanna, 814 F.2d 1318, 1320 (9th Cir. 1987) (“When the government charges an individual with posses- sion of a weapon in a vehicle, we have squarely held that the government must do more than show that the defendant was present as a passenger in the vehicle and within reach of the weapon.”).
[6] On the other hand, evidence that shows more than mere presence is sufficient to support a finding of knowing posses- sion of contraband. For example, in United States v. Gutier- rez, 995 F.2d 169 (9th Cir. 1993), we affirmed a defendant’s conviction for firearm possession under 18 U.S.C. § 922(g)(1) where a firearm was found in the seat below each passenger (including defendant) and officers testified that they saw the defendant make “suspicious or furtive movements inside the car.” 995 F.2d at 172 (internal quotation marks omitted). After noting that “[i]t would tax credulity to assert that [defendant] was sitting on top of a pistol without knowing of its presence, or that he just happened to be a passenger in an automobile equipped with a pistol for each passenger, and that he knew nothing of that odd coincidence,” and considering the officers’ testimony that they witnessed defendant’s “fur- tive movements,” we held that the “jury had ample evidence to support its finding” that the defendant had possession of the weapons. Id. at 171-72; see also United States v. Carrasco, 257 F.3d 1045, 1048-50 (9th Cir. 2001) (holding that the jury did not plainly err in finding that defendant knowingly pos- sessed shotgun shells left in plain view in the car he owned, along with other items such as drugs, money, and baggies that were known to be used “for the packaging and sale of 4592 UNITED STATES v. NEVILS drugs”); United States v. Terry, 911 F.2d 272, 279-80 (9th Cir. 1990).
Here, Nevils argues that the evidence introduced at trial shows only his presence in the apartment, and is consistent with the innocent explanation that third parties entered Apart- ment 6 while Nevils slept, and then left their loaded firearms and drugs behind when they became aware of police in the vicinity. Nevils notes that the government did not introduce any evidence of fingerprints tying him to the loaded firearms, drugs, or any other item in Apartment 6. Nevils also points to the officers’ testimony that the apartment was unsecured and located in a high-crime neighborhood, where drugs and fire- arms were presumably abundant. Nevils contends that because the government did not rebut his innocent explana- tion, and because this theory is as likely to be true as the the- ory that Nevils was aware of the loaded firearms found on his body, the government failed to make its case.
[7] We begin by viewing the evidence produced at trial in the light most favorable to the prosecution, as required by the first step of Jackson. Viewing the evidence in this light, it is sufficient to support a reasonable conclusion that Nevils knew he possessed firearms and ammunition. Nevils’s actual pos- session of two loaded weapons, each lying on or against Nevils’s body, would permit a reasonable juror to infer that Nevils knew of those weapons. See United States v. Her- nandez, 476 F.3d 791, 797 (9th Cir. 2007) (indicating that evi- dence that defendant was found with a package of methamphetamine on his person was “overwhelming evi- dence” that the defendant “was guilty of at least possession of methamphetamine”). Further, Nevils initially reached toward his lap when the officers first awakened him, raising the infer- ence that he knew a loaded weapon was within reach. Nevils later cursed his cohorts who had left him in this compromis- ing situation without warning him that the police were in the vicinity. Finally, and contrary to Nevils’s representations, there was evidence tying Nevils to the particular apartment UNITED STATES v. NEVILS 4593 where he was found: Nevils had been arrested on narcotics and firearms charges in the same apartment just three weeks earlier. This evidence, construed in favor of the government, raises the reasonable inference that Nevils was stationed in Apartment 6 and armed with two loaded firearms in order to protect the drugs and cash in the apartment when he fell asleep on his watch. At this step of Jackson, we do not con- strue the evidence in the light most favorable to innocence, and therefore do not consider Nevils’s argument that there is an equally plausible innocent explanation for the loaded fire- arms lying on and near his body. See McDaniel, 130 S. Ct. at 673-74.
[8] Moving to the second step of Jackson, we must con- sider whether the evidence, as construed above, is sufficient to allow any rational juror to conclude that the government has carried its burden of proof. As discussed above, the evi- dence shows more than Nevils’s mere presence in the apart- ment, and reasonably supports the conclusion that Nevils was aware of the loaded firearms on or near his body. Nevils has not pointed to evidence so supportive of innocence that no rational trier of fact could find guilt beyond a reasonable doubt. Jackson, 443 U.S. at 317. We conclude that a rational juror could find beyond a reasonable doubt that Nevils had knowledge of the weapons in his possession. See id. at 319; see also Gutierrez, 995 F.2d at 171-72.
We next turn to Nevils’s argument that a reasonable juror could not find that he knowingly possessed the loaded fire- arms in the apartment because evidence introduced at trial established that there were no firearms in the apartment when he arrived there, and Nevils was sleeping from the time he entered the apartment until the time officers arrived. Specifi- cally, Nevils contends that the government did not rebut the testimony of Jonnetta Campbell, who indicated that Nevils 4594 UNITED STATES v. NEVILS was incapacitated on the afternoon of the 14th when she left him in Apartment 6, which at the time was empty.
[9] Even assuming that Campbell’s testimony established that Nevils was sleeping when she left him in the apartment (although on cross-examination, she stated that Nevils never “passed out”), at the first step of Jackson we must recognize the jury’s entitlement to disbelieve her. See Jackson, 443 U.S. at 326. The issue of Campbell’s credibility was argued to the jury by both defense and government counsel. Defense coun- sel emphasized that Campbell was “not sophisticated,” and simply came to court because “she had a story to tell.” In response, the government argued at length that Campbell was not credible: she had been unable to answer specific questions on cross-examination regarding the time of the baby shower and the people in attendance, and had admitted that she drank heavily both before and after her interaction with Nevils. We cannot second-guess the jury’s credibility assessments; rather, “under Jackson, the assessment of the credibility of witnesses is generally beyond the scope of review.” Schlup v. Delo, 513 U.S. 298, 330 (1995); see also United States v. Cluchette, 465 F.2d 749, 754 (9th Cir. 1972) (“It is not our function to reweigh the evidence and pass on the credibility of the wit- nesses.”). Assuming (as we must, at this first step of Jackson) that the jury disbelieved Campbell’s testimony, it could rea- sonably have rejected Nevils’s theory that he was sleeping from the time he entered the apartment to the time the officers arrived, and also disbelieved that there were no firearms or drugs in the apartment when Nevils arrived. Even though Nevils was asleep when discovered by the officers, the jury could have reasonably inferred that Nevils fell asleep while on duty. Cf. United States v. Thongsy, 577 F.3d 1036, 1042 (9th Cir. 2009) (affirming that defendant had “knowledge and control” of a firearm for purposes of 18 U.S.C. § 924(c) where the defendant was found asleep in a tent with a “semi- automatic pistol lying on his sleeping bag at waist level, within reach,” as a finder of fact could reasonably infer he was protecting a nearby marijuana farm). Accordingly, at the UNITED STATES v. NEVILS 4595 second step of Jackson, we conclude that a rational juror could find beyond a reasonable doubt that Nevils knowingly possessed the firearms and ammunition found on or near his body, notwithstanding evidence that he was asleep.
[10] In sum, applying Jackson’s two-part test to the evi- dence produced at trial, we conclude that, viewing the evi- dence in the light most favorable to the prosecution, a rational trier of fact could have found beyond a reasonable doubt that Nevils knowingly possessed firearms and ammunition. We reject Nevils’s invitation to construe the evidence in the light most favorable to his claim of innocence, because such an approach is foreclosed by Jackson. Accordingly, we affirm the denial of Nevils’s motion for acquittal, and affirm his con- viction under 18 U.S.C. § 922(g)(1).
III
Finally, we turn to Nevils’s contention that his sentence was not reasonable because the district court stated it could not consider the sentence Nevils would have received if he had been convicted of the same conduct in state court. Nevils argues that the district court’s decision was erroneous, because no case after United States v. Booker, 543 U.S. 220 (2005), explicitly prohibits a court from considering that fac- tor. Nevils’s counsel, however, failed to object to this alleged error at sentencing. Therefore, we review only for plain error. United States v. Watson, 582 F.3d 974, 981 (9th Cir. 2009). Plain error is: “(1) error, (2) that is plain, and (3) that affects substantial rights.” Id. If all three conditions are met, an appellate court may then exercise its discretion to address a forfeited error, but only if “the error seriously affects the fair- ness, integrity, or public reputation of judicial proceedings.” Id. (internal quotation mark omitted).
[11] The district court did not plainly err in its sentencing determination. After Booker, we held that a district court did 4596 UNITED STATES v. NEVILS not abuse its discretion in declining to consider the disparity between the recommended Guidelines sentence and the maxi- mum sentence a defendant would receive if convicted of the same conduct in state court. United States v. Ringgold, 571 F.3d 948, 950-51 (9th Cir. 2009). We have not yet addressed the question whether, after Booker, a district court is prohib- ited from considering such disparity. Before Booker, however, we held that allowing district courts to consider state sen- tences “would undermine the goal of uniformity that Congress sought to ensure in enacting the Guidelines, because every federal sentence would become dependent upon the practice of the state within which the federal court sits.” United States v. Williams, 282 F.3d 679, 682 (9th Cir. 2002). In light of these precedents, the district court’s refusal to consider the state sentence for Nevils’s offense was not plain error. Accordingly, we hold that Nevils’s sentence was not substan- tively unreasonable.
AFFIRMED. |
Volume 1 of 2
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
In re: VICKIE LYNN MARSHALL, Debtor. Nos. 02-56002, ELAINE T. MARSHALL, Executrix of 02-56067 the Estate of E. Pierce Marshall, D.C. No. Plaintiff-Counter-Defendant/ Appellant-Cross-Appellee, CV-01-00097-DOC Central District of v. California, Santa Ana HOWARD K. STERN, Executor of the Estate of Vickie Lynn Marshall, OPINION Defendant-Counter-Claimant/ Appellee-Cross-Appellant. On Remand from the United States Supreme Court
Argued and Submitted June 25, 2009—Seattle, Washington
Filed March 19, 2010
Before: Robert R. Beezer, Andrew J. Kleinfeld and Richard A. Paez, Circuit Judges.
Opinion by Judge Beezer; Concurrence by Judge Kleinfeld
IN RE MARSHALL 4487
COUNSEL
G. Eric Brunstad, Jr., Dechert, LLP, Hartford, Connecticut, for the appellant-cross-appellee. 4488 IN RE MARSHALL Kent L. Richland and Alan Diamond, Greines, Martin, Stein & Richland LLP, Los Angeles, California, for the appellee- cross-appellant.
Kathleen M. Sullivan, Quinn Emanuel Urquhart Oliver & Heges, LLP, Redwood Shores, California; Craig Goldblatt, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for the amici.
OPINION
BEEZER, Circuit Judge:
This case returns to us after the Supreme Court determined that we had construed too broadly the “probate exception” to our subject matter jurisdiction. Marshall v. Marshall, 547 U.S. 293 (2006). Confident that we have subject matter juris- diction over this case, id.; 28 U.S.C. § 1291, we turn to the merits of the longstanding and acrimonious dispute.
This case involves a tort claim by Vickie Lynn Marshall against E. Pierce Marshall, the son of her late husband J. Howard Marshall II, for Pierce Marshall’s purported inter- ference with a substantial inter vivos gift (estimated to exceed $300 million) that her late husband intended to give to her. The claim comes to us in an unusual procedural posture. It was asserted as a state law counterclaim to a nondischargea- bility complaint and proof of claim that Pierce Marshall filed in Vickie Lynn Marshall’s bankruptcy proceedings in the Central District of California. Both the bankruptcy and district courts found that Pierce Marshall was liable for tortious inter- ference and awarded Vickie Lynn Marshall millions of dollars in compensatory and punitive damages.
While Vickie Lynn Marshall’s tortious interference claim was pending in federal court in California, a probate court in IN RE MARSHALL 4489 Texas was administering the estate of J. Howard Marshall II. Both Vickie Lynn Marshall and Pierce Marshall were actively engaged in this Texas litigation, participating fully in the five- month jury trial held by the Texas probate court. To discern J. Howard Marshall II’s true intentions regarding his will and assets held in trust, the Texas probate court had to resolve allegations that J. Howard Marshall II’s estate plan and the transactions underlying it were tainted by illegality and that, contrary to his estate plan, J. Howard Marshall II intended to give Vickie Lynn Marshall a substantial inter vivos gift. In its judgment, which was issued after the bankruptcy court’s “judgment” on Vickie Lynn Marshall’s tortious interference claim but before the district court had adjudicated the appeal from the bankruptcy court, the Texas probate court upheld the validity of J. Howard Marshall’s estate plan and estate plan- ning documents, finding that J. Howard knowingly effected his estate plan free from the undue influence or coercion of his son Pierce Marshall. The Texas probate court further found that J. Howard Marshall II did not intend to give Vickie Lynn Marshall a gift from the assets that passed through his will or that were held in his living trust. These and other legal and factual determinations adverse to Vickie Lynn Marshall would be fatal to her tortious interference counterclaim, should they be afforded preclusive effect in this proceeding.
We conclude that the findings of the Texas probate court should be afforded preclusive effect because it is the earliest final judgment on matters relevant to this proceeding. The bankruptcy court exceeded its statutory grant of power and the constitutional limitations on that power when it purported to enter a final judgment in favor of Vickie Lynn Marshall on her counterclaim. The bankruptcy court is empowered by 28 U.S.C. § 157(b)(1) to hear and finally determine “core pro- ceedings arising under title 11, or arising in a case under title 11.” Vickie Lynn Marshall’s counterclaim for tortious inter- ference is not such a “core proceeding” because its resolution was not a necessary precursor to the resolution of Pierce Mar- shall’s claim against the bankruptcy estate for defamation. In 4490 IN RE MARSHALL other words, her counterclaim was not so closely related to his claim that they essentially merged, with her counterclaim becoming part and parcel of the bankruptcy court’s claims determination and allowance process. Thus, the bankruptcy court could, at most, enter proposed findings of fact and con- clusions of law on Vickie Lynn Marshall’s counterclaim for tortious interference. See 28 U.S.C. § 157(c).
The district court should have afforded preclusive effect to the Texas probate court’s factual findings and relevant legal conclusions. The determinations adverse to Vickie Lynn Mar- shall in the Texas probate court prevent her from establishing the elements of her counterclaim, such as J. Howard Marshall II’s intent to give her a substantial inter vivos gift, the tortious nature of Pierce Marshall’s conduct regarding the estate plan- ning documents, and the reasonableness and amount of her expectancy. We reverse the judgment of the district court and remand with instructions that judgment be entered in favor of the Estate of Pierce Marshall.
I
This case arises out of the bankruptcy of appellee/cross- appellant Vickie Lynn Marshall, the widow of the late J. Howard Marshall II. During the course of her bankruptcy, Vickie Lynn Marshall made a counterclaim for tortious inter- ference with a gift expectancy against appellant/cross- appellee E. Pierce Marshall, the younger of J. Howard Mar- shall II’s two sons, who had sought a determination of nondis- chargeability and filed a proof of claim against Vickie Lynn Marshall’s bankruptcy estate.1 Vickie Lynn Marshall’s coun- Both of the original parties are now themselves deceased. Elaine T. Marshall is the executrix of Pierce Marshall’s estate and has filed a notice of appearance in this court on behalf of his estate. Howard K. Stern is the executor of Vickie Lynn Marshall’s estate and has filed a notice of appear- ance in this court on behalf of her estate. For the sake of readability, we refer to Vickie Lynn Marshall and Pierce Marshall in the present tense as if they are still living and are still the current parties. IN RE MARSHALL 4491 terclaim is the focus of this appeal. Although the case arises out of her bankruptcy, a broader review of the relationships between Vickie Lynn Marshall, J. Howard Marshall II, and Pierce Marshall, the business and estate planning measures of J. Howard Marshall II, and the Texas probate proceeding is necessary to appreciate the issues before us.
A
As detailed by the district court, J. Howard Marshall II was a self-made entrepreneur who eventually found great success in the oil industry. Born in 1905, J. Howard Marshall II attended Haverford College and graduated magna cum laude from Yale Law School before working during the 1930s for the Roosevelt Administration on the proration of oil produc- tion. After continued involvement in the oil industry, J. Howard Marshall II became one of the founders of the Great Northern Oil and Gas Company in 1954. The wealth of the Marshall family is primarily based on the interest acquired
Additionally, on March 19, 2009, we ordered the parties to “identify (1) all parties in interest, (2) the attorneys of record, (3) the real parties in interest, (4) any executors of an estate having an interest in these proceed- ings and (5) any guardian and/or guardian ad litem of an interested minor.” Both parties filed responses to our order stating that the correct parties are currently before us. No third party has sought to intervene in this appeal. The interests of Vickie Lynn Marshall’s minor daughter, “DB,” are rep- resented by DB’s father and legal guardian, Larry E. Birkhead, as deter- mined by the Los Angeles Superior Court in In re Vickie Lynn Marshall, Case Nos. BP-104574, BP-104575. Mr. Birkhead had notice of these pro- ceedings, attended oral argument, and at no time sought to intervene as a party on behalf of his daughter. Under California law, the executor or administrator of an estate is the real party in interest. See Olson v. Toy, 54 Cal. Rptr. 2d 29, 33 (Ct. App. 1996). Both parties here agreed that we did not need to appoint a guardian ad litem for DB, but that her interests in this proceeding were adequately represented by Mr. Birkhead and Mr. Stern. See Supplemental Opening Br. filed by Elaine Marshall at 58; Sup- plemental Answering Br. filed by Howard Stern at 66. 4492 IN RE MARSHALL by J. Howard Marshall II in Great Northern Oil and Gas, which was the predecessor company to Koch Industries.2
In 1982, as an estate planning mechanism to reduce (or avoid) the cost of probate, J. Howard Marshall II placed almost all of his assets (including his interest in Marshall Associates, the family partnership that then held the Koch stock) in a revocable inter vivos trust, known as the J. Howard Marshall II Living Trust, or the Living Trust.3 From 1982 until his death, J. Howard Marshall II executed a series of amended and restated instruments governing the terms of the Living Trust.
During his lifetime, J. Howard Marshall II retained the income from the Living Trust’s assets, and the Living Trust was responsible for his debts. The terms of the Living Trust permitted J. Howard Marshall II to borrow money using the Living Trust’s assets as security. Although the distributions from the Living Trust were his primary source of income, J. Howard Marshall II also drew a salary from Marshall Petro- leum, Inc. (MPI), earned directors’ fees from the corporate boards of which he was a member, and received minor pen- sion payments.
The Living Trust also named the beneficiaries who would receive the Living Trust property after J. Howard Marshall Koch Industries (Koch) is a privately held, integrated petroleum and chemical conglomerate headquartered in Wichita, Kansas. See Marshall v. Marshall (In re Marshall), 275 B.R. 5, 13-16 (C.D. Cal. 2002) (describing in greater detail the creation and ownership of Koch Industries). In 1995, J. Howard Marshall II represented to Texas Commerce Bank that, through entities he controlled, he owned 14.7 percent of Koch. Id. at 15. For some time, the shares of Koch stock were held by Marshall Asso- ciates. In 1984, the Koch stock and other assets owned by Marshall Asso- ciates were transferred to Marshall Petroleum, Inc. (MPI), a corporate entity created by J. Howard Marshall II and his first and second wives. The Living Trust also held J. Howard Marshall II’s shares of MPI stock after its creation. IN RE MARSHALL 4493 II’s death. At the time J. Howard Marshall II died, the primary beneficiary of the Living Trust was Pierce Marshall.4
Also as part of his estate planning measures, J. Howard Marshall II executed a will that provided for the disposition of the assets that he held directly, i.e., not in the Living Trust or any other form of trust. J. Howard Marshall II executed his last will and testament relevant to these proceedings on December 22, 1992. This will contained pour-over provisions, which required the distribution of J. Howard Marshall II’s probate estate to the Living Trust. Thus, the Living Trust was J. Howard Marshall II’s primary estate planning document. Also in 1992, J. Howard Marshall II signed a document requesting that Pierce Marshall be appointed his guardian if a guardianship was ever warranted.
At the time J. Howard Marshall II met Vickie Lynn Mar- shall, essentially all of his assets were held by the Living Trust. J. Howard Marshall II modified his Living Trust for the last time on July 13, 1994, just a few days after his marriage. On that date, J. Howard Marshall II made the Living Trust irrev- ocable.5
B
J. Howard Marshall II met Vickie Lynn (Smith) Marshall in October 1991. At the time, Vickie Lynn was a twenty-four year old divorcee and single mother living in Houston, Texas. Minor distributions from the Living Trust would also be made to vari- ous charities and family beneficiaries upon J. Howard Marshall II’s death. J. Howard Marshall II did, however, retain the limited power to make certain changes such as adding a charity as a beneficiary or substituting one beneficiary for another, as long as the beneficiary that was being sub- stituted was already a beneficiary as of July 13, 1994. Thus, J. Howard Marshall II could have eliminated Pierce Marshall as a beneficiary of the Living Trust by substituting a charity in his place. J. Howard Marshall II could not, however, have added either his new wife or elder son as benefi- ciaries because they were not already beneficiaries as of July 13, 1994. 4494 IN RE MARSHALL She worked as a waitress and dancer to provide for her son, but she aspired to become an international superstar like her idol Marilyn Monroe. After a courtship lasting more than two years, J. Howard Marshall II and Vickie Lynn Marshall mar- ried on June 27, 1994.
Their union was short lived: J. Howard Marshall II died on August 4, 1995, of heart failure at the age of ninety. Although he lavished gifts and significant sums of money on Vickie Lynn Marshall during their courtship and marriage,6 J. Howard Marshall II did not devise any real or personal property to her in his will, nor was a provision for distribution of income or principal of the Living Trust ever made in her favor. Similarly, J. Howard Marshall II did not give Vickie Lynn Marshall any interest in his business assets or stock holdings.
C
In April 1995, before J. Howard Marshall II had died, Vickie Lynn Marshall filed suit against Pierce Marshall and others in Texas probate court, which was handling guardian- ship proceedings relating to J. Howard Marshall II. She alleged that Pierce Marshall was tortiously interfering with her statutory right to support from her husband and that Pierce Marshall had breached his fiduciary duties as a trustee of the Living Trust. She also asserted that Pierce Marshall used fraud and undue influence to have J. Howard Marshall II make the Living Trust irrevocable and make other estate plan- On September 29, 1994, J. Howard Marshall II transferred gifts to Vickie Lynn Marshall out of his love and affection for her as his new wife. These gifts were valued at more than $6 million and included a ranch, sev- eral houses, cars, jewelry, and a substantial amount of cash. The gifts were memorialized in a document called the “Act of Donation.” Vickie Lynn Marshall accepted these gifts on October 27, 1994. J. Howard Marshall II also took steps to promote Vickie Lynn Mar- shall’s career as a model. IN RE MARSHALL 4495 ning changes that favored Pierce Marshall. By way of relief, Vickie Lynn Marshall sought the level of support to which she had become accustomed, a declaration from the court that J. Howard Marshall II was a beneficiary of the Living Trust, and the removal of Pierce Marshall from certain fiduciary capacities with respect to his father and his father’s assets.
In August 1995, three days after J. Howard Marshall II died, Vickie Lynn Marshall added an application in the Texas probate court requesting that the court find that J. Howard Marshall II died intestate. Pierce Marshall opposed this appli- cation and petitioned for a declaration that his father’s Living Trust and will were valid. Pierce Marshall offered J. Howard Marshall II’s will for probate on August 16, 1995.
J. Howard Marshall III, J. Howard Marshall II’s elder son, filed a will contest on December 20, 1995.7 On January 23, 1998, Vickie Lynn Marshall joined this will contest. Several other individuals and institutional claimants brought actions seeking a share of J. Howard Marshall II’s estate, but none are parties to this appeal.
By a third amended petition dated January 4, 2000, Vickie Lynn Marshall alleged that Pierce Marshall in his representa- tive capacities, his attorneys, and others tortiously interfered with her expectation based upon her belief that J. Howard Marshall II had made oral promises to give her gifts both dur- ing his lifetime and upon his death.8 In her third amended In 1980, J. Howard Marshall II and J. Howard Marshall III disagreed about the management of Koch Industries, and J. Howard Marshall III threatened to vote his father off the Board of Directors. To prevent this, J. Howard Marshall II bought the Koch stock back from J. Howard Mar- shall III for $8 million, an amount J. Howard Marshall II considered to be an exorbitant premium for stock he had gifted to his son years earlier. Fol- lowing this dispute, J. Howard Marshall II changed his estate plan to exclude his elder son as a beneficiary under his will and Living Trust. Some of Vickie Lynn Marshall’s claims in her third amended petition were made against Pierce Marshall in his individual capacity; because of the bankruptcy proceeding in California, however, Vickie Lynn Marshall limited her tortious interference claim in the Texas probate court to Pierce Marshall in his representative capacities. 4496 IN RE MARSHALL petition, Vickie Lynn Marshall again challenged the validity of both the Living Trust, as amended, and J. Howard Marshall II’s will.
D
After the Texas proceedings had commenced, but before she had filed her amended petition and will contest in that forum, Vickie Lynn Marshall filed for protection under fed- eral bankruptcy laws in California, the state of which she claimed to be a resident. Vickie Lynn Marshall filed a volun- tary chapter 11 bankruptcy petition in the United States Dis- trict Court for the Central District of California on January 25, 1996. At this point, all non-exempt assets owned by Vickie Lynn Marshall, including her claims against J. Howard Mar- shall II’s estate and against Pierce Marshall, constituted the bankruptcy estate.9 See 11 U.S.C. § 541.
On May 7, 1996, Pierce Marshall commenced an adversary proceeding in the bankruptcy court seeking a declaration that in the event Vickie Lynn Marshall were to be found liable to Pierce Marshall for earlier instances of alleged defamation, her liability to him would not be dischargeable in her bank- ruptcy proceeding.10 See 11 U.S.C. § 523(a)(6). Specifically, Pierce Marshall filed a “complaint to determine dischargea- bility of debt pursuant to 11 U.S.C. § 523(a)(6),” in which he alleged that after J. Howard Marshall II’s death Vickie Lynn Marshall and her attorneys “instituted a plan to obtain a quick recovery from the estate of J. Howard Marshall II by embark- Although certain interested parties sought to have a trustee appointed to oversee Vickie Lynn Marshall’s bankruptcy estate, the bankruptcy court denied the request. Instead, the bankruptcy court appointed an examiner to investigate all of Vickie Lynn Marshall’s transactions and financial affairs and allowed Vickie Lynn Marshall to remain a “debtor in posses- sion,” holding her assets for the benefit of the bankruptcy estate. Pierce Marshall had filed suit against Vickie Lynn Marshall and her two attorneys in Texas court, but he dismissed Vickie Lynn Marshall from the suit without prejudice after she filed for bankruptcy. IN RE MARSHALL 4497 ing on a tortious smear campaign against E. Pierce Marshall and his family.” According to the complaint, Vickie Lynn Marshall’s attorney expressed concern to a member of the press about the “blizzard of documents” that Pierce Marshall presented to his father in the days following his marriage to Vickie Lynn Marshall, noting that J. Howard Marshall II “signed [the documents] in an almost completely illegible fashion, which makes sense because he couldn’t read at the time” and that “[t]he effect of it was basically an attempt to remove [J. Howard Marshall II] from control of his estate.” The attorney further told a member of the press that “the law clearly entitles [Vickie Lynn Marshall] to half of whatever her late husband earned during the marriage” and described Pierce Marshall as “greedy and miserly” and a “real control freak.” The complaint further alleges that the attorney knew the documents had been validly executed and effected J. Howard Marshall II’s estate planning wishes, but neverthe- less suggested in the media that Pierce Marshall had engaged in one or more criminal acts in an effort to obtain his father’s property. It also alleges that Vickie Lynn Marshall knew of the smear campaign efforts and in fact “participated in the civil conspiracy in an effort to extort a speedy settlement.” By way of relief, Pierce Marshall specifically sought the follow- ing:
1. A determination that [Pierce Marshall’s] claims against [Vickie Lynn Marshall] have not been dis- charged; 2. An order granting [Pierce Marshall] recovery for his reasonable costs and attorney’s fees incurred herein and pre- and post-judgment interest as allowed by law; and 3. An order granting [Pierce Marshall] such other relief as is just.
On June 12, 1996, Pierce Marshall filed a proof of claim against Vickie Lynn Marshall’s bankruptcy estate seeking an unliquidated amount of damages for his unsecured nonpriority claim arising from the alleged defamation. Attached to his proof of claim as “exhibit A” was his previously filed “com- 4498 IN RE MARSHALL plaint to determine dischargeability of debt pursuant to 11 U.S.C. § 523(a)(6).”11 Two days later, on June 14, 1996, Vickie Lynn Marshall’s bankruptcy estate filed an answer to Pierce Marshall’s nondischargeability complaint asserting a number of affirmative defenses, an objection to Pierce Mar- shall’s creditor’s claim, and counterclaims against Pierce Marshall in his individual capacity. Vickie Lynn Marshall asserted as an affirmative defense that “the statements com- plained of in this action are in fact substantially true, in whole and in part, and therefore cannot form the basis of a [defama- tion claim].”12 Vickie Lynn Marshall’s counterclaims included: tortious interference with her expectation of a gift or inheritance from J. Howard Marshall II; tortious interfer- ence with her rights as J. Howard Marshall II’s spouse; breach of fiduciary duty; fraudulent transfer of J. Howard Marshall II’s assets; abuse of the legal process; imprisoning J. Howard Marshall II against his will; breach of agreement and contract; Pierce Marshall argues to us that he did not actually make a claim against Vickie Lynn Marshall’s estate and, instead, sought only a determi- nation of dischargeability. Like the district court, we, too, reject this argu- ment. See Marshall v. Marshall (In re Marshall), 264 B.R. 609, 629 (C.D. Cal. 2001). Pierce Marshall plainly filed a nondischargeability complaint, and then, more than a month later, he made a separate claim against the bankruptcy estate by filing his proof of claim for an unspecified amount of damages. Had he simply desired a nondischargeability determination, there would have been no reason to file a proof of claim seeking damages on the underlying defamation claim. She also asserted as an affirmative defense that: [The statements] were made in good faith, honestly, and not mali- ciously in that the signatures of J. Howard Marshall, II on the several documents allegedly signed by him shortly after his mar- riage to Mrs. Marshall were almost completely illegible; the phy- sician of J. Howard Marshall, II has declared that [J. Howard Marshall II] could not read the typeface of the size used in the several documents at issue; the several documents allegedly signed by J. Howard Marshall, II did purport to give [Pierce Mar- shall] full control over the . . . Living Trust; and the several docu- ments did purport to have the effect of transferring control over Mr. Marshall’s estate. IN RE MARSHALL 4499 and fraud, duress, and undue influence over J. Howard Mar- shall II.
Pierce Marshall moved to dismiss the counterclaims based on jurisdiction and also moved for the bankruptcy court to abstain from hearing the tortious interference claim. The bankruptcy court denied both motions.
Vickie Lynn Marshall entered into a settlement with her creditors, and the bankruptcy court confirmed Vickie Lynn Marshall’s chapter 11 plan of reorganization on March 8, 1999.13 The reorganization plan specifically provided that any pro- ceeds from “disputed claims/interests” determined in Vickie Lynn Marshall’s favor would be held by a disbursing agent to first satisfy creditors’ claims, with any remaining amounts then going to Vickie Lynn Marshall. The reorganization plan also discussed the specific disbursement process for the “Mar- shall Claims,” defined as those in the adversary proceeding initiated by Pierce Marshall.14 In the order confirming the plan, the bankruptcy court discharged Vickie Lynn Marshall’s preexisting debts and caused the property remaining in the bankruptcy estate to be revested in her.
Trial of the adversary proceeding began on October 27, 1999. Marshall v. Marshall (In re Marshall), 253 B.R. 550, 553 (Bankr. C.D. Cal. 2000). On November 5, 1999, the bankruptcy court granted summary judgment for Vickie Lynn Marshall on Pierce Marshall’s adversary complaint, conclud- ing that she did not publish or ratify any defamatory state- ments about him. Marshall v. Marshall (In re Marshall), 275 B.R. 5, 9 (C.D. Cal. 2002). This order was the subject of a separate appeal in this court. Marshall v. Marshall (In re Marshall), 119 F. App’x 136 (9th Cir. 2004). A complaint to determine the discharge of a debt coupled with an objection to a creditor’s claim is an adversary proceeding. See Fed. R. Bankr. P. 3007, 7001. 4500 IN RE MARSHALL On September 27, 2000, the bankruptcy court found that Pierce Marshall had tortiously interfered with Vickie Lynn Marshall’s expectation that she would inherit from J. Howard Marshall II’s estate.15 The bankruptcy court reasoned that a “widow’s election” under Texas law supported a monetary judg- ment.16 The court awarded Vickie Lynn Marshall $449,754,134, but stated that the final calculation of damages remained to be determined after completion of the Texas pro- bate action.
On October 6, 2000, the bankruptcy court entered a revised judgment against Pierce Marshall in his individual capacity, again for $449,754,134, less whatever proceeds Vickie Lynn Marshall received from J. Howard Marshall II’s estate. In its revised judgment the bankruptcy court did not rely on Vickie Lynn Marshall’s “widow’s election,” but concluded based upon “a preponderance of the evidence admitted at trial and the findings imposed as sanctions against Pierce Marshall for discovery abuses, that Pierce . . . tortiously deprived [Vickie Lynn Marshall] of her expectancy of a substantial inter vivos gift from her deceased husband.”17 On December 29, 2000, The bankruptcy court entered a ruling only on Vickie Lynn Marshall’s claim for tortious interference with her expectation of a gift. It does not appear that the bankruptcy court ever entered a ruling addressing Vickie Lynn Marshall’s other various claims. Vickie Lynn Marshall did not appeal the bankruptcy court’s judgment; thus, the claims that she aban- doned would now seem to be barred. Vickie Lynn Marshall’s community property interest in J. Howard Marshall II’s income from his separate property was approximately $1 million. Because J. Howard Marshall II gifted her property during their marriage in excess of this amount, Vickie Lynn Marshall did not file a community property claim. The bankruptcy court imposed various sanctions on Pierce Marshall for perceived discovery abuses. These sanctions included, in addition to factual findings made against him, limiting Pierce Marshall’s ability to introduce percipient witnesses and present certain evidence on the merits of the claims levied against him. Our discussion of these matters will be limited because the parties agreed that there are no sanctions issues before us on appeal. IN RE MARSHALL 4501 the bankruptcy court entered a judgment against Pierce Mar- shall in the amount of $474,754,134. A timely appeal of this ruling to the federal district court followed.
E
Proceedings in the Texas probate court continued unabated during Vickie Lynn Marshall’s bankruptcy in California. On January 5, 2001, days after the bankruptcy court entered its judgment, Vickie Lynn Marshall filed a voluntary nonsuit of all her claims against Pierce Marshall in the Texas probate proceeding. The probate judge explained to Vickie Lynn Mar- shall’s counsel that, by doing so, she would be giving up any claim to money that was in her late husband’s estate and any claim that the Living Trust or will were invalid. The Texas probate judge warned her in open court as follows:
Even if you take a nonsuit, which under the Rules of Civil Procedure give you a right to refile it, as a practical matter you don’t, because the Estate is gone. . . . Your claim to anything that [J. Howard Marshall II] had at any time in his life is over when this final judgment is signed. The fact that the Rules of Civil Procedure allow you to take a nonsuit and re-file later doesn’t really apply in Probate Court when we’re talking about who is entitled to an Estate.
Despite the probate court’s warnings, and in apparent reliance
We further note that, when it took additional evidence on the case, the district court likewise limited to some extent the testimony and evidence Pierce Marshall was able to introduce. Pierce Marshall claims that the dis- trict court violated his due process rights with this ruling and other eviden- tiary decisions. Because we conclude that Pierce Marshall is entitled to judgment in his favor for other reasons, we need not address his due pro- cess claim. 4502 IN RE MARSHALL on her belief that the bankruptcy court had the authority to enter a final judgment on the counterclaim against Pierce Marshall, Vickie Lynn Marshall elected to dismiss her claims against J. Howard Marshall II’s estate and against Pierce Mar- shall both individually and in his representative capacities.18
On February 9, 2001, with the leave of the Texas probate court, Pierce Marshall filed an amended counterclaim against Vickie Lynn Marshall for declaratory relief to determine her rights as to the estate and property of J. Howard Marshall II. Pierce Marshall also sought a declaratory judgment against Vickie Lynn Marshall and J. Howard Marshall III that J. Howard Marshall II’s Living Trust and will reflected his true intentions and were valid. Thus, Vickie Lynn Marshall remained in the probate proceedings as a defendant to Pierce Marshall’s counterclaims. The Texas probate court held a five-month jury trial in which all parties, including Vickie Lynn Marshall, fully participated.19 On March 7, 2001, the Texas jury returned its verdict. The jury unanimously answered a number of special verdict questions, making the following factual findings: (1) the Living Trust and will were valid and had not been forged or altered; (2) J. Howard Mar- shall II had not been the victim of fraud or undue influence; (3) he had the requisite mental capacity when he executed his Vickie Lynn Marshall also moved to dismiss other counterclaims against her in the Texas probate court, but the probate court denied her motion. Vickie Lynn Marshall vigorously argued against the validity of the Living Trust in the Texas probate court. For example, prior to trial, Vickie Lynn Marshall submitted her preliminary proposed jury interrogatories, which included instructions and jury queries on tortious interference with a gift expectancy and on fraud, duress, and undue influence. In his open- ing statement, Vickie Lynn Marshall’s counsel explained to the jury that this was a case “about tortious interference with an intent to give an inter vivos gift.” He told the jury Vickie Lynn Marshall would testify that J. Howard Marshall II promised her “half of everything that he had.” Vickie Lynn Marshall presented her case in chief in great detail over approximately 60 hours. After she nonsuited her affirmative claims, she continued to defend against Pierce Marshall’s counterclaims. IN RE MARSHALL 4503 Living Trust and will; and (4) he did not have an agreement with Vickie Lynn Marshall that he would give her one-half of all his property.
The Texas probate court entered a final judgment in accor- dance with the jury’s verdict on August 15, 2001. Subse- quently, the probate court amended its judgment on two occasions, the last being entered on December 7, 2001. In the second amended judgement, the Texas probate court found that the will and Living Trust, as amended, were valid and not the product of undue influence. The probate court concluded as a matter of law:
that Vickie Lynn Marshall does not possess any interest in and is not entitled to possession of any property within the estate of J. Howard Marshall II or [the Living Trust] because of any representations, promises or agreements made by J. Howard Mar- shall II; . . .
that any and all claims that have been or should have been asserted by Vickie Lynn Marshall . . . based upon alleged representations, promises, or agree- ments made by J. Howard Marshall II to or with Vickie Lynn Marshall . . . have been disposed of in this proceeding; . . .
that J. Howard Marshall did not intend to give and did not give to Vickie Lynn Marshall . . . a gift or bequest from the Estate of J. Howard Marshall II or from the [Living Trust] either prior to or upon his death; . . .
that Vickie Lynn Marshall . . . shall take nothing from any claim that she should have made in this proceeding as a compulsory counterclaim against . . . E. Pierce Marshall. 4504 IN RE MARSHALL Accordingly, the Texas probate court entered judgment in favor of Pierce Marshall on all claims and held that Pierce Marshall was entitled to his inheritance, free from all claims by Vickie Lynn Marshall or J. Howard Marshall III.
F
Pierce Marshall appealed the bankruptcy court’s judgment to the district court, which asserted original bankruptcy juris- diction. 28 U.S.C. § 1334. After the Texas probate court entered its final judgment, Pierce Marshall moved to dismiss Vickie Lynn Marshall’s claims against him in the district court based on principles of claim and issue preclusion.
On June 19, 2001, the district court issued an opinion and order affirming the bankruptcy court’s determination that it had federal jurisdiction over Vickie Lynn Marshall’s claim of tortious interference with the expectation of a gift. Marshall v. Marshall (In re Marshall), 264 B.R. 609, 619-21 (C.D. Cal. 2001). The district court also held that the Texas probate court had not ruled on Vickie Lynn Marshall’s claim against Pierce Marshall in his individual capacity. See id. at 621-24, 633 & n.24. The district court went on to reverse the bankruptcy court’s determination that the bankruptcy court could enter a final judgment on the claim as a “core” bankruptcy proceed- ing. Id. at 632-33. The district court recognized that Vickie Lynn Marshall’s claim arguably arose out of the same factual transaction as that of Pierce Marshall, but it reasoned that the “connection [was] attenuated” and “the reasons for why coun- terclaims arising out of the same transaction should usually be considered core do not apply.” Id. at 631-32. The court explained that the attenuated factual nexus between the claims, the different legal theories underlying the claims, the fact that Vickie Lynn Marshall’s claim dwarfed Pierce Mar- shall’s claim in terms of recovery sought and evidence required to establish it, and Ninth Circuit jurisprudence cau- tioning courts to avoid characterizing a proceeding as core if to do so would raise constitutional problems, all counseled in IN RE MARSHALL 4505 favor of classifying Vickie Lynn Marshall’s counterclaim as non-core. Id. at 625-32. Because bankruptcy courts may only issue proposed findings of fact and conclusions of law in non- core matters (absent the parties’ consent), the district court vacated the bankruptcy court’s entry of judgment. Id. at 632-33.
On December 21, 2001, the district court denied Pierce Marshall’s motion for summary judgment based on claim and issue preclusion. Marshall v. Marshall (In re Marshall), 271 B.R. 858 (C.D. Cal. 2001).
After receiving additional evidence on Vickie Lynn Mar- shall’s claim, the district court entered judgment in her favor on March 7, 2002. The district court found that “J. Howard always intended to give Vickie . . . half of his ‘new communi- ty,’ ” a term he created to mean the growth of his assets dur- ing the time of their marriage. In re Marshall, 275 B.R. at 29 & n.19, 52. The district court found that the circumstantial evidence before it “sufficiently establishes the existence of a draft ‘catchall trust’ instrument” prepared by J. Howard Mar- shall II’s attorney as a means of effecting this gift of new community. Id. at 26-29, 26 n.17. The district court further found that Pierce Marshall, in concert with an attorney, “backdated documents, altered documents, destroyed docu- ments, suborned falsified notary statements, presented docu- ments to [J. Howard Marshall II] under false pretenses, and committed perjury,” all in an effort to prevent his father from giving this gift of new community to Vickie Lynn Marshall. Id. at 53. The district court found that J. Howard Marshall II was “duped” by this fraudulent conduct into making various estate planning changes, such as making the Living Trust irrevocable. See id. at 42-50. Based on this and other factual findings, the district court determined that Pierce Marshall had tortiously interfered with Vickie Lynn Marshall’s expec- tancy of an inter vivos gift from J. Howard Marshall II. Id. at 58. 4506 IN RE MARSHALL The district court awarded Vickie Lynn Marshall damages based upon what it believed she would have received as a gift from J. Howard Marshall II, absent the purported interference. The award consisted of $44,292,767.33 in compensatory dam- ages and an equal amount in punitive damages, for a total of $88,585,534.66, plus costs of suit. In re Marshall, 275 B.R. at 58.
G
Pierce Marshall appealed the district court’s judgment, and Vickie Lynn Marshall cross-appealed. Believing that the pro- bate exception to federal subject matter jurisdiction precluded our consideration of the case, we vacated the judgment and remanded with instructions that the district court order the bankruptcy court to vacate its judgment against Pierce Mar- shall. Marshall v. Marshall (In re Marshall), 392 F.3d 1118, 1137-39 (9th Cir. 2004).
The United States Supreme Court granted certiorari “to resolve the apparent confusion among federal courts concern- ing the scope of the probate exception.” Marshall v. Marshall, 547 U.S. 293, 305 (2006). The Supreme Court concluded that the probate exception did not apply, reversed our decision, and remanded for us to consider the merits of the case, includ- ing the question “whether Vickie’s claim was ‘core’ ” and “Pierce’s arguments concerning claim and issue preclusion.” Id. at 314-15; see also id. at 313 n.5 (discussing Texas appel- late cases that found tortious interference claims to be “barred” after “applying ordinary principles of preclusion” and stating that, in this case, the “matter of preclusion remains open on remand”).
We ordered supplemental briefing on these and other issues and held oral argument on June 25, 2009.20 In addition to the supplemental briefs filed by the parties, we also received two thoughtful amicus briefs filed in support of Pierce Marshall. IN RE MARSHALL 4507 II
We review de novo questions of law.” Forest Grove Sch. Dist. v. T.A., 523 F.3d 1078, 1083 (9th Cir. 2008); see In re Valdez Fisheries Dev. Ass’n, Inc., 439 F.3d 545, 547 (9th Cir. 2006) (bankruptcy court’s determination of its jurisdiction); Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1050 (9th Cir. 2008) (issue preclusion); Siegel v. Fed. Home Loan Mortgage Corp., 143 F.3d 525, 528 (9th Cir. 1998) (claim preclusion). We review a district court’s findings of fact for clear error, reversing only if “left with the definite and firm conviction that a mistake has been committed.” Easley v. Cromartie, 532 U.S. 234, 242 (2001).
III
Pierce Marshall argues that the district court correctly con- cluded that Vickie Lynn Marshall’s tortious interference counterclaim was a non-core proceeding for which the bank- ruptcy court could issue only proposed findings of fact and conclusions of law. Pierce Marshall further argues that the district court erred, however, when it refused to give any pre- clusive effect to the Texas probate court’s judgment, which was issued while the case was pending before the district court. Vickie Lynn Marshall responds by arguing that her counterclaim is a core proceeding, that the bankruptcy court properly entered a final judgment on it well before the Texas probate court’s judgment, and that preclusion principles there- fore do not apply.
The first brief, filed by Professors of Law S. Todd Brown, G. Marcus Cole, Ronald D. Rotunda, and Todd J. Zywicki, discusses “the proper dis- tinction between ‘core’ and ‘non-core’ bankruptcy proceedings—and the application of that distinction to counterclaims like the one in this case.” Professors’ Amicus Br. at 2. The second brief, filed by the Washington Legal Foundation, explained its concern “that the district court’s refusal to give preclusive effect to the Texas judgment undermines the principles of federalism and contravenes the Full Faith and Credit Act.” Wash. Legal Found. Amicus Br. at 1. 4508 IN RE MARSHALL A
For parties whose views seldom correspond, both sides appear to share the position that the determination whether Vickie Lynn Marshall’s counterclaim is “core” or “non-core” is central to the disposition of this case and will affect the manner in which our analysis proceeds. We agree. For the reasons detailed below, we conclude that Vickie Lynn Mar- shall’s counterclaim is a non-core proceeding that is, at most, related to her bankruptcy case.
In an article discussing the Bankruptcy Code, Professor Vern Countryman wrote, “To understand how we got where we are, it is necessary to understand where we were.” Vern Countryman, Scrambling to Define Bankruptcy Jurisdiction, 22 Harv. J. on Legis. 1, 2 (1985). This statement holds true today: one must have some familiarity with the evolution of the current bankruptcy regime in order to appreciate the important distinctions between “arising under,” “arising in,” and “related to” proceedings and how the notion of “core” proceedings came to exist.
The Bankruptcy Act of 1898 is the basis for modern bank- ruptcy law. 30 Stat. 544 (repealed 1979); see Collier on Bank- ruptcy ¶ 1.0[1] (15th Ed. Revised 2007). It designated the district courts as the “courts of bankruptcy” and created the office of the referee to assist the district courts in the dis- charge of their duties. Bankruptcy Act of 1898 §§ 1-2, 33-43. The Act gave the referees jurisdiction, “subject always to a review by the judge,” id. § 38, “to perform all duties con- ferred on ‘courts of bankruptcy’ as distinguished from those conferred on ‘judges,’ which were to be performed only by district judges.” Countryman, supra, at 2-3; see Bankruptcy Act of 1898 §§ 1(20), 38. IN RE MARSHALL 4509 The jurisdiction exercised by “courts of bankruptcy” (and, in turn, bankruptcy referees) under the 1898 scheme was cus- tomarily referred to as “summary jurisdiction.” Countryman, supra, at 2-4. This “summary jurisdiction” covered three gen- eral areas: (1) handling administrative proceedings in the bankruptcy case, such as accepting the bankruptcy petition, allowing claims, granting discharges, and confirming debt adjustment plans, etc., Bankruptcy Act of 1898 §§ 2, 38; see, e.g., U.S. Fidelity & Guaranty Co. v. Bray, 225 U.S. 205, 218 (1912), (2) resolving controversies over property in the actual or constructive possession of the court, Bankruptcy Act of 1898 §§ 2, 38; see, e.g., Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 481 (1940), and (3) deciding, “by consent of the defendant,” actions brought by the bankruptcy trustee that were “plenary in character” because the bankrupt could have brought them in another forum in the absence of the bankruptcy proceedings, Bankruptcy Act of 1898 § 23b; Mac- Donald v. Plymouth County Trust Co., 286 U.S. 263, 266-67 (1932); see also Countryman, supra, at 2-3.21
Bankruptcy proceedings under the 1898 Act “were gener- ally conducted before referees, except in those instances in which the district court elected to withdraw a case from a ref- eree.” N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 53 (1982). The district court presided over any appeal from a referee’s final order. Id.
In 1978, Congress passed the Bankruptcy Reform Act, which eliminated the referee system and established “in each judicial district, as an adjunct to the district court for such dis- trict, a bankruptcy court which shall be a court of record known as the United States Bankruptcy Court for the district.” Id. (quoting 28 U.S.C. § 151(a) (Supp. IV 1981)). The 1978 An example of a “plenary matter” that could be heard by consent of the parties was a “dispute[ ] involving property in the possession of a third person.” N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 53 (1982). 4510 IN RE MARSHALL Act eliminated the distinction between “summary” bank- ruptcy jurisdiction and “plenary” jurisdiction, and it “grant- [ed] the new courts jurisdiction over all ‘civil proceedings arising under title 11 [the Bankruptcy title] or arising in or related to cases under title 11.’ ” Id. at 54 (second alteration in original) (emphasis omitted) (quoting 28 U.S.C. § 1471(b) (Supp. IV 1981)); see also 28 U.S.C. § 1471(b) (Supp. IV 1981) (noting that the district courts’ jurisdiction was “origi- nal but not exclusive”). With limited exception, under the 1978 Act, the judges of the bankruptcy courts had “all of the ‘powers of equity, law, and admiralty.’ ” Id. at 55 (quoting 28 U.S.C. § 1481 (Supp. IV 1981)).
The most important provision of the 1978 Act was § 1471(c), which provided that “[t]he bankruptcy court . . . shall exercise all of the jurisdiction conferred by this section on the district courts.” 28 U.S.C. § 1471 (Supp. IV 1981). Congress knew that this provision raised serious constitu- tional concerns because it permitted an Article I tribunal to exercise the same jurisdiction bestowed upon an Article III court, but the risk of invalidation was deemed worth achiev- ing the goal of setting up a faster and cheaper method to accomplish reorganization. See Countryman, supra, at 7-9; see also H.R. Rep. No. 95-595, at 5968 (1977) (acknowledg- ing “serious constitutional doubts” raised by the full grant of jurisdiction under the proposed bankruptcy system to non- Article III judges).
The risk of invalidation was soon realized. In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., the Supreme Court considered whether the Constitution permitted the bankruptcy court to exercise jurisdiction over a state law breach of contract claim filed by the debtor in possession against a third party who was a stranger to the bankruptcy proceeding. 458 U.S. 50 (1982). The plurality explained that the Bankruptcy Act of 1978 impermissibly shifted essential attributes of judicial power from the Article III district court to the non-Article III bankruptcy court. Id. at 87. The holding IN RE MARSHALL 4511 of six justices in Marathon is fairly well summarized in a footnote to the plurality opinion:
[A]t the least, the new bankruptcy judges cannot constitutionally be vested with jurisdiction to decide this state-law contract claim against Marathon. As part of a comprehensive restructuring of the bank- ruptcy laws, Congress has vested jurisdiction over this and all matters related to cases under Title 11 in a single non-Art. III court, and has done so pursuant to a single statutory grant of jurisdiction. In these cir- cumstances we cannot conclude that if Congress were aware that the grant of jurisdiction could not constitutionally encompass this and similar claims, it would simply remove the jurisdiction of the bank- ruptcy court over these matters, leaving the jurisdic- tional provision and adjudicatory structure intact with respect to other types of claims, and thus sub- ject to Art. III constitutional challenge on a claim- by-claim basis. Indeed, we note that one of the express purposes of the Act was to ensure adjudica- tion of all claims in a single forum and to avoid the delay and expense of jurisdictional disputes. Nor can we assume, as THE CHIEF JUSTICE suggests that Congress’ choice would be to have these cases “routed to the United States district court of which the bankruptcy court is an adjunct.” We think that it is for Congress to determine the proper manner of restructuring the Bankruptcy Act of 1978 to conform to the requirements of Art. III in the way that will best effectuate the legislative purpose.
458 U.S. at 88 n.40 (Brennan, J., plurality) (joined by Justices Marshall, Blackmun, and Stevens) (citations omitted); see also id. at 91-92 (Rehnquist, J., concurring) (joined by Justice O’Connor). The Court stayed its judgment in Marathon for six months to allow Congress the opportunity to remedy the 4512 IN RE MARSHALL constitutional flaws in the 1978 Act’s grant of jurisdiction to the bankruptcy courts. Id. at 88.
Congress did not act in time, and the Court’s mandate took effect. Faced with the potential collapse of the bankruptcy system, the Judicial Conference “adopt[ed] a resolution requiring the Director of the Administrative Office of the United States Courts to ‘provide each circuit with a proposed rule’ which was to take effect [as a local rule] in the absence of congressional action.” Countryman, supra, at 19; see Col- lier ¶ 3.01[2][b][ii] & n.16 (discussing the emergency rule and reproducing its text). The purpose of this resolution was “to permit the bankruptcy system to continue without disruption in reliance on jurisdictional grants remaining in the law as limited by” Marathon. Countryman, supra, at 19.
The Emergency Rule continued the bankruptcy system established by the 1978 Act with the exception of how “re- lated proceedings” like the contract claim in Marathon would be treated. See Collier ¶ 3.01[2][b][ii] & n.16. The Emergency Rule defined “related proceedings” as “those civil proceed- ings that, in the absence of a petition in bankruptcy, could have been brought in a district court or state court.”22 Emer- gency Rule § d(3)(A), reproduced at Collier ¶ 3.01[2][b][ii] n.16. The Emergency Rule prohibited bankruptcy judges from entering a judgment or dispositive order on related proceed- The Emergency Rule went on to explain that: Related proceedings include, but are not limited to, claims brought by the estate against parties who have not filed claims against the estate. Related proceedings do not include: contested and uncontested matters concerning the administration of the estate; allowance of and objections to claims against the estate; counterclaims by the estate in whatever amount against persons filing claims against the estate . . . . A proceeding is not a related proceeding merely because the outcome will be affected by state law. Emergency Rule § d(3)(A), reproduced at Collier ¶ 3.01[2][b][ii] n.16. IN RE MARSHALL 4513 ings; instead, the bankruptcy court was to “submit findings, conclusions, and a proposed judgment or order to the district judge, unless the parties to the proceeding consent to entry of the judgment or order by the bankruptcy judge.” Emergency Rule § d(3)(B), reproduced at Collier ¶ 3.01[2][b][ii] n.16.
More than two years after the Marathon decision, Congress finally passed the Bankruptcy Amendments and Federal Judgeship Act of 1984. Pub. L. No. 98-353 (HR 5174), 98 Stat. 333 (1984). The 1984 Act, with amendments not rele- vant to this proceeding, governs the dispute before us.
[1] Under the 1984 Act the district court continues to have original jurisdiction over all cases under title 11 and “all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(a)-(b). The district court, in turn, may refer “any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11” to the bankruptcy court. Id. § 157(a). Thus, as under the 1978 Act, the bankruptcy court’s subject matter jurisdiction under the 1984 Act is coterminous with that of the district court. See id. §§ 157(a), 1334; Fietz v. Great W. Sav. (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988).
The manner in which the bankruptcy court may exercise its delegated jurisdiction under the 1984 Act, however, differs greatly from its 1978 predecessor. In an obvious effort to comply with the principles of Marathon, gone is the problem- atic provision from the 1978 Act empowering the bankruptcy court to exercise “all of the jurisdiction” of the district court. 28 U.S.C. § 1471 (Supp. IV 1981). Instead, subsections (b) and (c) to § 157 prescribe the manner in which the bankruptcy court may exercise its delegated jurisdiction by identifying those situations (1) when the bankruptcy court is authorized to issue a final order disposing of some or all of the matters before it and (2) when the bankruptcy court is empowered only to make a report and recommendation to the district 4514 IN RE MARSHALL court. 28 U.S.C. § 157(b)-(c); see also Countryman, supra, at 35 (noting that like the Emergency Rule, the 1984 Act distin- guishes between “when the bankruptcy judge can act as a judge” and “when he acts only as a special master”).
[2] Section 157(b)(1) provides that “Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11” that are referred to it by the district court.23 28 U.S.C. The term “core” has its roots in Justice Brennan’s plurality in Mara- thon. 458 U.S. at 71 (referring to matters “at the core of federal bank- ruptcy power”). There, Justice Brennan concluded that the statutory grant of “causes of action owned by the debtor at the time of the petition for bankruptcy” could not be squared with the separation of powers doctrine, which requires that Article III federal judicial power be vested in Article III judges. Id. at 54, 62, 76, 84, 87. Justice Brennan went on to explore “three narrow” exceptions to the separation of powers doctrine that per- mitted the use of “legislative courts” because of the appellant’s argument that the bankruptcy courts could have been so constituted. Id. at 63-64. One exception was for territorial courts in “certain geographical areas, in which no State operated as sovereign” such as the District of Columbia, Indian tribal courts, and consular courts. Id. at 64-65. The second excep- tion was for the establishment of military courts-martial. Id. at 66. The third exception was for adjudications involving “public rights,” which are those matters that “aris[e] between the Government and persons subject to its authority in connection with the performance of the constitutional func- tions of the executive or legislative departments, and . . . that historically could have been determined exclusively by those departments.” Id. at 67-68 (internal citations and quotations omitted). In contrast, Justice Brennan explained that “the liability of one individ- ual to another under the law as defined, is a matter of private rights. . . . Private-rights disputes . . . lie at the core of the historically recognized judicial power.” Id. at 69-70. He further cautioned that “the restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power, must be distinguished from the adjudication of state-created private rights, such as the right to recover contract damages that is at issue in this case. The former may well be a ‘public right,’ but the latter obviously is not.” Id. at 71 (emphasis added). The Supreme Court has not explicitly held that the restructuring of debtor-creditor relations is a public right. See Granfinanciera v. Nordberg, 492 U.S. 33, 56 n.11 (1989) (“We do not suggest that the restructuring of debtor-creditor relations is in fact a public right. This thesis has met with substantial scholarly criticism . . . and we do not seek to defend it here.”). IN RE MARSHALL 4515 § 157(b)(1) (emphasis added). In subsection (b)(2) Congress provided a non-exhaustive definition of core proceedings that includes the omnibus categories of “matters concerning the administration of the estate” and “other proceedings affecting the liquidation of assets of the estate.” Id. § 157(b)(2)(A), (O);24 In full, subsection (b)(2) provides as follows: Core proceedings include, but are not limited to— (A) matters concerning the administration of the estate; (B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estima- tion of claims or interests for the purposes of confirm- ing a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or estimation of contingent or unliqui- dated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11; (C) counterclaims by the estate against persons filing claims against the estate; (D) orders in respect to obtaining credit; (E) orders to turn over property of the estate; (F) proceedings to determine, avoid, or recover prefer- ences; (G) motions to terminate, annul, or modify the automatic stay; (H) proceedings to determine, avoid, or recover fraudulent conveyances; (I) determinations as to the dischargeability of particular debts; (J) objections to discharges; (K) determinations of the validity, extent, or priority of liens; (L) confirmations of plans; (M) orders approving the use or lease of property, includ- ing the use of cash collateral; (N) orders approving the sale of property other than prop- erty resulting from claims brought by the estate against persons who have not filed claims against the estate; 4516 IN RE MARSHALL Harris v. Wittman (In re Harris), 590 F.3d 730, 738 (9th Cir. 2009). Congress also indicated that a matter may be a core proceeding even if its outcome may be affected by state law. See 28 U.S.C. § 157(b)(3).
[3] By way of comparison, § 157(c)(1) authorizes the bankruptcy judge to “hear a proceeding that is not a core pro- ceeding but that is otherwise related to a case under title 11.” Compare id. § 157(c)(1) (emphasis added), with id. § 157(b)(1) (authorizing the bankruptcy court to “hear and determine” certain matters) (emphasis added). For proceed- ings falling within § 157(c)(1), the bankruptcy court is empowered only to “submit proposed findings of fact and conclusions of law to the district court.” Id. § 157(c)(1). Thus, unless the parties consent to final determination by the bank- ruptcy judge, id. § 157(c)(2), the responsibility to “determine” a “[non-]core proceeding that is otherwise related to a case under title 11” always remains with the district court, id. § 157(c)(1) (“[A]ny final order or judgment shall be entered by the district judge after considering the bankruptcy judge’s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifi- cally objected.”).
[4] The 1984 Act does not specifically detail what it means for a civil proceeding to “arise under title 11,” “arise in a case under title 11,” “or relate[ ] to a case under title 11.” Our case law, however, holds that proceedings “arise under title 11” if they “involve a cause of action created or determined by a
(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims; and (P) recognition of foreign proceedings and other matters under chapter 15 of title 11. 28 U.S.C. § 157(b)(2). IN RE MARSHALL 4517 statutory provision of title 11.” In re Harris, 590 F.3d at 737. On the other hand, civil proceedings “arise in a case under title 11” when they are “not based on any right expressly cre- ated by title 11, but nevertheless, would have no existence outside of the bankruptcy.” In re Eastport Assocs., 935 F.2d 1071, 1076-77 (9th Cir. 1991) (quoting In re Wood, 825 F.2d 90, 96-97 (5th Cir. 1987)); see In re Harris, 590 F.3d at 737.25 Like the Fourth, Fifth, and Eight Circuit Courts of Appeal, we adopted without modification the Third Circuit’s definition of what constitutes a “related” proceeding:
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could con- ceivably have any effect on the estate being adminis- tered in bankruptcy. . . . An action is related to bankruptcy if the outcome could alter the debtor’s right, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.
In re Feitz, 852 F.2d 455, 457 (9th Cir. 1988) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)).
With this constitutional and statutory backdrop in mind, we turn to the question before us today: whether the bankruptcy judge could “hear and determine,” as a “core proceeding[ ] arising under title 11, or arising in a case under title 11,” See In re Goodman, 991 F.2d 613, 616-17 (9th Cir. 1993) (discussing In re Eastport Associates and proceedings arising under title 11 or arising in a case under title 11); see also H.R. Rep. No. 95-595, at 6401 (Sept. 8, 1977) (“The phrase ‘arising under’ has a well defined and broad meaning in the jurisdictional context. By a grant of jurisdiction over all proceedings arising under title 11, the bankruptcy courts will be able to hear any matter under which a claim is made under a provision of title 11.”); Collier ¶ 3.01[4][c][i] (statutory language suggests that civil proceedings arise under title 11 “when the cause of action is one that is created by title 11”). 4518 IN RE MARSHALL Vickie Lynn Marshall’s counterclaim for tortious interference against Pierce Marshall.
Pierce Marshall takes the position that even if a counter- claim is asserted in response to a proof of claim against the bankruptcy estate, such that it meets Congress’ definition of a core proceeding contained in § 157(b)(2)(C), the bankruptcy court cannot exercise “final order” jurisdiction over it under § 157(b)(1) unless the counterclaim “arises under” or “arises in a case under” the Bankruptcy Code. Pierce Marshall argues that Vickie Lynn Marshall’s claim neither “arises under” nor “arises in a case under” the Bankruptcy Code: it is a state law counterclaim that could have been brought and was brought, at least in part, in a non-bankruptcy forum. Because there is nothing unique to bankruptcy about her claim, Pierce Mar- shall argues that the bankruptcy court could not, consistent with the Constitution, the Marathon decision, and the bank- ruptcy court’s statutory grant of power in § 157(b)(1), enter a final judgment against him.
We agree with Pierce Marshall that our case law presents a two-step approach. A bankruptcy judge may only determine a claim that meets Congress’ definition of a core proceeding and arises under or arises in title 11. See In re Harris, 590 F.3d at 737-41. We disagree, however, with Pierce Marshall’s argument that the fact that Vickie Lynn Marshall’s counter- claim could have been brought in state court and was not a bankruptcy-specific claim automatically renders the claim non-core. This approach goes too far and may render § 157(b)(2)(C) superfluous.26 Under Pierce Marshall’s narrow This concern was appropriately shared by the district court, which wrote: Thus, on one hand, calling any counterclaim that falls within the literal language of the statute core seems to contradict the holding IN RE MARSHALL 4519 reading of the statute it is difficult to imagine a counterclaim against a person filing against the estate that “arises under” the Bankruptcy Code or “arises in a case under” the Bank- ruptcy Code and that is not already covered by a more spe- cific provision of § 157(b)(2). Many creditor claims filed against a bankruptcy estate are based upon state law, not the Bankruptcy Code or something else that is unique to the bank- ruptcy context.27 We do not believe that Congress intended § 157(b)(2)(C) to be a meaningless (or near meaningless) pro- vision, which is what it would become under Pierce Mar- shall’s overly restrictive approach. See United Sav. Ass’n v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 370-71 (1988) (construing several sections of the Bankruptcy Code and observing that “[s]tatutory construction . . . is a holistic endeavor”); see also Dole Food Co. v. Patrickson, 538 U.S. 468, 467-77 (2003) (cautioning against construing a “statute in a manner that is strained and, at the same time, would ren- der a statutory term superfluous”).
Harris may seem to provide some validity to Pierce Mar- shall’s argument because that decision relied on the fact that the contract claim “arose from the administration of [the] bankruptcy estate.” In re Harris, 590 F.3d at 740. However, in Harris we required a bankruptcy nexus only because there we dealt with § 157(b)(2)(A), one of the “catchall” provi-
of Marathon. On the other hand, calling any counterclaim that could have been asserted as an independent lawsuit seems to ren- der § 157(b)(2)(C) itself nugatory, because any counterclaim could have been asserted as a separate lawsuit absent the filing of the bankruptcy petition. Collier notes this problem and states that “[t]he matter is still unsettled.” In re Marshall, 264 B.R. at 630. Indeed, Congress’ awareness of this fact is reflected in its expressed desire that a determination of whether something is a “core proceeding under this subsection [§157(b)] or is a proceeding that is otherwise related to a case under title 11 [§ 157(c)] . . . not be made solely on the basis that its resolution may be affected by State law.” See 28 U.S.C. § 157(b)(3). 4520 IN RE MARSHALL sions. See id. at 739-41. Section 157(b)(2)(A) refers to “mat- ters concerning the administration of the [bankruptcy] estate.” Harris relied on earlier precedent to determine that if the only applicable provision in § 157(b)(2) is one of the catchall pro- visions, the claim must literally fit within the wording of the catchall provision to be considered core. See Harris, 590 F.3d at 740. Here, we do not deal with the catchall provisions of § 157(b)(2) but with one of the specific provisions, § 157(b)(2)(C). Thus, although Vickie Lynn Marshall’s coun- terclaim for tortious interference could have been brought independently from the bankruptcy proceeding and was not unique to the bankruptcy context, we have not reached the end of our inquiry.
While Pierce Marshall’s approach is too narrow, Vickie Lynn Marshall’s is too expansive. She takes the position that her counterclaim falls within the plain language definition of a “core proceeding” as a “counterclaim[ ] by the estate against persons filing claims against the estate.” 28 U.S.C. § 157(b)(2)(C). As far as Vickie Lynn Marshall is concerned, that should end the matter because the “ ‘core proceedings’ listed in § 157(b), by definition, meet the arising in/arising under standard.” Vickie Lynn Marshall Supplemental Br. at 6. Her criticism of Pierce Marshall’s two step approach finds some support in the fact that few courts consider separately the questions whether something is a “core proceeding” and whether it “arises under” the Bankruptcy Code or “arises in a case under” the Bankruptcy Code. But see In re Harris, 590 F.3d at 737-41.
Even so, Vickie Lynn Marshall’s reading of § 157(b)(2)(C) sweeps too broadly and would permit the bankruptcy court to consider under § 157(b)(2)(C) counterclaims that are factually and legally unrelated to the claim being asserted against the bankruptcy estate. Such an expansive reading of § 157(b)(2)(C) would certainly run afoul of the Court’s hold- ing in Marathon.28 It would also arguably be inconsistent with Indeed, most courts to have considered the issue have agreed that a limiting construction of § 157(b)(2)(C) is necessary to make it conform to IN RE MARSHALL 4521 the Congress’ intent to revise the Bankruptcy Code in a man- ner consistent with the principles of Marathon to make its jurisdictional grant constitutional.
Recognizing this shortcoming in her argument, and taking heed of our warning that the term “core proceeding” must be construed narrowly “to avoid potential constitutional prob- lems arising from having Article I judges issue final orders in cases requiring an Article III judge,” Dunmore, 358 F.3d at 1115, Vickie Lynn Marshall argues that her claim is a core proceeding arising in a case under the Bankruptcy Code because it is a compulsory counterclaim to the defamation claim asserted in Pierce Marshall’s proof of claim and under- lying his nondischargeability complaint. Vickie Lynn Mar- shall argues that the adjudication of a compulsory counterclaim effectively becomes part of the claims allow- ance process, something that is unique and core to bankruptcy proceedings. She further argues that Pierce Marshall con- sented to the bankruptcy court’s entering a final order on the counterclaim because it is a compulsory counterclaim to the proof of claim that Pierce Marshall chose to file with the bankruptcy court knowing that the proof of claim would be finally determined as a “core proceeding[ ] arising under title 11, or arising in a case under title 11.” In support of these related arguments, she relies primarily on the Supreme Court case of Katchen v. Landy, 382 U.S. 323 (1966), and other cases that have discussed and reaffirmed Katchen after the passage of the 1984 Bankruptcy Amendments and Federal Judgeship Act. See, e.g., Langenkamp v. Culp, 498 U.S. 42, 44-45 (1990); Granfinanciera v. Nordberg, 492 U.S. 33, 57-60 (1989).
[5] We agree with Vickie Lynn Marshall that her claim is
the Marathon opinion. See Collier ¶ 3.02[3][d][i] (discussing the approaches that courts have taken to limit the broad sweep of § 157(b)(2)(C)). 4522 IN RE MARSHALL a compulsory counterclaim because the “operative facts underlying [her] action” are the same as those underlying the defamation claim. See Pochiro v. Prudential Ins. Co., 827 F.3d 1246, 1250-51 (9th Cir. 1987) (applying Arizona law but relying on federal law in its analysis); see Fed. R. Civ. P. 13(a)(1) (defining a compulsory counterclaim as one held by the pleader at the time of service that “arises out of the trans- action or occurrence that is the subject matter of the opposing party’s claim” and “does not require adding another party over whom the court cannot acquire jurisdiction”). The defa- mation claim, Vickie Lynn Marshall’s affirmative defense of truth, and her counterclaim for tortious interference all con- cern the alleged efforts by Pierce Marshall to obtain control of his father’s estate by inundating his father with estate plan- ning paperwork and forging or otherwise improperly obtain- ing his father’s signature on the document that made the Living Trust irrevocable.29 Thus, under our “logical relation- ship” test, Vickie Lynn Marshall’s claim qualifies as a com- pulsory counterclaim. See Pochiro, 827 F.3d at 1249-51.
We also agree with Vickie Lynn Marshall’s second propo- sition-that a compulsory counterclaim, even one based entirely on state law, can be a “core proceeding[ ] . . . arising in a case under title 11.” Cf. In re Harris, 590 F.3d at 738-41 (holding that a state law contract claim was a “core proceed- ing” that “arose under” title 11). We disagree, however, with Our review of the record reflects that Vickie Lynn Marshall had not joined the will contest until 1998, well after she had asserted the counter- claim in the bankruptcy proceeding. Thus the exception to compulsory counterclaims for those claims pending elsewhere, see Fed. R. Civ. P. 13(a)(2)(A), does not apply to the bankruptcy counterclaim. Furthermore, even if the claim had been pending in Texas, if the “defendant [here, Vickie Lynn Marshall] elects to interpose the pending claim as a counter- claim, . . . [s]he should be allowed to do so, and the counterclaim will be treated as if it were compulsory and thus under the ancillary jurisdiction of the court.” 6 Wright & Miller, Federal Practice and Procedure § 1411 (citing, inter alia, Union Paving Co. v. Downer Corp., 276 F.2d 468, 470 (9th Cir. 1960)). IN RE MARSHALL 4523 her suggestion that all compulsory counterclaims must be “core proceedings . . . arising in a case under title 11.” Instead, a closer consideration of the Supreme Court case upon which Vickie Lynn Marshall relies, Katchen, leads to the conclusion that some, but not all, compulsory counter- claims fall within the scope of § 157(b)(1) & (2)(C). Critical to the Court’s decision that the bankruptcy court had jurisdic- tion over the trustee’s counterclaim in Katchen was the fact that the bankruptcy court was unable to perform its statutory duty of allowing or disallowing the creditor’s claim unless it ruled upon the trustee’s counterclaim. See 382 U.S. at 329-30. According to the Court, ruling on the preference issue was “part and parcel of the allowance process,” id. at 330, and “once the bankruptcy court has dealt with the preference issue nothing remains for adjudication in a plenary suit,” id. at 334. Thus, the bankruptcy trustee’s counterclaim had to be deter- mined in order to rule upon the claims originally brought by the creditor against the estate. See id. at 330 (stating that the “bankruptcy court must necessarily determine” the voidable preference issue to resolve the creditor’s claim against the estate) (emphasis added). That the Court also reasoned that a claimant “consents” to the court’s jurisdiction of those matters which must be determined in order to resolve his claim, even if presented by way of a counterclaim, is an unsurprising con- clusion.
There is no logical inconsistency to our holding that Vickie Lynn Marshall’s counterclaim is compulsory but not “core.” The test for compulsory counterclaims is generous and designed to promote judicial efficiency by avoiding multiplic- ity of lawsuits. See Albright v. Gates, 362 F.2d 928, 929 (9th Cir. 1966). On the other hand, the standard delineating what is a core proceeding is much narrower because it is designed to comply with the constitutional limitations on the bank- ruptcy court’s jurisdiction as set forth in Marathon.
[6] Our review of the evolution of the Bankruptcy Code, the Supreme Court’s opinions in Katchen and Marathon, as 4524 IN RE MARSHALL well as our own jurisprudence cautioning against creating constitutional problems through an overly broad construction of what is a “core proceeding,” Piombo Corp. v. Castlerock Props. (In re Castlerock Props.), 781 F.2d 159, 162 (9th Cir. 1986), leads us to agree with the amici curie professors that “a counterclaim under § 157(b)(2)(C) is properly a ‘core’ pro- ceeding ‘arising in a case under’ the [Bankruptcy] Code only if the counterclaim is so closely related to the proof of claim that the resolution of the counterclaim is necessary to resolve the allowance or disallowance of the claim itself.” Professors’ Amicus Br. at 11. Such a construction of § 157(b)(2)(C) takes into account the whole of the statute, avoids rendering any terms superfluous, follows Katchen, and comports with the principles of Marathon and Congress’ desire to revise the Bankruptcy Code in a manner consistent with the Constitu- tion.
Vickie Lynn Marshall’s compulsory counterclaim is not a core proceeding arising in a case under the Bankruptcy Code because it is not so closely related to Pierce Marshall’s defa- mation claim that it must be resolved in order to determine the allowance or disallowance of his claim against her bankruptcy estate.
The district court correctly noted that “the nexus between the transactions out of which the claim and counterclaim arise . . . is somewhat attenuated,” but its analysis went astray when it used a retrospective approach to support this factual finding. In re Marshall, 264 B.R. at 631 (stating that Pierce Marshall had obtained a judgment against Vickie Lynn Marshall’s attorneys “prior to the time when his claim against Vickie was ruled on by the bankruptcy court,” making the main issue presented by Pierce Marshall’s claim Vickie Lynn Marshall’s responsibility for her attorneys’ actions) (emphasis added). IN RE MARSHALL 4525 [7] In bankruptcy cases, jurisdiction over a claim and the compulsory status of a counterclaim is determined as of the time the claim is pleaded. In re Fietz, 852 F.2d at 457 n.2. Accordingly, the analysis of whether a compulsory counter- claim such as Vickie Lynn Marshall’s should be afforded “core treatment” must focus largely on what is available to the court at the time of filing, that is, the parties’ pleadings.30 A review of Pierce Marshall’s proof of claim and attached non- dischargeability complaint and Vickie Lynn Marshall’s answer, objections, and tortious interference counterclaim leads to the inescapable conclusion that the resolution of Vickie Lynn Marshall’s counterclaim was not a necessary predicate to the bankruptcy court’s decision to allow or disal- low Pierce Marshall’s defamation claim.
[8] The differences between the nature and scope of the factual allegations contained in Pierce Marshall’s claim and Vickie Lynn Marshall’s counterclaim support our conclusion that her counterclaim was not an integral part of the claims allowance and disallowance process. Pierce Marshall’s defa- mation claim focused upon the alleged “tortious smear cam- paign” that Vickie Lynn Marshall and her attorneys devised “to obtain a quick recovery from the estate of J. Howard Mar- shall II.” The statement at issue by one of the attorneys was that the attorney was:
“bothered” by “the blizzard of documents that were put in front of Howard Marshall to sign two weeks after his marriage to Anna Nicole Smith [Vickie Lynn Marshall]. . . . He signed all of them in almost We say that the focus is largely on the pleadings because there may be other information available to the bankruptcy court, for example, by way of a motion under § 157(b)(3) or oral argument on the motion, that would not be retrospective in nature. See 28 U.S.C. § 157(b)(3) (providing that “[t]he bankruptcy judge shall determine, on the judge’s own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11”). 4526 IN RE MARSHALL completely illegible fashion which makes sense because he couldn’t read at the time, according to his doctors. . . . J. Howard Marshall’s signature appears as sort of a squiggle with only the ‘J’ clearly read- able. . . . The documents, signed about two weeks after the oilman’s June 27, 1994 marriage, gave the son full control over the J. Howard Marshall, II liv- ing trust. . . . The effect of it was basically an attempt to remove J. Howard Marshall from control of his estate.”
Another statement by an attorney upon which Pierce Marshall based his claim was that “the law clearly entitles Smith [Vickie Lynn Marshall] to half of what her late husband earned during their marriage” and that there was some con- cern “about the documents [J. Howard] Marshall purportedly signed two weeks after his marriage.” Pierce Marshall also found objectionable Vickie Lynn Marshall and her attorneys’ efforts to tarnish his reputation by characterizing him as “greedy and miserly” and “a real control freak.” Thus, Pierce Marshall’s defamation claim and any defense of truth to such a claim would largely focus on whether J. Howard Marshall II had the capacity to sign the estate planning documents Pierce Marshall presented to him after J. Howard Marshall II’s mar- riage to Vickie Lynn Marshall and whether he did, in fact, knowingly and validly execute the documents. By way of comparison, the allegations upon which Vickie Lynn Marshall bases her tortious interference counterclaim are far less focused—they span a number of years, encompass various incidents of purported tortious conduct, and cover a broad array of financial and estate planning transactions beyond those which would be determinative of Pierce Marshall’s def- amation claim.31 In addition to the differences in proof For example, in her counterclaim Vickie Lynn Marshall made the fol- lowing allegation: Debtor is informed and believes that Counterdefendant intention- ally interfered with that expectancy by engaging in a concerted IN RE MARSHALL 4527 between the two claims, there is little overlap of the legal ele- ments of the claims at issue. Pierce Marshall’s defamation claim could be fully adjudicated without fully adjudicating Vickie Lynn Marshall’s tortious interference claim. Even if it were shown that the statements made by Vickie Lynn Mar- shall’s attorneys were true (with the reasonable inference drawn from those statements being that Pierce Marshall used forgery or fraud to gain control of the Living Trust and make it irrevocable), in order to prevail on her claim, Vickie Lynn Marshall would still be obligated to establish, inter alia, that J. Howard Marshall II intended to make her an inter vivos gift, that it was reasonably certain that J. Howard Marshall II would have made the gift but for Pierce Marshall’s inference, and the amount of damages that Pierce Marshall caused through his tortious conduct. Nothing in Pierce Marshall’s defamation claim puts these factual and legal questions at issue.
In conclusion, although a compulsory counterclaim based on a state law cause of action can, under certain circum- stances, be a core proceeding arising in a case under the Bankruptcy Code and be within the constitutional and statu- tory delegation of authority to bankruptcy judges to enter final orders, this is not such a case.
campaign to undermine Mrs. Marshall’s rights and Mrs. Mar- shall’s marriage to her Husband, by effectively imprisoning Mr. Marshall against his wishes, by surrounding Mr. Marshall with hired agents who reported to the Younger Son, by stationing armed guards to prevent access and personal contact between Husband and Wife, by cutting off support and obstructing the expressed wishes of Mr. Marshall, by deceiving Mr. Marshall, by attempting to undo gifts made by Mr. Marshall, by preparing doc- uments and by ostensibly making transfers of property of Mr. Marshall which were inconsistent with his expressed wishes and desires, by making misrepresentations against Mrs. Marshall, by cutting off income to Mr. and Mrs. Marshall, by suborning false testimony against Mrs. Marshall, by abusing legal process, and by other actions that shall be proven at trial. 4528 IN RE MARSHALL B
[9] Our conclusion that Vickie Lynn Marshall’s counter- claim for tortious interference was not a “core proceeding[ ] . . . arising in a case under title 11” means that the Texas pro- bate court issued the earliest final judgment on certain matters relevant to this proceeding. Pierce Marshall argues that the district court erred when it refused to give any preclusive effect to the Texas probate court’s judgment.32 Having already noted in our previous opinion that “[o]ur review of the trial records in the Texas probate court and in the United States district court discloses conflicting findings of fact critical to the merits of the cases of the contesting parties,” In re Mar- shall, 392 F.3d at 1123, it is perhaps unsurprising that we agree with Pierce Marshall that the doctrine of issue preclu- sion applies and that it prevents Vickie Lynn Marshall’s suc- cess on her claim for tortious interference. The district court denied Pierce Marshall’s motion for summary judg- ment on the basis of res judicata and collateral estoppel. The district court reasoned that res judicata (claim preclusion) did not apply because Vickie Lynn Marshall did not actually litigate in Texas her claim against Pierce Marshall for tortious interference with an inter vivos gift. Nor did the dis- trict court believe that Vickie Lynn Marshall was obligated to bring the claim as a compulsory counterclaim because it was pending before the bankruptcy court when she joined the will contest in Texas. See Tex. R. Civ. P. 97 (excluding from the definition of compulsory counterclaim those claims that are “the subject of a pending action”). With respect to collateral estoppel (issue preclusion), the district court did not consider the Texas probate court’s judgment to be final because the Texas probate court had plenary jurisdiction to change its judgment for a certain amount of time following its entry. The district court further denied the motion as untimely and inconsistent with the notion of funda- mental fairness. Noting the motion was filed more than two years after the bankruptcy court’s trial and after Vickie Lynn Marshall had nonsuited her affirmative claims in the Texas probate court, the district court also found that the identity of issues required for issue preclusion was lacking, explaining that “while it might be the province of the Texas probate court to determine what J. Howard intended to do with his estate when he died, the question before this Court is what he intended to do with it while he was still alive.” IN RE MARSHALL 4529
[10] Through the Full Faith and Credit Act, 28 U.S.C. § 1738, “Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgment emerged would do so.” Allen v. McCurry, 449 U.S. 90, 96 (1980). Under the doctrine of collateral estoppel, often called issue preclusion, “once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitiga- tion of the issue in a suit on a different cause of action involv- ing a party to the first case.” Allen, 449 U.S. at 94; see also Robbins v. HNG Oil Co., 878 S.W.2d 351, 361 (Tex. App. 1994). To establish collateral estoppel under Texas law, a party must demonstrate: “(1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action.” Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 801 (Tex. 1994). If these requirements are met, issue pre- clusion applies even when the subsequent litigation rests on a new theory of recovery. Wilhite v. Adams, 640 S.W.2d 875, 876 (Tex. 1982).
Under Texas law, an issue has been “fully and fairly litigat- ed” if the particular fact or issue was the same in the two pro- ceedings and was “actually litigated” in the prior proceeding. See Nat’l Union Fire Ins. Co. v. Dominguez, 793 S.W.2d 66, 71 (Tex. App. 1990), rev’d on other grounds, 873 S.W.2d 633, 637 (Tex. 1994). To determine if a matter was “actually litigated,” Texas courts consider the following factors: “whether the parties were fully heard; whether the court sup- ported its decision with reasoned opinion; and whether the decision was subject to appeal or was in fact reviewed on appeal.” Cole v. G.O. Assocs., Ltd., 847 S.W.2d 429, 431 (Tex. App. 1993). 4530 IN RE MARSHALL
The first step of our issue preclusion analysis is satisfied because several of the legal and factual issues that Vickie Lynn Marshall sought to litigate in the bankruptcy proceeding had already been litigated and finally determined in the Texas probate action.
[11] Under Texas law, a claim for tortious interference with an inter vivos gift arises when a person “by fraud, duress or other tortious means intentionally prevents another from receiving from a third person an inheritance or gift that [s]he would otherwise have received.” Restatement Second of Torts § 774B; see Marshall, 547 U.S. at 311; see also King v. Acker, 725 S.W.2d 750, 754 (Tex. App. 1987) (discussing tor- tious interference with inheritance rights and citing the Restatement formulation of the tort); Brandes v. Rice Trust, Inc., 966 S.W.2d. 144, 146-47 (Tex. App. 1998) (same). Such a person will be “subject to liability to the other for loss of the inheritance or gift.” Restatement Second of Torts § 774B. As explained by the district court, the Texas courts have not clearly delineated the elements of a cause of action for tor- tious interference, but those jurisdictions which have gener- ally agree that a plaintiff must prove (1) the existence of an expectancy, (2) a reasonable certainty that the expectancy would have been realized but for the interference, (3) inten- tional interference with that expectancy, (4) tortious conduct involved with the interference, and (5) damages. In re Mar- shall, 275 B.R. at 51 (citing Dougherty v. Morris, 871 P.2d 380 (N.M. 1994)). Vickie Lynn Marshall’s ability to establish a number of these elements is compromised by the Texas pro- bate court’s factual findings.
[12] Most importantly, to prevail on her claim against Pierce Marshall, Vickie Lynn Marshall must prove that J. Howard Marshall II would have given her a substantial inter vivos gift but for Pierce Marshall’s interference. This is contrary to the Texas probate court’s finding that J. Howard IN RE MARSHALL 4531 Marshall II “did not intend to give and did not give to [Vickie Lynn Marshall] a gift or bequest from the Estate of [J. Howard Marshall II] or from the [Living Trust] either prior to or upon his death.”
Vickie Lynn Marshall also has the burden of demonstrating that any interference by Pierce Marshall was tortious or, in the words of the Restatement, that he used “fraud, duress or other tortious means” to prevent J. Howard Marshall II from giving Vickie Lynn Marshall the intended gift. To do so, Vickie Lynn Marshall primarily relied on Pierce Marshall’s pur- ported manipulation of his father’s assets and his father’s estate planning documents. The Texas probate court found, however, that the various estate planning documents executed by J. Howard Marshall were valid and reflected his desires. Specifically, the Texas probate court found that (1) J. Howard Marshall II’s will and the 1982 Living Trust were valid, (2) J. Howard Marshall II had not been the victim of fraud or undue influence, and (3) J. Howard Marshall II possessed the requisite mental capacity when he executed the Living Trust, as amended, and his last will and testament. Also central to Vickie Lynn Marshall’s ability to demonstrate a reasonable expectancy and ascertainable damages is the invalidation of the Living Trust. Vickie Lynn Marshall estimated that the value of her expected gift exceeded $300 million in her coun- terclaim; however, essentially all of J. Howard Marshall II’s assets were held in the Living Trust after its creation in 1982. Shortly after his wedding to Vickie Lynn Marshall, J. Howard Marshall II modified his Living Trust to make it irrevocable. This modification, if valid, would prevent Vickie Lynn Mar- shall from ever being a beneficiary under the terms of the Liv- ing Trust, which is problematic to her claim of tortious interference because the very assets Vickie Lynn Marshall claimed that J. Howard Marshall II intended to give her were in the Living Trust. The Texas probate court upheld the valid- ity of the Living Trust, as amended, and found that it reflected J. Howard Marshall II’s intended disposition of his property. 4532 IN RE MARSHALL These issues were fully and fairly litigated by Vickie Lynn Marshall and Pierce Marshall in the Texas probate court. Vickie Lynn Marshall was a party to the Texas probate pro- ceeding during all relevant times and was afforded ample opportunity to present her affirmative case (until she non- suited her claims) and to defend against Pierce Marshall’s counterclaim for a declaratory judgment. During the five- month trial in Texas, the jury and judge considered the evi- dence and arguments advanced by the parties, and the Texas probate court issued a reasoned opinion based upon the find- ings of fact as made by the unanimous jury.
The next step in our issue preclusion analysis is to consider whether the factual findings discussed above were essential to the Texas probate court’s administration and final resolution of matters pertaining to J. Howard Marshall II’s estate. Vickie Lynn Marshall argues that because she voluntarily nonsuited her claims in the Texas probate proceeding, the issues under- lying her claims were not necessary to the Texas probate court’s judgment. Although she opted not to pursue her claims for affirmative relief, Vickie Lynn Marshall remained in the probate proceeding as a defendant to Pierce Marshall’s coun- terclaim. Pierce Marshall petitioned the probate court for a declaration that J. Howard Marshall II’s Living Trust and will reflected his true intentions and were valid. He further sought declaratory relief to determine Vickie Lynn Marshall’s rights as to the estate and property of J. Howard Marshall II. Thus, Vickie Lynn Marshall was at all relevant times a party adverse to Pierce Marshall in the Texas probate court.
To decide Pierce Marshall’s counterclaims for a declaratory judgment, the Texas probate court was obligated to discern J. Howard Marshall II’s true intentions regarding the property held by the Living Trust. To do so, the court had to resolve allegations that J. Howard Marshall II’s estate plan and the transactions underlying it were tainted by illegality and that, contrary to his estate plan, J. Howard Marshall II intended to give Vickie Lynn Marshall a substantial inter vivos gift. Thus, IN RE MARSHALL 4533 the Texas jury was tasked with responding to specific queries, many of which were on issues critical both to the resolution of Pierce Marshall’s declaratory judgment request and to Vickie Lynn Marshall’s success on her claim against Pierce Marshall for tortious interference with an expected inter vivos gift. The jury unanimously made the following factual find- ings: (1) the Living Trust and will were valid and had not been forged or altered, (2) J. Howard Marshall II had not been the victim of fraud or undue influence, (3) he had the requisite mental capacity when he executed his Living Trust and will, and (4) he did not have an agreement with Vickie Lynn Mar- shall that he would give her one-half of all his property.
The Texas probate court entered a final judgment in accor- dance with the jury’s verdict and concluded that Pierce Mar- shall was entitled to his distribution as set forth in the Living Trust, as amended, and as provided in the last will and testa- ment of J. Howard Marshall II.
The district court refused to give preclusive effect to any of the jury findings incorporated into the Texas probate court’s judgment or to any of the Texas probate court’s other factual findings or legal conclusions. Instead, the district court arrived at opposite findings on the same legal and factual ques- tions.33 In its 2002 judgment, the district court found that: J. Howard Marshall II intended to give Vickie Lynn Marshall a substantial gift that was to be in the form of a trust for her benefit; Pierce Marshall tortiously interfered with J. Howard Marshall II’s intentions by engaging in illegitimate estate planning transactions; Pierce Marshall had altered the Living Trust to make it irrevocable in furtherance of his plan; and the Living Trust was invalid. Notably, the district court made its factual findings without the benefit of the percipient witnesses that Pierce Marshall sought to have testify as part of his defense. The Texas probate court, however, held a five-month jury trial during which it took live testimony from the witnesses of all par- ties involved. 4534 IN RE MARSHALL [13] The district court was not free to reach these contra- dictory findings of fact; instead, it was bound to afford preclu- sive effect to the relevant factual findings made by the Texas probate court. It was similarly bound to afford preclusive effect to the overlapping legal issues finally determined by the Texas probate court as a necessary step to the Texas probate court’s determination of the validity of J. Howard Marshall II’s estate planning measures.
[14] The final step in our issue preclusion analysis is to inquire whether the parties were cast as adversaries in the first action. There can be no doubt that this step is satisfied.34 Before she nonsuited her claims, Vickie Lynn Marshall named Pierce Marshall as a defendant to many of her claims. After she nonsuited her claims, Pierce Marshall amended his claims to include a request that the district court enter a declaratory judgment with respect to Vickie Lynn Marshall’s interest (or lack thereof) in the estate of J. Howard Marshall II and the Living Trust.
[15] All of the elements of issue preclusion have been met in this case. The district court erred when it did not afford pre- clusive effect to the relevant determinations by the Texas pro- bate court. Had it done so, it would have concluded that various legal and factual issues necessary to establish Vickie Lynn Marshall’s tortious interference claim had already been decided against her by the Texas probate court, such that Pierce Marshall was entitled to judgment as a matter of law.
IV
In conclusion, Vickie Lynn Marshall’s counterclaim against Pierce Marshall for tortious interference with an inter vivos gift is not a “core proceeding[ ] arising under title 11, It makes no difference to our issue preclusion analysis that in Texas, Pierce Marshall was named in his representative capacity, but in Califor- nia, he was named in the counterclaim in his personal capacity. IN RE MARSHALL 4535 or arising in a case under title 11” for which the bankruptcy court is empowered to enter a final judgment. See 28 U.S.C. § 157(c). Because the Texas probate court’s judgment was the earliest final judgment entered on matters relevant to this pro- ceeding, the district court erred when it did not afford preclu- sive effect to the Texas probate court’s determination of relevant legal and factual issues. Several of these determina- tions prevent Vickie Lynn Marshall from prevailing on her tortious interference claim in this proceeding. Because of our disposition of these two issues, we need not reach, and do not reach, the many other issues raised by Pierce Marshall and Vickie Lynn Marshall.
Neither party shall recover costs on the appellate proceed- ings subsequent to the Supreme Court’s remand.
REVERSED AND REMANDED. IN RE MARSHALL 4537 Volume 2 of 2 4538 IN RE MARSHALL KLEINFELD, Circuit Judge, concurring:
I concur in the result reached by Judge Beezer’s opinion. Vickie’s counterclaim against Pierce is not a core proceeding, so the Texas probate court judgment preceded the district court judgment and controls.
I have no quarrel with the majority opinion, and offer no argument against it. I write merely to offer additional grounds that compel the same result.
Several alternative and independent grounds compel rever- sal: (1) because Pierce Marshall sought no damages from the bankruptcy estate, just a judgment that his Texas defamation judgment would not be discharged by the California bank- ruptcy, his claim could not affect the size of the estate avail- able to Vickie Marshall’s creditors; (2) Vickie’s counterclaim for money could not affect whether Pierce’s defamation claim was dischargeable; (3) Vickie’s counterclaim was not related to the bankruptcy, because she had already been discharged and her creditors would get none of the money she sought from Pierce in her counterclaim; (4) Pierce’s defamation claim in Texas was a common law claim for personal injury, which cannot be core. Vickie’s counterclaim (itself a non-core tort claim) amounted to evasion of Pierce’s constitutional right to jury trial in Texas. That evasion cannot stand shielded by bankruptcy court jurisdiction, especially when her bank- ruptcy was over and her debts discharged.
Pierce’s proof of claim is attached to this concurrence as an appendix. He made two substantive entries on the form. For the date the debt was incurred he said “see attached Ex. ‘A’.” And he checked the box for “unsecured nonpriority claim, and wrote “unliquidated” and “see attached Exhibit ‘A’ ” rather than stating an amount. To understand what claim he made, we must therefore look at his exhibit A, which is attached.
Pierce’s exhibit A is not a defamation claim for money. He had filed that in Texas years before, and was awaiting final IN RE MARSHALL 4539 judgment. Instead, exhibit A is entitled “complaint to deter- mine dischargeability of debt pursuant to 11 U.S.C. § 523(a)(6).” Pierce alleges that Vickie and her lawyers defamed him in the press, in order to humiliate him and to extort a settlement from him of the claims against his father’s estate. Their “willful and malicious acts,” he alleges, “resulted in injury to the Plaintiff and/or the Plaintiff ’s property.” But he does not seek money damages for this defamation. He was doing that in Texas. For his “cause of action” in bankruptcy court, Pierce pleads that “any discharge” Vickie may receive under bankruptcy law “will not discharge E. Pierce Marshall’s claims against the Defendant.” His prayer does not seek money damages, just a declaratory judgement “that the Plain- tiff ’s claims against the defendant have not been discharged” and costs, attorneys fees, and such other relief as is just.
Vickie’s counterclaim cannot be core because Pierce care- fully framed his complaint to seek only a declaratory judg- ment of nondischargeability, not a judgment that his defamation claim was meritorious and not a claim for money damages caused by the defamation. Bankruptcy court is the right place to litigate whether a debt was dischargeable. Pierce could not very well obtain judgment in a Texas trial court controlling dischargeability of a debt in a California bank- ruptcy. Bankruptcy court is the wrong place to litigate a com- mon law claim for personal injury to final judgment, and Pierce did not seek to litigate his personal injury claim there.
The statute provides that “core” proceedings include “claims against the estate . . . but not the liquidation or esti- mation of contingent or unliquidated personal injury tort . . . claims against the estate for purposes of distribution in a case under chapter 11.”1 Thus “claim” for purposes of determining “core” is a statutory term of art meaning something narrower than what the word ordinarily means. Pierce’s defamation claim would not be a “claim” under the statutory definition, 28 U.S.C. § 157(b)(2)(B); see also id. § 157 (b)(2)(O). 4540 IN RE MARSHALL because the statutory definition excludes unliquidated per- sonal injury claims. Neither his defamation claim being liti- gated in Texas nor his nondischargeability claim filed in bankruptcy court would affect distribution of the estate. One might imagine, from the statutory language alone, that because Pierce’s claim for a declaratory judgment of nondis- chargeability is core, that any counterclaim would be core.2 But the cases construing the statute establish that such an interpretation would be mistaken.3 Compulsory claims, such as setoff, can be core, but not all counterclaims are core.4 Vickie’s tort claim for interference with an expected gift, though a counterclaim to Pierce’s claim for a declaratory judgment of nondischargeability of his defamation claim, is not core.5 Were core jurisdiction over counterclaims read See id. § 157(b)(2)(C) (“Core proceedings include, but are not limited to . . . counterclaims by the estate against persons filing claims against the estate”). See, e.g., Piombo Corp. v. Castlerock Properties (In re Castlerock Properties), 781 F.2d 159, 162 (9th Cir. 1986) (“The apparent broad read- ing that can be given to § 157(b)(2) should be tempered by the Marathon decision.”). See, e.g., Dunmore v. United States, 358 F.3d 1107, 1114 (9th Cir. 2004) (holding that non-core matters are those that “do not depend on the Bankruptcy Code for their existence and . . . could proceed in another forum”); Sec. Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997) (“Actions that do not depend on bankruptcy laws for their exis- tence and that could proceed in another court are considered ‘non- core.’ ”); United States v. Yochum (In re Yochum), 89 F.3d 661, 670 (9th Cir. 1996) (“In determining whether a matter is a non-core proceeding, we look to a variety of factors ‘such as whether the rights involved exist inde- pendent of title 11, depend on state law for their resolution, existed prior to the filing of a bankruptcy petition, or were significantly affected by the filing of the bankruptcy case.’ ”) (citation omitted). See Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987) (“If the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but . . . it is an ‘otherwise related’ or non-core proceed- ing.”) (cited with approval by Eastport Assocs. v. City of Los Angeles (In re Eastport Assocs.), 935 F.2d 1071, 1077 (9th Cir. 1991)). IN RE MARSHALL 4541 more broadly, Marathon would loom as a constitutional barrier.6 The bankruptcy court had jurisdiction to make a determina- tion of whether Pierce’s claims against Vickie would survive bankruptcy because the question of whether a claim is dis- chargeable in bankruptcy involves “the restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power.”7 That determination, however, does not require adjudication of liability or damages on Pierce’s or Vickie’s tort claims, and that determination is all Pierce sought in bankruptcy court.8
We held, applying Marathon and the 1984 Act implement- ing Marathon, in Piombo Corp. v. Castlerock Properties (In re Castlerock Properties )9 that even though the debtor had filed a counterclaim to the creditors’s claim, the counterclaim did not fall within the Bankruptcy Court’s core jurisdiction. The creditor had not filed a claim for money in bankruptcy court, just for relief from the automatic stay, just as Pierce did not file a claim for money, merely for a nondischargeability determination. “In reaching this conclusion, we emphasized that courts ‘should avoid characterizing a proceeding as ‘core’ if to do so would raise constitutional problems.’ ”10 That, on N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 76 (1982) (plurality opinion) (“Art. III bars Congress from establishing legis- lative courts to exercise jurisdiction over all matters related to those aris- ing under the bankruptcy laws. The establishment of such courts does not fall within any of the historically recognized situations in which the gen- eral principle of independent adjudication commanded by Art. III does not apply.”). Id. at 72. See Eastport Assocs., 935 F.2d at 1077 (“While the district courts have jurisdiction under 28 U.S.C. § 1334 to decide state claims if they are related to a bankruptcy case, the bankruptcy courts may only decide claims if they are part of core proceedings. In noncore proceedings, the bankruptcy courts may only make recommendations to the district courts. 28 U.S.C. § 157(c)(1).”). 781 F.2d 159, 161 (9th Cir. 1986). Taxel v. Elec. Sports Research (In re Cinematronics, Inc.), 916 F.2d 1444, 1450 (9th Cir. 1990) (quoting Castlerock, 781 F.2d at 160). 4542 IN RE MARSHALL its face, Vickie’s counterclaim appears to fall within the words of § 157(b)(2)(C), does not, under Castlerock and Mar- athon, end the matter. The Supreme Court, in Marathon, held that “Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law.”11 The same reasoning applies to Pierce’s tort claim arising under state law, and Congress expressly preserved state law tort claims outside the jurisdiction of bankruptcy courts.12
Vickie’s counterclaim is not related to the question of whether Pierce’s defamation claim is dischargeable. Her tor- tious interference with a gift claim, if there is such a cause of action and she can prove its elements, could stand or fall regardless of whether his defamation claim was dischargeable or not. We need not reach the question whether, had Pierce sought damages for defamation as a creditor in bankruptcy, her counterclaim would be core, because he carefully avoided doing that. All that was required of the bankruptcy court in this case was to determine whether, if Pierce successfully proved in Texas what he pleaded in Texas, “willful and mali- cious injury” would preserve his judgment from discharge in Vickie’s bankruptcy.13 Whether a claim is dischargeable is a separate question from whether the claimant will prevail on the merits of that claim.14 Because Pierce did not seek money from the bankruptcy estate for Vickie’s defamation, or even estimation of the value of his claim,15 Vickie’s counterclaim Accord Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 584 (1985) (explaining the holding of Marathon). 28 U.S.C. § 157(b)(2)(B); see also id. § 157(b)(2)(O). 11 U.S.C. § 523(a)(6). Grogan v. Garner, 498 U.S. 279, 290 (1991) (“[N]ondischargeability [is] a question of federal law independent of the issue of the validity of the underlying claim.”). 28 U.S.C. § 157(b)(2)(B). IN RE MARSHALL 4543 could not affect money distributable to her creditors and should not be deemed “core.”16
Even if all the above analysis is mistaken, Vickie’s counter- claim was not “core” for another independent reason. She had already obtained her discharge in bankruptcy. Her counter- claim could not enlarge the amount of money distributable to her creditors, because of the discharge. She sought money for herself only, not a nickel of which would be shared among her creditors. Her claim was only nominally “by her bankruptcy estate,” and was in substance her personal claim for a judg- ment of hundreds of millions of dollars of which she would get every penny. Her claim should therefore be deemed not “related to” her bankruptcy case. My reasoning follows our holding in In re Fietz17 that once a chapter 13 plan was con- This is consistent with the Supreme Court’s teachings in Langenkamp v. Culp, 498 U.S. 42 (1990), and Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989). In those cases, the outcome depended on whether the party claiming a jury trial had invoked the claims allowance process of the bankruptcy court by filing a claim against the estate. In Granfinanciera, the Court explained that because the petitioner had “not filed claims against the estate, [the trustee’s] fraudulent conveyance action [did] not arise ‘as part of the process of allowance and disallowance of claims.’ Nor [was] that action integral to the restructuring of debtor-creditor relations. Congress therefore cannot divest petitioners of their Seventh Amendment right to a trial by jury.” 492 U.S. at 58-59. In Langenkamp the parties claiming a right to jury trial had filed a claim against the estate, “thereby bringing themselves within the equitable jurisdiction of the Bankruptcy Court,” and thus were not entitled to a jury trial. 498 U.S. at 45. Here, Pierce did not file a proof of claim seeking anything from the bankruptcy estate. Fietz v. Great W. Sav. (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988) (holding that the standard for the bankruptcy court to exercise “related to” jurisdiction in an adversary proceeding is whether “the outcome of the proceeding could conceivably have any effect on the estate being adminis- tered in bankruptcy.”); Menk v. Lapaglia (In re Menk), 241 B.R. 896, 907 (B.A.P. 9th Cir. 1999) (“Once the administration of the bankruptcy case has ended, the relation to the case becomes so attenuated that § 1334(b) ‘related to’ jurisdiction presumptively expires unless the court specifically retains jurisdiction.”). 4544 IN RE MARSHALL firmed, so that creditors could assert no interest in a subse- quent recovery on a cross claim, the bankruptcy court lacked jurisdiction because the claim was not “related to” the bank- ruptcy case. Because the claim “could not have had any con- ceivable effect on administration of the bankruptcy estate” and would have been “beyond the reach” of the creditors, jurisdiction was absent.18
There is yet another independent reason, elementary and compelling even without the others, that the bankruptcy court was without jurisdiction over Vickie’s counterclaim. Pursuant to the Bankruptcy Code, the bankruptcy court would not have had jurisdiction over Pierce’s defamation claim even had he asserted it there, which he did not. 28 U.S.C. § 157(b)(5) requires that “the district court shall order that personal injury tort and wrongful death claims shall be tried in the district court.” This statutory provision implements the holding in Marathon that Article III precludes bankruptcy courts from entering final judgments on tort claims founded on state law. Because bankruptcy judges cannot enter final judgment in such cases, they also “cannot try selected defenses in these tort cases. . . . The whole case, including defenses of all kinds, goes off to the district judge or the state court.”19 Pierce’s def- amation claim pending in Texas was for personal injury.20 Vickie’s claim, damages for tortious interference with a gift, Fietz, 852 F.2d at 459. See also the discussion of Langenkamp and Granfinanciera in footnote 16. Because Vickie’s bankruptcy was dis- charged, Pierce’s claim and Vickie’s counterclaim no longer related to “the process of allowance and disallowance of claims” or were they “inte- gral to the restructuring of debtor-creditor relations.” Granfinanciera, 492 U.S. at 58-59. Pettibone Corp. v. Easley, 935 F.2d 120, 123 (7th Cir. 1991). See In re Dillard Dept. Stores, Inc., 186 S.W.3d 514, 516 (Tex. 2006) (holding an employee’s defamation claim fell within scope of an agree- ment requiring arbitration of claims for personal injuries); see also Rizzo v. Passialis (In re Passialis), 292 B.R. 346, 348 (Bankr. N.D. Ill. 2003) (applying Texas law). IN RE MARSHALL 4545 was also a personal injury claim if it is a recognized tort.21 Thus her claim is also outside the jurisdiction of the bank- ruptcy court. Accordingly, had Pierce filed a proof of claim for damages for defamation, the bankruptcy court would have lacked jurisdiction to enter final judgment on that claim. Because Vickie’s counterclaim was a personal injury claim, be it in defense of Pierce’s defamation claim or an indepen- dent cause of action, the bankruptcy court would have lacked jurisdiction to enter final judgment on it.22 Under Marathon and the statute, she could not evade Pierce’s right to jury trial and an Article III court by shoehorning it into a bankruptcy filing, even had the discharge in bankruptcy not already ren- dered it not “related.”
Pierce asserted a personal injury claim, defamation, in Texas, and prevailed in a five month jury trial in Texas. All he filed in Vickie’s bankruptcy case was a claim for a declara- tory judgment that whatever judgment he obtained in Texas would stand undischarged by Vickie’s bankruptcy. Vickie used the vehicle of her bankruptcy case, even though it was effectively over, to file a personal injury claim against Pierce for interfering with a putative gift to her from his father. The bankruptcy court could not grant final judgment because her claim was for personal injury, was not related to the bank- ruptcy estate because she had obtained her discharge, and it was not “core.” Pierce’s constitutional rights to an Article III court and to jury trial as well as his statutory rights prevented jurisdiction in the bankruptcy court over Vickie’s claim against him. When the bankruptcy court decided otherwise, it was without jurisdiction to do so. See Marshall v. Marshall, 547 U.S. 293, 313 (2006) (“Texas courts have recognized a state-law tort action for interference with an expected inheritance or gift, modeled on the Restatement formulation.”); King v. Acker, 725 S.W. 2d 750, 754 (Tex. App. 1987) (discussing the availability of emotional distress damages under the Restatement (Second) of Torts § 774A (1977)). 28 U.S.C. § 157(b)(5). 4546 IN RE MARSHALL APPENDIX IN RE MARSHALL 4547 4548 IN RE MARSHALL IN RE MARSHALL 4549 4550 IN RE MARSHALL IN RE MARSHALL 4551 4552 IN RE MARSHALL IN RE MARSHALL 4553 4554 IN RE MARSHALL |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
ERRIS EDGERLY, Plaintiff-Appellant, v. No. 05-15080 CITY AND COUNTY OF SAN D.C. No. FRANCISCO; DAVID GOFF; JOHN CV-03-02169-WHA CONEFREY; FREDERICK SCHIFF, Defendants-Appellees.
ERRIS EDGERLY, Plaintiff-Appellant, No. 05-15382 v. CITY AND COUNTY OF SAN D.C. No. CV-03-02169-WHA FRANCISCO; DAVID GOFF; JOHN OPINION CONEFREY; FREDERICK SCHIFF, Defendants-Appellees. Appeal from the United States District Court for the Northern District of California William H. Alsup, District Judge, Presiding
Argued and Submitted November 13, 2006 Opinion Filed July 17, 2007 Opinion and Submission Vacated May 22, 2008 Resubmitted March 12, 2010 San Francisco, California
Filed March 19, 2010
Before: William C. Canby, Jr., John T. Noonan, and Richard A. Paez, Circuit Judges.
4452 EDGERLY v. SAN FRANCISCO Opinion by Judge Paez EDGERLY v. SAN FRANCISCO 4457 COUNSEL
Gregory M. Haynes, San Francisco, California, for plaintiff- appellant Erris Edgerly.
Dennis J. Herrera, City Attorney, Joanne Hoeper, Chief Trial Attorney, Sean F. Connolly, Deputy City Attorney, San Fran- cisco City Attorney’s Office, San Francisco, California, for defendants-appellees City and County of San Francisco, John Conefrey, and David Goff.
Jeremy Sugerman, Daniel J. O’Rielly, Gordon-Creed, Kelley, Holl & Sugerman, LLP, San Francisco, California, for defendant-appellee Frederick Schiff.
OPINION
PAEZ, Circuit Judge:
San Francisco Police Department Officers David Goff and John Conefrey (“Officers”) arrested Erris Edgerly for tres- passing within the gated area of the Martin Luther King/Marcus Garvey Housing Cooperative (“Cooperative”). The Officers transported Edgerly to the local police station, where they searched him for contraband. The search did not reveal any contraband and Sergeant Frederick Schiff, the police supervisor on duty at the time, authorized the Officers to issue Edgerly a citation for trespass and release him. Edgerly was not prosecuted for trespass or any other offense. Edgerly then filed this 42 U.S.C. § 1983 action against the Officers, Schiff, and the City and County of San Francisco (“City”), alleging that the Officers unlawfully arrested and searched him in violation of the Fourth Amendment, and that Schiff and the City were liable for the Officers’ unconstitu- tional actions. He also asserted various state tort claims against the Officers, Schiff, and the City. 4458 EDGERLY v. SAN FRANCISCO In ruling on the parties’ motions for summary judgment,1 the district court dismissed Edgerly’s § 1983 claims against the City and all claims against Schiff, but found that there were genuine issues of material fact with regard to Edgerly’s constitutional and state law claims against the Officers and state law claims against the City, and therefore allowed those claims to proceed to trial.
Following the presentation of all evidence, the district court granted the defendants’ motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(a) and dis- missed Edgerly’s remaining claims. The court also awarded attorneys’ fees to Schiff under 42 U.S.C. § 1988 and imposed sanctions against Edgerly and his attorney, Gregory Haynes, under Federal Rule of Civil Procedure 11(b). We have juris- diction pursuant to 28 U.S.C. § 1291. We reverse in part, affirm in part, and remand for further proceedings.
On Edgerly’s § 1983 arrest claim, we hold that the Officers had probable cause to arrest Edgerly for trespass in violation of California Penal Code section 602.8. Accordingly, we affirm the district court’s grant of summary judgment to the City, and of judgment as a matter of law to the Officers, on the Fourth Amendment arrest claim. However, because a cus- todial arrest was not authorized under state law, we reverse the district court’s grant of judgment as a matter of law to the Officers and the City on Edgerly’s state law false arrest claim, and remand for further proceedings.
On Edgerly’s search claims, we hold that, viewing the evi- dence in the light most favorable to Edgerly, a reasonable jury could find that the Officers subjected him to an unreasonable search in violation of the Fourth Amendment and California The Officers and the City filed joint motions for summary judgment and, later at trial, for judgment as a matter of law. Schiff filed separate motions. Edgerly filed a motion for partial summary judgment and requested partial judgment as a matter of law on his arrest claims. EDGERLY v. SAN FRANCISCO 4459 Penal Code section 4030(f). We also hold that the Officers are not entitled to qualified immunity for the search as alleged. Consequently, we reverse and remand for further proceedings on Edgerly’s § 1983 unlawful search claim against the Offi- cers and state law search claims against the Officers and the City. We affirm the grant of summary judgment to the City on Edgerly’s related Monell2 search claim, however, because Edgerly has not provided sufficient evidence that the Officers were acting pursuant to a City policy of conducting strip searches without reasonable suspicion.
Finally, as to Edgerly’s other claims, we reverse the Rule 50(a) ruling dismissing his additional state law claims against the Officers and the City. We affirm, however, (1) the grant of summary judgment to Schiff, (2) the award of attorneys’ fees to Schiff under 42 U.S.C. § 1988, and (3) the imposition of sanctions against Edgerly and his counsel.
I. Background
In reviewing the district court’s summary judgment ruling, we consider only the evidence submitted in connection with the parties’ motions, which consisted primarily of their pre- trial depositions. Conversely, in reviewing the district court’s Rule 50(a) ruling, we consider only the evidence presented at trial. However, other than one discrepancy in Edgerly’s testi- mony that is not relevant to our disposition,3 there were no significant differences between the parties’ depositions and trial testimony. Therefore, we do not expressly distinguish between the two in our description of the facts.
The material evidence regarding Edgerly’s arrest is not in Monell v. Dep’t of Soc. Servs., 436 U.S. 658 (1978). At his deposition, Edgerly testified that he told the Officers before the arrest that he was at the Cooperative “waiting for a resident.” At trial, however, he did not testify that he told the Officers why he was at the Cooperative. 4460 EDGERLY v. SAN FRANCISCO dispute. On August 29, 2000, while on daytime patrol, Offi- cers Goff and Conefrey drove by the Cooperative and observed Edgerly standing inside the fence that surrounds the property, next to a playground area. “No trespassing” signs were posted at the Cooperative’s gated entrances. The Offi- cers continued on their patrol and returned about five minutes later to find Edgerly standing at the same location. According to the Officers, they knew that Edgerly did not live at the Cooperative and that he had previously been arrested for a drug offense at a nearby street corner.4
The Officers stopped their car, approached Edgerly, and asked him “what he was doing.” According to the Officers, Edgerly responded that he was “just chilling,” which meant “just hanging out for no reason.”5 Having “determin[ed] that he had no specific reason to be [at the Cooperative],” the Offi- cers arrested Edgerly for trespassing in violation of California Penal Code section 602(l). The Officers testified that Edgerly was trespassing because he was loitering on the property and the Cooperative’s management had requested that officers enforce the “no trespassing” signs.
After the arrest, the Officers conducted a pat-down search of Edgerly and transported him to the Park Police Station, The Officers also testified that the Cooperative was in a high-crime area known for drug dealing and that Edgerly was an “associate” of neigh- borhood gang members. Edgerly testified that he lived one block away from the Cooperative and regularly visited his friends who lived there. He also testified that he rang the doorbell to a friend’s home shortly before his arrest and that he was waiting for her to return home when he was arrested. Edgerly’s trial testimony was slightly different. He testified that the Officers asked him whether he lived at the Cooperative and that he said “no.” We agree with the district court that this minor difference is not rele- vant to the probable cause analysis. Crediting either version of events, Edgerly did not provide the Officers with a specific explanation for his presence, but neither did he refuse to offer an explanation or suggest that he was on the premises for an unlawful purpose. EDGERLY v. SAN FRANCISCO 4461 where they performed an additional search. There is conflict- ing evidence regarding the station search. Edgerly testified that Officer Goff asked him to remove his shoes and socks, pull his pants down to his ankles, and bend over and cough. He also testified that Goff looked inside his boxer shorts before telling him that he could get dressed. The Officers, however, testified that Goff conducted only a routine clothing search. In any event, the search did not reveal any contraband. Sergeant Schiff was the supervisor on duty at the police sta- tion at the time, but he was not aware of the arrest or search until after they were completed, at which time he authorized the Officers to cite and release Edgerly. Edgerly was never prosecuted for any offense.
Edgerly filed an action against the Officers, Schiff, and the City in the Superior Court of California, seeking damages under § 1983 for violations of his Fourth Amendment rights. Edgerly also alleged state law claims for negligence, negli- gent and intentional infliction of emotional distress, false arrest, and unlawful search. The City properly removed the case to federal court. After the parties completed discovery, the district court granted summary judgment to the City on Edgerly’s § 1983 Monell claims and to Schiff on all claims against him. The court found, however, that there were genu- ine issues of material fact with regard to Edgerly’s § 1983 and state law claims against the Officers and state law claims against the City, and therefore denied summary judgment on those claims.
At trial, at the close of all the evidence, the district court granted the Officers and City’s motion for judgment as a mat- ter of law “for the reasons stated on the record and memoran- dum submitted by [the Officers and City].”6 The court ruled Although Edgerly did not file a separate Rule 50(a) motion, he requested that the court rule as a matter of law that the Officers lacked probable cause to arrest him, in his “Response to Defendants’ Request for Curative Instructions and Plaintiff’s Request for order of No probable cause for 602(L) trespass arrest.” 4462 EDGERLY v. SAN FRANCISCO that, as a matter of law, the Officers had probable cause to arrest Edgerly, if not under section 602(l), then under another state trespassing or loitering statute. As the court explained at the Rule 50 hearing:
On this record and these circumstances no jury could find otherwise than these officers had probable cause to believe a crime of some sort had been committed. That’s true even if it wasn’t 602(l). It didn’t have to be 602(l). In addition, I want to say that counsel should have brought to my attention California Penal Code 602.8. . . . But I want to say that I’m not limit- ing my analysis to 602.8. I am adopting each and every other provision that the City Attorney’s Office has suggested . . . .7
The court also held that the Officers’ search of Edgerly at the police station was not a strip search and was reasonable under the Fourth Amendment. In the alternative, the court held that, under federal and state law, the Officers were enti- tled to immunity from all of Edgerly’s claims.
After entry of judgment, the district court granted Schiff’s motion for attorneys’ fees, because Edgerly failed to dismiss Schiff after discovery revealed that the claims against him lacked merit. The court also granted Schiff’s motion for sanc- tions against Edgerly and his attorney, finding that they filed two frivolous motions for reconsideration of the court’s sum- mary judgment ruling. As we discuss below, the Officers and the City suggested that probable cause also existed to arrest Edgerly under California Penal Code sections 602.5 and 647(h). EDGERLY v. SAN FRANCISCO 4463 II. Discussion
A. Officers Goff and Conefrey
We review de novo the district court’s order granting the Officers’ and the City’s motion for judgment as a matter of law under Rule 50(a). See Santos v. Gates, 287 F.3d 846, 851 (9th Cir. 2002). “Judgment as a matter of law is appropriate when the evidence presented at trial permits only one reason- able conclusion.” Id.
1. Section 1983 Unlawful Arrest Claim
[1] Edgerly argues that the Officers arrested him without probable cause, in violation of the Fourth Amendment. To determine whether the Officers had probable cause at the time of the arrest, we consider “whether at that moment the facts and circumstances within [the Officers’] knowledge . . . were sufficient to warrant a prudent man in believing that the peti- tioner had committed or was committing an offense.” Beck v. Ohio, 379 U.S. 89, 91 (1964). Although conclusive evidence of guilt is not necessary to establish probable cause, “mere suspicion, common rumor, or even strong reason to suspect are not enough.” United States v. Lopez, 482 F.3d 1067, 1072 (9th Cir. 2007) (internal quotation marks, citation, and alter- ation omitted). Generally, officers need not have probable cause for every element of the offense, but they must have probable cause for specific intent when it is a required ele- ment. Id. at 1072-73.
[2] Because the probable cause standard is objective, prob- able cause supports an arrest so long as the arresting officers had probable cause to arrest the suspect for any criminal offense, regardless of their stated reason for the arrest. Deven- peck v. Alford, 543 U.S. 146, 153-55 (2004). Probable cause, however, must still exist under some specific criminal statute. See id. at 155-56; see also Alford v. Haner, 446 F.3d 935, 937 (9th Cir. 2006). It is therefore not enough that probable cause 4464 EDGERLY v. SAN FRANCISCO existed to arrest Edgerly for some metaphysical criminal offense; the Officers must ultimately point to a particular stat- utory offense.
Although the Officers lacked probable cause to arrest Edgerly for violating California Penal Code section 602(l)— now section 602(m)8—the statute under which they cited him, we ultimately conclude that probable cause existed to arrest Edgerly under another trespass provision, California Penal Code section 602.8(a). We therefore affirm the district court’s grant of judgment as a matter of law to the Officers on Edger- ly’s § 1983 unlawful arrest claim.
[3] The Officers cited Edgerly for violating California Penal Code section 602(l), now section 602(m). Under this section, a person commits a trespass if he or she “willfully . . . [e]nter[s] and occup[ies] real property or structures of any kind without the consent of the owner.” Long before Edger- ly’s arrest, however, the California Supreme Court had clearly held that section 602(l) “requires occupation of the property, a ‘nontransient, continuous type of possession.’ ” In re Cata- lano, 623 P.2d 228, 234 n.8 (Cal. 1981) (quoting People v. Wilkinson, 56 Cal. Rptr. 261, 264 (Cal. App. Dep’t Super. Ct. 1967)). As Wilkinson explained, section 602(l) requires the specific “inten[t] to remain permanently, or until ousted.” 56 Cal. Rptr. at 262; see also Cal. Jury Instr., Crim., No. 16.340 (6th ed. 1996) (requiring, for a conviction under section 602(l), proof that the defendant “entered and occupied the property with the specific intent to dispossess those lawfully entitled to possession”).
[4] Here, the Officers knew only that Edgerly was not a resident of the Cooperative and that he had been on the prop- In 2003, the California legislature amended Penal Code section 602, resulting in a renumbering of subdivision 602(l) to subdivision 602(m). 2003 Cal. Legis. Serv. ch. 805 (S.B. No. 993) (West). There were no sub- stantive changes to this provision. EDGERLY v. SAN FRANCISCO 4465 erty for a matter of minutes. On the basis of these facts, a rea- sonable officer would not have believed that Edgerly had violated or was about to violate section 602(l).
Nor did probable cause exist to arrest Edgerly for several of the other criminal offenses suggested by the Officers and City to the district court. Loitering, under California Penal Code section 647(h), also has a specific intent requirement, for which the Officers had no probable cause.9 Specifically, that section requires that the alleged loiterer “delay or linger” on the property “for the purpose of committing a crime as opportunity may be discovered.”10 Id.; see also In re Joshua M., 110 Cal. Rptr. 2d 662, 664-65 (Cal. Ct. App. 2001) (not- ing that the California courts first added this “specific intent element” to the state’s loitering statute, and that “[t]he Legis- lature included this intent element when it redrafted [the loi- tering statute] as present section 647, subdivision (h)”). And trespass under the 2000 version of California Penal Code sec- tion 602.5 in effect at the time of Edgerly’s arrest, which pro- hibited “enter[ing] or remain[ing] in any noncommercial dwelling house, apartment, or other such place,”11 applied by its terms only to “structures of the most private character, i.e., places of habitation.” In re D.C.L., 147 Cal. Rptr. 54, 55 (Cal. California Penal Code section 647(h) provides, in full: “[Everyone who] loiters, prowls, or wanders upon the private property of another, at any time, without visible or lawful business with the owner or occupant [is guilty of disorderly conduct, a misdemeanor]. As used in this subdivi- sion, ‘loiter’ means to delay or linger without a lawful purpose for being on the property and for the purpose of committing a crime as opportunity may be discovered.” Although we recognize that the probable cause and qualified immu- nity standards are objective, see Lopez, 482 F.3d at 1072, we note that the Officers and City do not argue, and the Officers did not testify, that the Officers had probable cause to believe that Edgerly was on the Coopera- tive property for the purpose of committing a crime. Effective January 1, 2001, California amended section 602.5 to replace “other such place” with “other residential place.” 2000 Cal. Legis. Serv. ch. 563 (S.B. No. 1486) (West). 4466 EDGERLY v. SAN FRANCISCO Ct. App. 1978) (holding that unauthorized entry of a shed adjacent to a house does not violate the section).12 A reason- able officer would not have believed that Edgerly, who was standing in the Cooperative’s playground area, had entered or was about to enter a dwelling unit in the Cooperative in viola- tion of section 602.5.
[5] Probable cause did, however, exist to believe that Edgerly was acting in violation of California Penal Code sec- tion 602.8(a). Section 602.8(a) prohibits unauthorized entry of “lands under cultivation or enclosed by fence . . . [or] unculti- vated or unenclosed lands where signs forbidding trespass are displayed at intervals not less than three to a mile.”13 Because As In re D.C.L. also noted, to construe the section otherwise “would be inconsistent with the legislative intent expressed in [section 602(l)], in that a penalty could be imposed for an unauthorized entry of any noncom- mercial structure even though no substantial occupation occurred.” Id. (footnote omitted). The reference to “lands under cultivation,” may suggest that the stat- ute was intended to apply only to agricultural or rural land. See Quarter- man v. Kefauver, 64 Cal. Rptr. 2d 741, 745-46 (Cal. Ct. App. 1997) (citing to section 602.8(a), among other statutes, in noting that “when the Legisla- ture refers to land as . . . under cultivation . . . the ordinary import of the description usually is to agricultural land . . . , or at least rural land as opposed to urban backyards”). By its plain terms, however, section 602.8(a) applies not only to “lands under cultivation,” but also to “lands where signs forbidding trespass are displayed” at requisite intervals. More- over, in addressing whether owners of apartment complexes, condomin- ium projects, and mobile home parks may bar personal distribution of political campaign materials on their property, the California Attorney General specifically noted section 602.8 as authority for excluding politi- cal candidates from such property. See 81 Ops. Cal. Atty. Gen. 71. This suggests, at least in the Attorney General’s view, that the statute is appli- cable to non-rural land. Finally, the only two state cases we have found applying section 602.8(a) did so in non-rural contexts, though both are unpublished and nonprecedential. See People v. McGill, No. A095525, 2002 WL 1978970, *2 (Cal. Ct. App. Aug. 28, 2002) (holding that a detention for trespass into a fenced-in dumpster area behind a market was lawful because the detaining officer had probable cause to believe that a trespass occurred in violation of section 602.8(a)); Haroonian v. Upton, EDGERLY v. SAN FRANCISCO 4467 the Cooperative where the Officers encountered Edgerly was fenced in and had “No trespassing” signs posted at its entrances, the officers had probable cause to believe that Edgerly was in violation of section 602.8(a).
[6] We recognize that under state law, an arrest for viola- tion of section 602.8 was nonetheless unauthorized. A first offense under section 602.8(a) is punishable only as an infrac- tion and, under California law, “[i]n all cases . . . in which a person is arrested for an infraction, a peace officer shall only require the arrestee to present . . . satisfactory [proof of iden- tity] and to sign a written promise to appear.” Cal. Penal Code § 853.5(a). “Only if the arrestee refuses to sign a written promise, has no satisfactory identification, or refuses to pro- vide a thumbprint or fingerprint may the arrestee be taken into custody.” Id. Here, because the Officers did not testify that Edgerly did any of these three things, or that they had reason to believe that he previously violated section 602.8(a), custo- dial arrest was improper under state law even though probable cause existed to believe that Edgerly was violating the law. However, “state restrictions [on arrest] do not alter the Fourth Amendment’s protections,” and under federal law, “warrant- less arrests for crimes committed in the presence of an arrest- ing officer are reasonable under the Constitution.”14 Virginia
No. B150987, 2002 WL 1155585, *7-8 (Cal. Ct. App. May 31, 2002) (reversing the grant of summary judgment on a trespass claim for consid- eration of whether defendant process server may have had privilege to enter plaintiff’s suburban home under 602.8(c)(3)). Although we are not bound by either the unpublished state cases or the Attorney General’s opinion, we find them persuasive, and we decline to read a narrowing interpretation into the state statute when the state has not only not done so, but has affirmatively applied the statute to non-rural lands. In our previous opinion, we held that Edgerly’s arrest was unconstitu- tional and that the Officers were not entitled to qualified immunity in light of the state law restriction on arrests for first-time offenses of this kind. See Edgerly v. City and County of San Francisco, 495 F.3d 645, 653-55 (9th Cir. 2007), rehearing granted, opinion withdrawn by 527 F.3d 841 4468 EDGERLY v. SAN FRANCISCO v. Moore, 128 S. Ct. 1598, 1607 (2008) (holding that police officers did not violate the Fourth Amendment by arresting a motorist whom they had probable cause to believe had vio- lated a state driving law even though under Virginia law the officers should have issued a summons for the misdemeanor rather than made an arrest). We therefore hold that Edgerly’s arrest was constitutional, even though it was impermissible under state law, and affirm the district court’s grant of judg- ment as a matter of law to the Officers on Edgerly’s § 1983 Fourth Amendment arrest claim.
2. Section 1983 Unlawful Search Claim
Edgerly also challenges the search that the Officers con- ducted following his arrest as more invasive than was reason- able under the circumstances. We conclude that the district court erroneously entered judgment as a matter of law for the Officers on Edgerly’s § 1983 unlawful search claim. Viewing the evidence at trial in the light most favorable to Edgerly, a reasonable jury could find that the Officers’ search of Edgerly
(9th Cir. 2008). In so holding, we relied on Ninth Circuit law holding that “federal courts must determine the reasonableness of the arrest in refer- ence to state law governing the arrest” and that state law restrictions on arrest for minor crimes were thus applicable to Fourth Amendment analy- ses. Id. at 655 (citing Bingham v. City of Manhattan Beach, 341 F.3d 939, 950 (9th Cir. 2003)); see also Reed v. Hoy, 909 F.2d 324, 330 n.5 (9th Cir. 1989) (indicating that state law is also relevant in analyzing the reason- ableness of a search under the Fourth Amendment). We withdrew our opinion after the Supreme Court decided Virginia v. Moore, in which it held that such state arrest restrictions are irrelevant to our Fourth Amend- ment inquiry. 128 S. Ct. at 1607. We are now bound by Moore, and to the extent that Bingham and Reed are inconsistent with Moore, they are effec- tively overruled. See Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc) (holding that “where the reasoning or theory of our prior circuit authority is clearly irreconcilable with the reasoning or theory of interven- ing higher authority, a three-judge panel should consider itself bound by the later and controlling authority, and should reject the prior circuit opin- ion as having been effectively overruled”). EDGERLY v. SAN FRANCISCO 4469 at the police station was unreasonable, in violation of the Fourth Amendment. Also, because no reasonable officer could have believed, in light of clearly established law, that the search as described by Edgerly was constitutional, the Officers are not entitled to qualified immunity for the search. Because the evidence from trial permits more than one rea- sonable conclusion as to the constitutionality of the search, we remand for further proceedings.
a. Reasonableness of the Search
[7] To determine whether a search is reasonable under the Fourth Amendment, we balance “the need for the particular search against the invasion of personal rights that the search entails.”15 Way v. County of Ventura, 445 F.3d 1157, 1160 (9th Cir. 2006) (quoting Bell v. Wolfish, 441 U.S. 520, 559 (1979)). Applying this balancing test, we first held in Giles v. Ackerman that “arrestees charged with minor offenses may be subjected to a strip search only if jail officials possess a rea- sonable suspicion that the individual arrestee is carrying or concealing contraband.” Giles v. Ackerman, 746 F.2d 614, 617 (9th Cir. 1984), overruled by Bull v. City and County of San Francisco, No. 05-17080, slip op. 2238, 2268 (9th Cir. Feb. 9, 2010) (en banc). We have repeatedly applied this rule in cases following Giles. E.g., Act Up!/Portland v. Bagley, 988 F.2d 868, 871-72 (9th Cir. 1993); Fuller v. M.G. Jewelry, 950 F.2d 1437, 1446 (9th Cir. 1991). We recently carved out an exception to this rule in Bull v. City and County of San Francisco, in which we overruled Giles and held that such an arrestee could be strip searched without individualized suspi- cion if the arrestee would be introduced into the general jail population. Bull, slip op. at 2268. In those circumstances, the institutional need to prevent arrestees from bringing contra- band into the jail justified the “the invasion of personal rights As with arrests, state law restrictions on searches do not change Fourth Amendment protections. See Moore, 128 S. Ct. at 1607 (“[S]tate restrictions do not alter the Fourth Amendment’s protections.”). 4470 EDGERLY v. SAN FRANCISCO that the search entails.” Bull, slip op. at 2259 (citing Bell, 441 U.S. at 559). Bull, however, left undisturbed our line of prece- dent requiring reasonable suspicion to strip search arrestees charged with minor offenses who are not classified for hous- ing in the general jail population. Bull, slip op. at 2268-69. This precedent controls here because Edgerly was never placed in the general jail population, but was merely cited and released at the station. We therefore first consider Edgerly’s contention that he was strip searched; if he was, we must then consider whether the Officers had a reasonable suspicion that he was carrying or concealing contraband.
[8] In Giles, we held that visually inspecting an arrestee’s naked body, even without a “visual examination of body cavi- ties,” constitutes a strip search.16 Giles, 746 F.2d at 615, 616. The Supreme Court also recently held that a search very similar to the search that Edgerly alleges was conducted on him constitutes a strip search. In Safford Unified School District No. 1 v. Redding, 129 S. Ct. 2633, 2641 (2009), school officials had directed a student to strip down to her underwear and then to “pull out” her bra and the elastic band on her underpants. The Supreme Court noted that it would be “fair” to call this a “strip search.” Id. Notably, the Supreme Court expressly declined to ascribe any significance to whether the officials “s[aw] anything,” explain- ing that it “would not define strip search and its Fourth Amendment conse- quences in a way that would guarantee litigation about who was looking and how much was seen.” Id. Rather, the Court held that “pulling her underwear away from her body in the presence of the two officials who were able to see her necessarily exposed her breasts and pelvic area to some degree.” Id. This exposure amounted to a “degree of intrusion” that, in that context, required greater justification than a search of outer clothing and belongings. Id. at 2642. Similarly, we have held in the border search context that requiring an arrestee to expose only his or her undergarments “tend[s] toward [a] strip search in that if conducted in public it can be said to result in embarrass- ment to one of reasonable sensibilities.” United States v. Palmer, 575 F.2d 721, 723 (9th Cir. 1978). We further held that, although it is “hardly feasi- ble to enunciate a clear and simple standard for each possible degree of intrusiveness,” such a search requires “suspicion . . . founded on facts spe- cifically relating to the person to be searched, and [that] the search [be] no more intrusive than necessary to obtain the truth respecting the suspi- cious circumstances.” Id. EDGERLY v. SAN FRANCISCO 4471 Although Bull overruled Giles’s holding that officials need individualized suspicion to strip search minor-offense arrestees who would be placed in the general jail population, it did not disturb its conclusion that a mere visual inspection of an arrestee’s naked body constitutes a strip search. See Bull, slip op. at 2262-68. Viewing the evidence in the light most favorable to Edgerly, a reasonable jury could find that the Officers strip searched him. According to Edgerly’s trial testimony, Officer Goff required him to arrange his clothing so as to permit a visual inspection of his undergarments, by asking him to pull his pants down to his ankles. Edgerly testi- fied that Goff then placed his finger within Edgerly’s boxers and “kind of just looked around.” This would permit a reason- able inference that Goff visually inspected Edgerly’s buttocks or genitalia, which would amount to a strip search under Giles, 746 F.2d at 616, 618. Therefore, if the jury credits Edgerly’s testimony, it could reasonably conclude that the Officers’ search was a strip search that required reasonable suspicion that Edgerly was concealing contraband.
The Officers, however, did not testify that they had reason- able suspicion for the search. Rather, they testified that they arrested Edgerly only for trespass, a minor offense not involv- ing contraband, weapons, or violence. Also, Officer Cone- ferey testified that Edgerly was not required to lower his pants at the police station because there was no reason to believe that he was concealing a weapon or contraband.
[9] Accordingly, a dispute of fact exists, and a reasonable jury could find that the Officers strip searched Edgerly, and did so without the requisite reasonable suspicion, in violation of Edgerly’s Fourth Amendment rights.
b. Qualified Immunity for the Search
[10] Even assuming the Officers’ conduct violated Edger- ly’s constitutional rights, the grant of judgment as a matter of law would be appropriate if the Officers are entitled to quali- 4472 EDGERLY v. SAN FRANCISCO fied immunity for the strip search Edgerly alleges they per- formed. We therefore must consider whether the law was “clearly established” such that “it would be clear to a reason- able officer that his conduct was unlawful in the situation he confronted.” Saucier v. Katz, 533 U.S. 194, 202 (2001); see also Way, 445 F.3d at 1159.
[11] We conclude that the Officers are not entitled to qual- ified immunity for their alleged strip search of Edgerly by visually inspecting his genitalia or buttocks. As we explained above, without reasonable individualized suspicion, a strip search like that alleged here is unconstitutional. See Fuller, 950 F.2d at 1446. The law on this point was clearly estab- lished at the time of this search: we have previously held that it was clearly established in 1989 “that it is unlawful to strip search an arrestee brought to a jail facility on charges of com- mitting a minor offense, unless the officer directing the search possesses ‘a reasonable suspicion that the individual arrestee is carrying or concealing contraband.’ ” Act Up!/Portland, 988 F.2d at 871-72 (quoting Giles, 746 F.2d at 617) (footnote omitted).17 In light of this clearly established law, no reason- able officer could have believed that the police station search, as described by Edgerly at trial, was lawful. See Way, 445 F.3d at 1159; see also Saucier, 533 U.S. at 202. We therefore reverse the grant of judgment as a matter of law, and remand Edgerly’s § 1983 unlawful search claim for further proceed- ings.
3. State Law Claims
a. False Arrest Claim
[12] In addition to his federal unlawful arrest claim, Because Bull did not disturb our cases requiring individualized suspi- cion for strip searches of arrestees not classified for housing in the general jail population, Bull’s overruling of Giles in no way affects our conclusion that the law was clearly established here. Bull, slip op. at 2268-69. EDGERLY v. SAN FRANCISCO 4473 Edgerly maintains a state law false arrest claim. For the rea- sons explained above, the only offense that the Officers had probable cause to believe Edgerly was committing when they encountered him was trespass, in violation of California Penal Code section 602.8. While the existence of probable cause renders the arrest reasonable under the Fourth Amendment, and thus constitutional, more is needed to authorize Edgerly’s custodial arrest under state law. Cf. People v. McKay, 41 P.3d 59, 71 (Cal. 2002) (holding that state arrest procedures do not limit the constitutionality of arrests under the Fourth Amend- ment, but emphasizing that that holding “in no way counte- nance[s] violations of state arrest procedure,” as “[v]iolation of those rights exposes the peace officers and their depart- ments to civil actions seeking injunctive or other relief”). As noted above, a first offense under section 602.8(a) is punish- able only as an infraction and, under California law, “[i]n all cases . . . in which a person is arrested for an infraction,” cus- todial arrest is authorized “[o]nly if the arrestee refuses to sign a written promise [to appear], has no satisfactory identifica- tion, or refuses to provide a thumbprint or fingerprint.” Cal. Penal Code § 853.5(a).
[13] Here, because the Officers did not testify that Edgerly met any of these three requirements, or that they had reason to believe that he previously violated section 602.8(a), the custodial arrest was not authorized by state law. Further, because this limitation on arrests for mere infractions was clearly established by statutory law, the officers did not have “reasonable cause to believe the arrest was lawful” under state law, and they are not entitled to immunity from civil liability. See Cal. Penal Code § 847(b)(1) (providing that officers are entitled to immunity from false arrest claims if “the arrest was lawful” or the officers had “reasonable cause to believe the arrest was lawful”); see also O’Toole v. Superior Court, 44 Cal. Rptr. 3d 531, 548-49 (Cal. Ct. App. 2006) (noting that police officers are not granted governmental immunity for false arrest or false imprisonment under California law, but that California Penal Code section 847 protects them from 4474 EDGERLY v. SAN FRANCISCO civil liability under certain circumstances). We therefore reverse and remand for further proceedings on this state law claim.
b. Unlawful Search Claim
[14] Although the legal basis for Edgerly’s state law unlawful search claim is not entirely clear from his complaint or the district court’s orders, it appears to be California Penal Code section 4030(p), which provides a private right of action for persons unlawfully strip searched in violation of the sec- tion. Section 4030(f) states that “[n]o person arrested and held in custody on a misdemeanor or infraction offense, except those involving weapons, controlled substances or violence . . . shall be subjected to a strip search . . . unless a peace offi- cer has determined there is reasonable suspicion based on spe- cific and articulable facts to believe such person is concealing a weapon or contraband, and a strip search will result in the discovery of the weapon or contraband.” It further requires “prior written authorization of the supervising officer on duty” before such a strip search may occur. Id. The term “strip search” is defined in section 4030(c) as “a search which requires a person to remove or arrange some or all of his or her clothing so as to permit a visual inspection of the under- clothing, breasts, buttocks, or genitalia of such person.”
[15] Viewing the evidence in the light most favorable to Edgerly, a reasonable jury could find that the Officers strip searched him in violation of section 4030(f). We therefore reverse and remand for the district court to clarify the legal basis of this claim and to proceed accordingly.
c. Negligence, Negligent and Intentional Infliction of Emotional Distress
[16] Edgerly’s claims for negligence and negligent and intentional infliction of emotional distress, however, raise substantial legal and factual questions beyond the lawfulness EDGERLY v. SAN FRANCISCO 4475 of Edgerly’s arrest and search, such as whether Edgerly suf- fered severe emotional distress and what duties the Officers owed to Edgerly. Because the district court mistakenly con- cluded that Edgerly’s arrest and search were lawful, it did not reach these questions. We therefore remand these claims so that the district court can address the necessary questions in the first instance.
B. The City
1. Section 1983 Monell Claims
We review de novo the district court’s order granting sum- mary judgment to the City for Edgerly’s § 1983 claims against it. See Anderson v. Warner, 451 F.3d 1063, 1067 (9th Cir. 2006). Viewing the facts in the light most favorable to the nonmoving party, “we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law.” Id. We con- clude that the district court properly granted summary judg- ment to the City on both of Edgerly’s § 1983 Monell claims.
[17] Local government entities “can be sued directly under § 1983 . . . where . . . the action that is alleged to be unconsti- tutional implements or executes a policy statement, ordinance, regulation, or decision officially adopted and promulgated by that [entity’s] officers.” Monell, 436 U.S. at 690. However, liability attaches only where the entity’s policies evince a “de- liberate indifference” to the constitutional right and are the “moving force behind the constitutional violation.” Levine v. City of Alameda, 525 F.3d 903, 907 (9th Cir. 2008) (internal quotation marks and citation omitted).
[18] Because we conclude that the Officers did not inflict a constitutional injury on Edgerly by arresting him, Edgerly cannot maintain a § 1983 claim against the City on the basis of his arrest, regardless of whether the City had a policy of making arrests under section 602(l) where probable cause was 4476 EDGERLY v. SAN FRANCISCO lacking. We therefore affirm the grant of summary judgment to the City on Edgerly’s § 1983 Monell claim for unlawful arrest.
[19] We also affirm the grant of summary judgment on Edgerly’s Monell claim premised on the Officers’ allegedly unconstitutional search. Some evidence in the record does support Edgerly’s contention that the Officers were not trained to request authorization from a supervisor before requiring an arrestee to reveal his underclothing, including Schiff’s deposition testimony that he followed “department policy” in requiring officers to request authorization only for full body cavity searches. This alleged insufficiency in train- ing, however, relates only to a possible state law violation under California Penal Code section 4030, which requires prior supervisor authorization for searches in which an arrestee is required to “remove or arrange some or all of his or her clothing so as to permit a visual inspection of the underclothing.” Cal. Penal Code § 4030(c), (f). No such supervisor authorization is required by the Fourth Amend- ment, and thus this alleged failure to train is not the moving force behind a constitutional violation, as required for Monell liability. Because Edgerly has not presented evidence of a City policy of conducting strip searches, as defined by Fourth Amendment standards, without reasonable suspicion, judg- ment was properly granted to the City.
2. State Law Claims
[20] We conclude, however, that the district court erred by granting judgment as a matter of law for the City on Edgerly’s state law tort claims. First, Edgerly is correct that the City is vicariously liable for the Officers’ actions under California law, which “has rejected the Monell rule and imposes liability on [cities] under the doctrine of respondeat superior for acts of [city] employees.” See Robinson v. Solano County, 278 F.3d 1007, 1016 (9th Cir. 2002) (en banc) (citing Cal. Gov’t Code § 815.2). The City is therefore liable to the same extent EDGERLY v. SAN FRANCISCO 4477 as the Officers for Edgerly’s state law claims against them, and Edgerly may recover from the City any damages awarded on remand. See id.
[21] Second, Edgerly’s claim that the City is directly liable for his injuries because it negligently trained and supervised the Officers raises legal and factual questions that the district court has not yet addressed, such as whether the City owed Edgerly a relevant duty of care. We therefore remand this claim for the district court to address the necessary questions in the first instance.
C. Sergeant Schiff
We affirm the district court’s grant of summary judgment to Sergeant Schiff as to all claims against him.
We have found supervisorial liability under § 1983 where the supervisor “was personally involved in the constitutional deprivation or a sufficient causal connection exists between the supervisor’s unlawful conduct and the constitutional vio- lation.” Lolli v. County of Orange, 351 F.3d 410, 418 (9th Cir. 2003) (quoting Jackson v. City of Bremerton, 268 F.3d 646, 653 (9th Cir. 2001)). Thus, supervisors “can be held liable for: 1) their own culpable action or inaction in the training, supervision, or control of subordinates; 2) their acquiescence in the constitutional deprivation of which a complaint is made; or 3) for conduct that showed a reckless or callous indifference to the rights of others.” Cunningham v. Gates, 229 F.3d 1271, 1292 (9th Cir. 2000).
[22] Taking the facts in the light most favorable to Edgerly, Sergeant Schiff was a police supervisor who was responsible for the day-to-day operations at the station when he was on duty, and who provided only informal training to officers—as Schiff testified at his deposition, when officers asked him questions, he would try to answer them. These facts do not establish supervisorial liability for Schiff. No rea- 4478 EDGERLY v. SAN FRANCISCO sonable trier of fact could find that Schiff had any personal involvement in the incident because he was not aware of the arrest or search until after they were completed, when he authorized the Officers to cite and release Edgerly. Nor could a reasonable trier of fact find that a sufficient causal connec- tion existed between Schiff and the Officers’ potentially unconstitutional search of Edgerly. Schiff was not responsible for station policy; he was required to enforce the rules and regulations set forth by his supervising captain and other higher-ranking officers. Cf. Redman v. County of San Diego, 942 F.2d 1435, 1446-48 (9th Cir. 1991) (en banc) (holding, where petitioner alleged that he was sexually assaulted in prison due to a deficient inmate assignment policy, that a rea- sonable jury could find supervisorial liability based on evi- dence that the defendant sheriff was responsible for the “ultimate direction of operations at the [prison]”). Nor do the facts suggest that Schiff provided any training to Officers Goff or Conefrey in particular, or that he was responsible for providing formal training to any officers. See Canell v. Light- ner, 143 F.3d 1210, 1213 (9th Cir. 1998) (holding that, to establish supervisorial liability for failure to train, a plaintiff must show that the failure “amounted to deliberate indiffer- ence”).
[23] Accordingly, the district court properly dismissed Edgerly’s § 1983 claims against Schiff. For similar reasons, the court properly dismissed Edgerly’s state law claims against Schiff. Each of these state law claims required proof of causation and, as discussed, the facts do not establish a suf- ficient causal connection between Schiff and the Officers’ actions. We therefore affirm the district court’s grant of sum- mary judgment to Schiff.
D. Attorneys’ Fees
We review an award of attorneys’ fees pursuant to 42 U.S.C. § 1988 for abuse of discretion. LSO, Ltd. v. Stroh, 205 F.3d 1146, 1160 (9th Cir. 2000). A district court may award EDGERLY v. SAN FRANCISCO 4479 attorneys’ fees to a prevailing defendant “only where the action brought is found to be unreasonable, frivolous, merit- less or vexatious.”18 Patton v. County of Kings, 857 F.2d 1379, 1381 (9th Cir. 1988) (quoting Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421 (1978)).
Prior to Schiff’s deposition on May 4, 2004, his attorney sent three letters to Edgerly’s attorney requesting that he dis- miss Schiff because the Officers’ depositions established that Schiff was not liable for the arrest or search. Edgerly’s attor- ney declined to do so. After the district court ordered sum- mary judgment on October 14, 2004, Schiff’s attorney filed a motion for attorneys’ fees pursuant to 42 U.S.C. § 1988.
The district court granted Schiff’s motion in part, awarding him reasonable attorneys’ fees starting from May 11, 2004, when the parties completed discovery. The court found that it was reasonable for Edgerly not to dismiss Schiff before com- pleting discovery, since it was possible that Schiff’s deposi- tion would reveal that he had a more significant role in training or supervising the Officers than the Officers’ deposi- tions had disclosed. The court found, however, that it was unreasonable for Edgerly not to dismiss Schiff after his depo- sition confirmed that there was no basis for supervisorial lia- bility.
[24] We conclude that the district court did not abuse its discretion in awarding reasonable post-discovery attorneys’ fees to Schiff.19 Edgerly does not challenge the amount of the fee award. Edgerly also argues that the district court abused its discretion because it decided the motion for attorneys’ fees without allowing oral argument. Local Rule 7-1(b) for the Northern District of California, however, pro- vides that a district court may decide motions without oral argument, and Edgerly does not explain why oral argument was necessary for the court to rule properly on Schiff’s motion. 4480 EDGERLY v. SAN FRANCISCO E. Sanctions
We also review a district court’s imposition of sanctions for abuse of discretion. Patelco Credit Union v. Sahni, 262 F.3d 897, 912-13 (9th Cir. 2001). “A district court abuses its dis- cretion in imposing sanctions when it bases its decision on an erroneous view of the law or on a clearly erroneous assess- ment of the evidence.” Id. at 913. A motion for reconsidera- tion is sanctionable if it is frivolous, but not if it raises new issues. See Conn v. Borjorquez, 967 F.2d 1418, 1421 (9th Cir. 1992).
Here, the district court awarded sanctions against Edgerly and his attorney, Gregory Haynes, under Federal Rule of Civil Procedure 11(b) on the basis of its finding that they filed two frivolous motions for reconsideration.20 Thus, the court awarded sanctions in the amount of attorneys’ fees that Schiff incurred in responding to the motions.
[25] We conclude that the district court did not abuse its discretion in imposing these sanctions. The court did not com- mit any legal error and its finding that Edgerly and Haynes’ two motions for reconsideration did not raise any new issues was not clearly erroneous.21
III. Conclusion
[26] In sum, we conclude that the Officers did not violate Edgerly’s Fourth Amendment rights by arresting him because probable cause existed to believe that he was present within the Cooperative in violation of California Penal Code section The district court also found in the alternative that the award of sanc- tions was justified under 28 U.S.C. § 1987. Because we affirm the award of sanctions under Federal Rule of Civil Procedure 11(b), we do not address this alternate basis for the sanctions. For the reasons discussed supra in note 18, the district court did not abuse its discretion in granting the motion without allowing oral argument. EDGERLY v. SAN FRANCISCO 4481 602.8. We therefore affirm the district court’s entry of judg- ment as a matter of law for the Officers on Edgerly’s § 1983 unlawful arrest claim. For the same reason, we affirm the grant of summary judgment to the City on the § 1983 Monell arrest claim. However, because a custodial arrest was not authorized under state law, we reverse the district court’s grant of judgment as a matter of law to the Officers and the City on Edgerly’s state law false arrest claim, and remand for further proceedings.
We further hold that, viewing the evidence in the light most favorable to Edgerly, a reasonable jury could find that the Officers unlawfully strip searched him in violation of the Fourth Amendment and California Penal Code section 4030(f), and that the Officers are not entitled to qualified immunity for the search. We therefore reverse and remand for further proceedings with respect to Edgerly’s § 1983 unlawful search claim against the Officers and state law unlawful search claims against the Officers and the City. We affirm the grant of summary judgment to the City on Edgerly’s related Monell claim, however, because Edgerly has not provided sufficient evidence that the Officers were acting pursuant to a City policy of conducting strip searches without reasonable suspicion.
We reverse and remand for the district court to address in the first instance Edgerly’s claims of state law negligence, negligent infliction of emotional distress, and intentional infliction of emotional distress against the Officers and the City, and his negligent training and supervision claim against the City.
Finally, we affirm the district court’s grant of summary judgment and award of attorneys’ fees to Schiff and the impo- sition of sanctions against Edgerly and his attorney, Gregory Haynes. 4482 EDGERLY v. SAN FRANCISCO AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings consistent with this opinion.
In Appeal No. 05-15382, the parties shall bear their own costs of appeal.
In Appeal No. 05-15080, the Appellees shall recover their costs of appeal. |
FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 09-10076 Plaintiff-Appellee, D.C. No. v. 3:08-cr-00022-LRH- TERRANCE HOFUS, VPC-1 Defendant-Appellant. OPINION
Appeal from the United States District Court for the District of Nevada Larry R. Hicks, District Judge, Presiding
Argued and Submitted January 11, 2010—San Francisco, California
Filed March 19, 2010
Before: John T. Noonan, Michael Daly Hawkins and Milan D. Smith, Jr., Circuit Judges.
Opinion by Judge Hawkins; Dissent by Judge Noonan
4558 UNITED STATES v. HOFUS
COUNSEL
Michael Powell, Office of the Federal Public Defender, Reno, Nevada, for the defendant-appellant.
Elizabeth Olson, Office of the United States Attorney, Reno, Nevada, for the plaintiff-appellee. UNITED STATES v. HOFUS 4559 OPINION
HAWKINS, Circuit Judge:
Appellant Terrance Hofus (“Hofus”) appeals his jury trial conviction for one count of attempting to coerce and entice a minor to engage in sexual activity, in violation of 18 U.S.C. § 2422(b). He contends the jury instructions inadequately defined the “substantial step” requirement and failed to require unanimity as to what constituted that substantial step. Hofus also argues that the district court erroneously excluded testimony from his expert that Hofus valued the sexual texting “in fantasy alone” and was unlikely to actually engage in sex with the minor victim. We affirm his conviction for the rea- sons set forth below.
FACTS AND PROCEDURAL HISTORY
In February 2008, several 12 to 16-year-old girls had a sleep over party in Nevada. During the party, two of the young girls, M.M. and B.T., took nude photos of themselves and sent them by cell phone to a 15-year-old boy, T.H. Although unclear exactly how Hofus learned about the photos,1 after the party B.T. began receiving text messages from a number she did not recognize. From that number, Hofus sent her various sexual messages and told her that unless she and M.M. met with him to do sexual things, he would send the nude photos to everyone they knew and post them on the Internet.
After the party, M.M. also exchanged text messages with Hofus, thinking that he was the 15-year-old boy. When these texts became very sexual, M.M. told her mother and older sis- ter about them. M.M.’s sister called the number and told him to stop calling her 14-year-old sister. Hofus also left several voicemail messages on M.M.’s phone. Hofus had recently acquired the phone number from a 13-year-old boy. 4560 UNITED STATES v. HOFUS Although it was later determined that Hofus’s phone did not give him the ability to actually view the nude photos, he made the girls believe he had seen them and had them in his possession. For example, Hofus sent B.T. a text that he was at a Kinko’s copy shop and had found a way to enlarge cell phone images to poster size: “think that if we printed up the 2 of u girls and hung them up at the high skol that it wud help u keep u r promise to me they look hot there a lot detail big.”
B.T. eventually told a teacher about the problem, and, ulti- mately, the FBI took over the investigation. Special Agent Anna Brewer took M.M.’s cell phone and downloaded the voicemail messages from Hofus. Brewer also took B.T.’s cell phone and found several text messages from Hofus, including one which said “I am ok with not having sex it wud help me get rid of the urge if we could just talk like the 3 of us did before that’s all want” and another which said “come on babe lets do this u know u want to be with me.”
Agent Brewer posed as B.T. and began texting with Hofus. Brewer recorded all text messages and voicemails that were received on B.T.’s phone. Brewer asked for the pictures back; Hofus asked what she was willing to do to get them. Later, Hofus apparently became suspicious and asked her “Why are u talking 2 the police” and “some one knows a detective.” Hofus asked B.T. to promise that whatever they might do would stay between them — “no friends parents police.” He insisted on talking to B.T. on the phone to arrange a meeting (“We need to talk on phone how far can u travel” “we need to talk tonight or forget it”).
With her parents’ permission, B.T. spoke to Hofus on a monitored phone and arranged to meet him at the Parklane movie theater to see the movie Juno. Following their conver- sation, he continued to send her sexually explicit texts asking about her sexual experiences.
On March 16, the FBI set up surveillance at the Parklane movie theater. At noon, Hofus sent a text asking, “Are u UNITED STATES v. HOFUS 4561 going to let me taste u naked.” He also sent a message sug- gesting B.T. go to the McDonald’s near the theater instead. When the agents went to the McDonalds, they noticed Hofus sitting on a bus stop bench across the street from the theater, using his cell phone, and arrested him.
Hofus was charged with a single count of attempted coer- cion and enticement of a minor to engage in sexual activity in violation of 18 U.S.C. § 2422(b). After a four-day trial, a jury found him guilty, and he was sentenced to 130 months imprisonment.
DISCUSSION
I. Jury Instructions
We review the district court’s formulation of jury instruc- tions for an abuse of discretion, United States v. Ortega, 203 F.3d 675, 684 (9th Cir. 2000), and we review de novo whether the instructions misstated or omitted an element of the charged offense. United States v. Stapleton, 293 F.3d 1111, 1114 (9th Cir. 2002). The “relevant inquiry is whether the instructions as a whole are misleading or inadequate to guide the jury’s deliberation.” United States v. Frega, 179 F.3d 793, 806 n.16 (9th Cir. 1999).
A. Substantial Step
[1] Because Hofus was charged with an attempted viola- tion of § 2422, the government had to prove that Hofus not only intended to commit a crime, but that he took a “substan- tial step” toward its commission. See Braxton v. United States, 500 U.S. 344, 349 (1991); United States v. Acuna, 9 F.3d 1442, 1447 (9th Cir. 1993). We have previously explained the “substantial step” concept: “the defendant’s actions must go beyond mere preparation, and must corrobo- rate strongly the firmness of the defendant’s criminal intent.” United States v. Nelson, 66 F.3d 1036, 1042 (9th Cir. 1995); 4562 UNITED STATES v. HOFUS see also id. (“ ‘The conduct must be necessary to the consum- mation of the crime and of such nature that a reasonable observer, viewing it in context, could conclude beyond a rea- sonable doubt that it was undertaken in accordance with a design to violate the statute.’ ”) (quoting Acuna, 9 F.3d at 1447). In Nelson, we also described the substantial step as demonstrating a “true commitment” towards completing the crime, id. at 1042 (internal quotation marks omitted), as an “appreciable fragment” of a crime, id. (internal quotation marks omitted), and as “unequivocally demonstrating that the crime will take place unless interrupted by independent cir- cumstances,” id.
[2] In this case, the district court instructed the jury that it must find Hofus “took some action that was a substantial step toward bringing about the persuasion, inducement, or entice- ment to engage in sexual activity,” and, in accordance with Nelson and the language of Ninth Circuit Model Criminal Instruction 5.3, that “mere preparation is not a substantial step.” The court also instructed that to constitute a substantial step, “the defendant’s conduct must have: one, advanced the criminal purpose charged; and, two, verified the existence of that purpose.” See United States v. Goetzke, 494 F.3d 1231, 1235-36 (9th Cir. 2007) (quoting Walters v. Maass, 45 F.3d 1355, 1358-59 (9th Cir. 1995)).
Hofus, on the other hand, requested an instruction using different language from Nelson, requiring “an action of such substantiality that, unless frustrated, the crime would have occurred.” See Nelson, 66 F.3d at 1042. Hofus contends the district court abused its discretion by refusing his instruction because it was a correct statement of the law under Nelson.
A defendant, however, is not entitled to an instruction with wording of his own choosing. United States v. Ferris, 719 F.2d 1405, 1408 (9th Cir. 1983). Rather, the question before us is not whether the instruction Hofus posed was correct, but whether the instruction actually given was misleading or inad- UNITED STATES v. HOFUS 4563 equate to guide the jury’s decision. United States v. Tatoyan, 474 F.3d 1174, 1179 (9th Cir. 2007) (quoting United States v. Fernandez, 388 F.3d 1199, 1246 (9th Cir. 2004)).
[3] Here, the court’s instruction was an accurate descrip- tion of the law, see Acuna, 9 F.3d at 1447; Nelson, 66 F.3d at 1042, and mirrored the definition of substantial step in the model instruction, Model. Crim. Jury Instr. 9th Cir. 5.3. Moreover, we have approved this instruction as adequate to inform the jury of the requirements on the charge of attempt. See United States v. Mincoff, 574 F.3d 1186, 1196-97 & n.2 (9th Cir. 2009).
[4] Hofus argues that more guidance was needed on the facts of this case because he had never actually met the young girls. He urges that his case is thus more like the Seventh Cir- cuit case of United States v. Gladish, 536 F.3d 646 (7th Cir. 2008) (sexual conversations online with stranger, including discussions of possibly meeting in person, insufficient sub- stantial step), than the Ninth Circuit case of United States v. Goetzke, 494 F.3d 1231 (9th Cir. 2007) (defendant initiating conversation with young boy he knew, describing sexual acts, and proposing a rendevous is sufficient substantial step). However, neither case is particularly helpful to Hofus because (1) both of those cases involved challenges to the sufficiency of the evidence and not whether the jury was adequately instructed on the substantial step concept, and (2) in both cases, the defendant had only exchanged written correspon- dence or electronic chat with the intended victim, and had not taken the additional step of traveling to a prearranged meeting place, as Hofus did here. There was unlikely to be any confu- sion about “substantial step” on the facts of this case. See United States v. Meek, 366 F.3d 705, 720 (9th Cir. 2004) (online sexual dialog and travel to meet the minor at a local school sufficient substantial step); see also United States v. Brand, 467 F.3d 179, 202-04 (2d Cir. 2006) (increasingly sex- ually explicit conversations, arranging meeting and travel to 4564 UNITED STATES v. HOFUS prearranged meeting place sufficient evidence of substantial step).
[5] In sum, the instructions given by the district court were adequate to guide the jury, and the court did not abuse its dis- cretion by refusing Hofus’s proposed wording.
B. Unanimity
Hofus also argues that the district court erred by failing to specifically instruct the jury that it must unanimously agree as to what constituted the substantial step. See Richardson v. United States, 526 U.S. 813, 817 (1999) (jury must unani- mously find the government has proven each element).2 We review this claim for plain error because Hofus did not specif- ically request a unanimity instruction below and did not dis- cuss this alleged problem with the court. Although Hofus argues that he adequately preserved the issue because his pro- posed instruction included the standard language from the model instruction, we have held that Federal Rule of Criminal Procedure 30 requires a defendant to state with adequate spec- ificity the grounds for an objection to a jury instruction before the jury retires, and that a “ ‘defendant’s mere proposal of an alternate instruction does not satisfy Rule 30’s standard of specificity.’ ” United States v. Peterson, 538 F.3d 1064, 1071 (9th Cir. 2008) (quoting United States v. Elias, 269 F.3d 1003, 1017-18 (9th Cir. 2001)).
Here, although Hofus’s proposed instruction happened to contain the specific unanimity language, there was no discus- sion with the court about the need for such language or the Model Instruction 5.3 provides “Second, the defendant did something that was a substantial step toward committing the crime, with all of you agreeing as to what constituted the substantial step.” Model Crim. Jury Instr. 9th Cir. 5.3 (2003). Although the court otherwise followed the model instruction, it did not specifically include the unanimity language. However, the court did give a general unanimity instruction. UNITED STATES v. HOFUS 4565 failure of the court’s instruction to include it. Rather, the instructional dispute the district court was asked to resolve involved whether to further define “substantial step” as dis- cussed in Section I.A. above, and how to define the underly- ing Nevada sex crime. Thus, to succeed on his claim, Hofus must establish (1) an error that is (2) plain or obvious, and (3) affects his substantial rights; if these conditions are satisfied, we may exercise our discretion to correct the error if it “seri- ously affects the fairness, integrity or public reputation of judicial proceedings.” Peterson, 538 F.3d at 1071-72 (internal quotation marks and alteration omitted).
[6] Hofus cannot satisfy this standard, because the court’s failure to give a specific unanimity instruction was not error. Although the language is included in the model instruction, we have never held that jurors must unanimously agree as to which particular act by the defendant constitutes a substantial step. Rather, the jury must unanimously agree that the sub- stantial step requirement has been satisfied, as it was properly instructed.
As the Supreme Court explained in Schad v. Arizona, an indictment may allege that a defendant committed an offense by one or more specified means, but “[w]e have never sug- gested that in returning general verdicts in such cases the jurors should be required to agree upon a single means of commission, any more than the indictments were required to specify one alone.” 501 U.S. 624, 632 (1991) (Souter, plural- ity); see also id. at 649 (“It has long been the general rule that when a single crime can be committed in various ways, jurors need not agree upon the mode of commission.” ) (Scalia, J., concurring).
Hofus attempts to rely on Richardson v. United States for the principle that “a jury in a federal criminal case cannot convict unless it unanimously finds that the Government has proved each element.” 526 U.S. 813, 817 (1999). But Rich- ardson is not inconsistent with Schad, and, in fact, cites it for 4566 UNITED STATES v. HOFUS the principle that “a federal jury need not always decide unan- imously which of several possible sets of underlying brute facts make up a particular element, say, which of several pos- sible means the defendant used to commit an element of the crime.” Id.
In Richardson, the Court concluded that, as a matter of stat- utory interpretation, a particular statute treated each violation in a “series of violations” as a separate element, and that the jury must therefore be unanimous as to each element. Id. at 824. But the jury must only unanimously agree that each ele- ment has been satisfied, as Richardson illustrates:
Where, for example, an element of robbery is force or the threat of force, some jurors might conclude that the defendant used a knife to create the threat; others might conclude he used a gun. But that dis- agreement — a disagreement about means — would not matter as long as all 12 jurors unanimously con- cluded that the Government had proved the neces- sary related element, namely, that the defendant had threatened force.
Id. at 817.
Our law is consistent with these principles. See United States v. Lyons, 472 F.3d 1055, 1068-69 (9th Cir. 2007) (cit- ing Schad and holding no need for jury to unanimously agree whether defendant’s conduct was a “scheme to defraud” ver- sus a “false promises” scheme because both types of schemes violate the same underlying statutory offense); United States v. Garcia, 400 F.3d 816, 819-20 (9th Cir. 2005) (relying on Schad to hold jury did not need to unanimously agree whether defendant was liable as principal or as aider and abetter, because these were alternative means of committing single crime); United States v. McCormick, 72 F.3d 1404, 1409 (9th Cir. 1995) (affirming conviction for false statement on pass- port application in absence of specific unanimity instruction, UNITED STATES v. HOFUS 4567 and noting that “there is no general requirement that the jury reach agreement on the preliminary factual issues which underlie the verdict” (internal quotation marks omitted)). Thus, here, even if different jurors found that different actions constituted Hofus’s substantial step, the differences, like those in the Richardson hypothetical, are differences only of means.3
[7] We therefore conclude that the district court did not err by omitting a requirement of unanimity as to which specific act or actions constituted the substantial step, because it is not required under Schad. Thus, there was no error in the instruc- tion, plain or otherwise.
II. Expert Testimony
Hofus also argues that the district court erred by limiting the scope of his expert’s opinion and thereby prevented him from presenting a defense. We review a district court’s deci- sion to exclude expert testimony for an abuse of discretion. United States v. Campos, 217 F.3d 707, 710 (9th Cir. 2000).
At trial, Hofus’s expert, Dr. McEllistrem, made a proffer of his testimony, which included his opinion that (1) there was no “grooming”4 activity in this case, as you would normally This case is likewise distinguishable from situations in which we have held specific unanimity instructions are required due to the potential of jury confusion when the facts could permit multiple ways of satisfying not only a single element of a charged crime, but could permit finding entirely separate offenses directed at different victims, different times, etc. See, e.g., United States v. Payseno, 782 F.2d 832, 837 (9th Cir. 1986) (specific instruction required where evidence indicated three acts of extortion directed at separate victims, occurring at different times and locations and involving different methods of communicating threats); United States v. Echeverry, 698 F.2d 375, 377 (9th Cir. 1983) as modified, 719 F.2d 974 (9th Cir. 1983) (specific instruction required because evidence of two sep- arate conspiracies separated by several months). Dr. McEllistrem explained that the term “grooming” in sex offender cases refers to a “process where offenders engage in certain behaviors and 4568 UNITED STATES v. HOFUS find with sex offenders, because the girls were already sexu- ally experienced; (2) that Hofus valued the text communica- tions as “fantasy alone”; and (3) that Hofus was not a hebophile (having an abnormal sexual interest in youthful women with some secondary sexual characteristics) or a pedophile (having an abnormal sexual interest in prepubes- cent children).
The court ruled that the doctor could testify about “groom- ing,” his opinion that Hofus was not a hebophile, and gener- ally about fantasy-based communications. However, the court agreed with the government that pedophilia was irrelevant because the case involved only post-pubescent girls, and that Dr. McEllistrem could not express any opinion concerning Hofus’s actual intent at the time specific acts occurred. When prompted by the government to clarify how that ruling applied to the “fantasy” testimony, the court ruled:
Well, he certainly cannot testify that in the final stages of this text messaging that Mr. Hofus was operating under a fantasy because the opinion that he was operating under a fantasy suggests that there was no intent to persuade, induce, or entice these girls and, one, it’s frankly irrelevant to that, and two, it’s confusing to the jury, so I would not allow that.
The defense then asked whether Dr. McEllistrem could tes- tify that it was unlikely Hofus would act on the intentions expressed in his texts. The court concluded that this was also irrelevant, and that the expert could not testify whether Hofus was likely to engage in the ultimate sexual activity with the minor.
mental games to secure victims, make them comfortable with sexual activ- ity, and then engage them with sex contact”; he also described it as a “very slow, methodical process to take someone who is extremely naive and innocent about sexual matters, gain trust, gain a comfort level around sex- ual ideas, and then engage them sexually.” UNITED STATES v. HOFUS 4569 [8] The district court properly excluded these aspects of Dr. McEllistrem’s testimony as irrelevant under our precedent in Goetzke. 494 F.3d at 1236. The underlying statute requires an attempt to persuade, induce, entice, or coerce a minor to engage in criminal sexual activity. 18 U.S.C. § 2422(b). How- ever, we made clear in Goetzke that there is a difference in attempting to persuade, induce, entice or coerce a minor to engage in sexual activity and actually attempting to engage in sexual activity with the minor. Id. As we explained in Goetzke: “The latter is an attempt to achieve the physical act of sex, for which physical proximity is integral. But the for- mer is an attempt to achieve the mental act of assent, for which physical proximity can be probative but is not required.” Id. In Goetzke, we also relied on a number of cases from other circuits which have similarly focused on the intended effect of the communication rather than the defen- dant’s intent to commit the underlying sexual activity:
Brand, 467 F.3d at 202 (holding that a conviction under § 2422(b) requires a finding only of an intent to entice, not an intent to perform the sexual act fol- lowing the persuasion); United States v. Murrell, 368 F.3d 1283, 1286 (11th Cir. 2004) (stating that the underlying conduct that § 2422(b) criminalizes is the persuasion of the minor, rather than the sexual act itself); United States v. Bailey, 228 F.3d 637, 639 (6th Cir. 2000) (observing that “Congress has made a clear choice to criminalize persuasion and the attempt to persuade, not the performance of the sex- ual acts themselves.”).
Goetzke, 494 F.3d at 1236; see also United States v. Dwinells, 508 F.3d 63, 70 (1st Cir. 2007) (interpreting Goetzke as hold- ing that government does not need to prove intent to commit sexual act, but only intent to persuade, and agreeing with that conclusion).
[9] Thus, like numerous other circuits, we have recognized a distinction between the intent to persuade or attempt to per- 4570 UNITED STATES v. HOFUS suade a minor to engage in a sex act and the intent to actually commit the criminal sex act itself. As the Sixth Circuit elabo- rated in Bailey:
While it may be rare for there to be a separation between the intent to persuade and the follow-up intent to perform the act after persuasion, they are two clearly separate and different intents and the Congress has made a clear choice to criminalize per- suasion and the attempt to persuade, not the perfor- mance of the sexual acts themselves. Hence, a conviction under the statute only requires a finding that the defendant had an intent to persuade or to attempt to persuade.
228 F.3d at 639 (emphasis added); see also United States v. Thomas, 410 F.3d 1235, 1244 (10th Cir. 2004) (“Section 2422(b) requires only that the defendant intend to entice a minor, not that the defendant intend to commit the underlying sexual act.”).
[10] Thus, expert testimony as to whether Hofus was likely to actually have sex with B.T. was irrelevant to whether Hofus violated § 2422. Similarly, the proffered testimony that Hofus valued the sexual texting with B.T. “in fantasy alone” necessarily implies that Hofus lacked the intent to actually have sex with B.T., but does not make it more likely or not that he attempted to entice or persuade her to agree to an ille- gal sex act. See Goetzke, 494 F.3d at 1236 (describing § 2422(b) violation as an attempt to achieve the mental act of assent, as opposed to an attempt to engage in intercourse). The district court also correctly noted that this portion of the expert’s proposed testimony would likely confuse the jury as to which intent it was required to find Hofus had possessed.
Hofus relies heavily on United States v. Gladish, 536 F.3d 646 (7th Cir. 2008), which reversed a conviction under § 2422(b) for insufficient evidence. The defendant there had UNITED STATES v. HOFUS 4571 engaged in sexual chats with an agent posing as a minor girl and discussed the possibility of meeting, but made no firm arrangements; the court concluded that the defendant had not taken a “substantial step” towards committing the crime. Id. at 650. The Seventh Circuit then added that the district judge should have permitted an expert witness to testify on the defendant’s behalf: “The psychologist could not have been permitted to testify that the defendant did not intend to have sex with ‘Abagail,’ but he could have testified that it was unlikely, given the defendant’s psychology, that he would act on his intent.” Id. at 650-51.
Of course, we are bound to follow Goetzke rather than Gladish. But even so, we do not find the Gladish analysis par- ticularly persuasive. It is, of course, dicta, because the court had already reversed the conviction. But more importantly, the Seventh Circuit does not explain how the proffered testi- mony would have been relevant to the issue before the jury. Id. at 650-51. Moreover, Gladish’s conclusion appears some- what inconsistent with an observation the court makes earlier in the opinion, where the court notes that making arrange- ments to meet can satisfy the substantial step element even though “it is always possible that had the intended victim been a real girl the defendant would have gotten cold feet at the last minute and not completed the crime even though he was in position to do so.” Id. at 648-49. If the defendant could have been properly convicted of an attempted violation of § 2242 for traveling to meet the victim—even if he might have backed out—then it is difficult to see how testimony that he was likely to get cold feet would affect guilt of an attempted violation under the statute.
Finally, even if the Seventh Circuit were correct that expert testimony would have been relevant and helpful on the facts of Gladish because only internet banter was involved, the sit- uation here is factually distinct because Hofus took the addi- tional steps of proposing a meeting, agreeing to a place, and arriving at a place near that destination. Thus, the district 4572 UNITED STATES v. HOFUS court was correct that the expert testimony would be more confusing than helpful in Hofus’s case, which was much more the typical sting operation. See id. at 648 (discussing typical arrest).
[11] The proffered expert testimony in Hofus’s case appears directed solely at the propensity to actually commit the underlying sexual act, which was not before the jury. But even if the “fantasy alone” testimony was offered to show an absence of intent to “persuade, induce or entice” (as opposed to an absence of intent to commit the underlying sexual act, which is discussed above), then it goes to the ultimate issue the jury must decide, and was properly excluded under Rule 704(b). Fed. R. Evid. 704(b) (“No expert witness testifying with respect to the mental state or condition of a defendant in a criminal case may state an opinion or inference as to whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto.”). To say that Hofus meant the texting only as fantasy is simply another way of saying he did not really intend to entice or persuade the young girls, which is pre- cisely the question for the jury. If the jury accepted Dr. McEl- listrem’s testimony that Hofus engaged in texting B.T. “in fantasy alone,” it would necessarily follow that Hofus did not possess the requisite mens rea to violate § 2422. Such an opinion would thus run afoul of Rule 704(b)’s prohibition on such testimony.5
Hofus further claims that the limitations on expert testi- mony violated his due process rights and his ability to present a defense. However, Dr. McEllistrem was still allowed to tes- Although Hofus complains that the expert’s testimony could not simul- taneously be irrelevant and too relevant, the difference is in the purpose for which it is offered. If offered to show Hofus’s propensity to commit the underlying sexual act, it is irrelevant under Goetzke; but if offered on the ultimate issue of intent to persuade or entice under § 2422, it is prohib- ited by Rule 704 (as even Gladish recognized). See 536 F.3d at 651. UNITED STATES v. HOFUS 4573 tify that Hofus lacked the characteristics of a hebophile, and he also testified extensively about the large number of people who engage in sexual texting or chat rooms for pure fantasy. Hofus’s attorney was then able to argue to the jury in closing that Hofus was one of those people, that it was just fantasy, and that in Hofus’s mind there was no real intent, that it was all divorced from reality.6
[12] We therefore conclude that the district court did not abuse its discretion by limiting Dr. McEllistrem’s testimony, and that Hofus was not denied the opportunity to present a defense.
AFFIRMED.
NOONAN, Circuit Judge, dissenting:
As the opinion applying Goetzke accurately states, the crime is the attempt to persuade a minor to engage in sexual intercourse with the defendant. As the opinion also accurately states, an expert is forbidden to testify to the existence of the defendant’s intent to commit the crime that is charged. Fed. R. Evid. 704(b). No rule, however, prohibits the expert from testifying to the existence or absence of the defendant’s intent to commit the uncharged crime of attempting to have sexual intercourse with a minor. That testimony was what the defense offered, and it was excluded. Although Hofus’s opening brief mentions in passing that the district court did not allow any testimony regarding pedophilia, it does not contain any argument on this issue and we may consider it waived. See United States v. Loya, 807 F.2d 1483, 1486-87 (9th Cir. 1987). In any event, the district court properly excluded this testimony as irrelevant since Dr. McEllistrem adequately explained the difference between pedophilia and hebophilia, and this case only involved post-pubescent girls. 4574 UNITED STATES v. HOFUS It was excluded because it was said to be irrelevant: it wasn’t the crime charged. But it was highly relevant. If the defendant did not intend to have intercourse with the minor, he was unlikely to be attempting to persuade her to have inter- course. What the expert would testify to is a circumstance, a circumstance that makes it considerably less likely that the crime that has been charged actually took place.
The expert testimony was also excluded because it would confuse the jury. It would have required the jury to distin- guish between the intent to attempt to persuade and the intent to have sexual intercourse. The distinction may be difficult to grasp but it is essential to the case. The prosecution succeeds only by proving an intent to attempt. If the jury is able to grasp the essence of the prosecution’s case, the jury can dis- tinguish between the ultimate intent to be proved by the pros- ecution and the intent the expert would testify to.
I do not believe that our per curiam in Goetzke and Judge Posner’s opinion in Gladish need to be read in conflict. Judge Posner quotes Goetzke at length and favorably. Both opinions agree that Rule 704(b) blocks expert testimony on the intent to commit the charged crime. Judge Posner goes on to point out how the expert may testify to a circumstance that makes it unlikely that the defendant did commit the charged crime.
In our case, the jury could have believed or not believed the expert that Hofus only fantasized about actual sexual inter- course. It was vital to the defense to have the expert’s testi- mony before the jury. To deny the defense the right to present it was to deny the right of the accused to present a defense. The denial was prejudicial to the defense and violative of the Sixth Amendment. |
Notice: This opinion is subject to formal revision before publication in the Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify the Clerk of any formal errors in order that corrections may be made before the bound volumes go to press.
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 4, 2010 Decided March 19, 2010
No. 08-1241
NATIONAL MINING ASSOCIATION, PETITIONER
v.
MINE SAFETY AND HEALTH ADMINISTRATION AND SECRETARY OF LABOR, RESPONDENTS
UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY, ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION, INTERVENOR
Consolidated with No. 09-1087
On Petitions for Review of an Order of the Federal Mine Safety & Health Administration
Daniel W. Wolff argued the cause for petitioner National Mining Association. With him on the briefs were Thomas C. Means and Edward M. Green.
Henry Chajet argued the cause and filed the briefs for petitioner Methane Awareness Resources Group.
Edward D. Sieger, Senior Appellate Attorney, U.S. Department of Labor, argued the cause for respondents the Secretary of Labor and Mine Safety and Health Administration. With him on the brief were Deborah Greenfield, Acting Deputy Solicitor of Labor, and W. Christian Schumann, Counsel.
Benjamin M. Shultz, Attorney, U.S. Department of Justice, argued the cause for respondent National Institute for Secretary of Health and Human Services and National Institute for Occupational Safety and Health. With him on the brief was Mark B. Stern, Attorney. Dana J. Martin, Attorney, entered an appearance
Before: ROGERS and TATEL, Circuit Judges, and WILLIAMS, Senior Circuit Judge.
Opinion for the Court by Circuit Judge ROGERS.
ROGERS, Circuit Judge: The National Mining Association (“NMA”) and the Methane Awareness Resources Group (“MARG”) (hereinafter, together “industry”) petition for review of the Mine Safety and Health Administration’s (“MSHA’s”) decision to enforce a final exposure limit standard addressing health risks presented by exposure of miners in metal and non- metal underground mines to diesel particulate matter (“DPM”) in diesel exhaust. The decision, announced May 20, 2008, represented a change in MSHA’s earlier expressed intent to issue a proposed rule to convert the final DPM exposure
standard from a total carbon (“TC”) to an elemental carbon (“EC”) measurement. See Diesel Particulate Matter Exposure, Notice of Enforcement of DPM Final Limit and Withdrawal of Intent to Issue Proposed Rule, 73 Fed. Reg. 29,058 (May 20, 2008) (“2008 Notice”). On the same date, MSHA issued Program Policy Letter P08-IV-01 (“2008 Policy Letter”) describing how it intended to enforce the DPM standard. Industry contends MSHA’s decision was arbitrary and capricious because inadequately explained and unsupported by scientific data, contrary to a 2002 settlement and to MSHA’s statements to this court, and without public notice or opportunity to comment. MARG individually challenges the failure of the National Institute of Occupational Safety and Health (“NIOSH”) to release a study on DPM. For the reasons that follow, we deny the industry petitions and dismiss MARG’s individual challenges for lack of jurisdiction.
I.
The Mine Act provides that MSHA shall “develop, promulgate, and revise as may be appropriate, improved mandatory health or safety standards for the protection of life and prevention of injuries in coal or other mines.” 30 U.S.C. § 811(a). For “toxic materials or harmful physical agents,” MSHA “shall set standards which most adequately assure on the basis of the best available evidence that no miner will suffer material impairment of health or functional capacity” and, “[i]n addition to the attainment of the highest degree of health and safety protection for the miner, other considerations shall be the latest available scientific data in the field, the feasibility of the standards, and experience gained under this and other health and safety laws.” Id. § 811(a)(6)(A). A new mandatory health or safety standard may not provide less protection to miners than an existing mandatory standard. Id. § 811(a)(9). A person adversely affected by a mandatory health or safety standard
promulgated under section 811 may petition for judicial review of the standard within 60 days after the standard is promulgated. Id. § 811(d).
Based on an assessment of the risk to miners of adverse health effects from DPM, MSHA promulgated a rule in January 2001 limiting the airborne concentration of DPM in underground metal and non-metal mines. See Diesel Particulate Matter Exposure, 66 Fed. Reg. 5706 (Jan. 19, 2001) (“2001 Rule”). The 2001 Rule set both interim and final DPM concentration standards, using TC measurements as a surrogate for measuring DPM; the interim DPM standard was to take effect in July 2002. Id. at 5706–07, 5726–27. The concentration limits were expressed as the number of micrograms of TC per cubic meter of air. After several petitions for review of the 2001 Rule were filed (including petitions by NMA and MARG), MSHA entered into a settlement agreement in July 2002 postponing the effective date of the interim DPM standard of 400 TC from July 2002 to July 2003, and requiring MSHA to propose an expedited rulemaking to change the DPM surrogate from TC to EC; the pending petitions for review were to be dismissed upon completion of the expedited rulemaking. See Diesel Particulate Matter Exposure, 67 Fed. Reg. 47,296, 47,297–99 (July 18, 2002) (“2002 Settlement”).
Thereafter MSHA revised the 2001 Rule twice. In 2005, based on scientific data showing a TC:EC ratio of 1.3:1 for converting EC measurements to TC measurements at certain TC concentrations, MSHA converted the interim DPM standard from 400 TC to 308 EC. See Diesel Particulate Matter Exposure, 70 Fed. Reg. 32,868, 32,870 (June 6, 2005) (“2005 Rule”). MSHA explained that although the scientific data indicated this single, constant conversion factor was appropriate at 400 TC, the data were not adequate to convert the final DPM standard of 160 TC to an EC measurement. Id.; see also Diesel
Particulate Matter Exposure, Proposed Rule, 70 Fed. Reg. 53,280, 53,287 (Sept. 7, 2005) (“2005 Proposed Rule”). In 2006, MSHA postponed the effective date of the final DPM standard of 160 TC from January 2006 to May 20, 2008, and set an interim standard of 350 TC to become effective in January 2007. See Diesel Particulate Matter Exposure, 71 Fed. Reg. 28,924, 28,978 (May 18, 2006) (“2006 Rule”). MSHA reiterated that the scientific data were not adequate for converting the final DPM standard of 160 TC to EC and stated that it intended to consider the TC-to-EC conversion in a separate rulemaking. Id. at 28,976, 28,983.
In February 2007, this court upheld the 2001, 2005, and 2006 Rules setting DPM standards. In Kennecott Greens Creek Mining Co. v. MSHA, 476 F.3d 946 (D.C. Cir. 2007), the court rejected challenges to the sufficiency of evidence of health risk for miners from DPM and to compliance feasibility for mine operators, and concluded MSHA reasonably chose TC as a surrogate for measuring DPM in view of evidence of their tight correlation and the fact that MSHA has a reliable method for determining the amount of TC in a sample. Id. at 955. The court also rejected claims that MSHA was arbitrary and capricious in not converting to EC the interim DPM standard of 350 TC and the final DPM standard of 160 TC, as MSHA had done in 2005 for the interim DPM standard of 400 TC. The court observed that “MSHA has clearly stated in its rules that TC can still serve as a consistent and reliable surrogate for DPM as long as samples are taken in areas away from tobacco smoke and oil mist.” Id. at 956. The court noted MSHA had stated it would initiate a new rulemaking regarding conversion of the final standard from TC to EC. The court concluded:
In sum, MSHA has concluded that EC is a better proxy for DPM than TC, but this does not automatically render the use of TC to be arbitrary and capricious.
Even though TC sampling is more difficult than EC sampling, MSHA has reasonably determined that TC can still be a reliable proxy for DPM as long as samples are taken in the proper manner. In any event, MSHA’s rulemaking suggests that it has no intention of using TC as a stand alone proxy.
Id.
On May 20, 2008, MSHA gave public notice of its decision to enforce the final DPM standard of 160 TC and to withdraw its intent to propose a rule converting 160 TC to EC. 2008 Notice, 73 Fed. Reg. at 29,058–59. In the 2008 Notice, MSHA explained that the latest available scientific evidence did not identify a single, constant conversion factor for EC below 230 TC. Id. at 29,059. It referenced an article about a study of four underground mines (two stone mines and two metal mines), which stated that the correlation between TC and EC varies below 230 TC and that the TC:EC ratio is highly variable below 160 TC. J.D. Noll et al., Relationship between Elemental Carbon, Total Carbon, and Diesel Particulate Matter in Several Underground Metal/Non-metal Mines, 41 Envtl. Sci. & Tech. 710, 715 (2007) (“Noll-Bugarski Study”); see 2008 Notice, 73 Fed. Reg. at 29,059. It also referenced a consultant’s report advising that because the Noll-Bugarski Study showed that the variability of the TC:EC ratio increases as DPM levels decrease, EC measurements would not be an appropriate surrogate for DPM at 160 TC; the report discussed four sampling strategies for enforcing the 160 TC standard. J. Kogut, Alternative Strategies for Enforcing a DPM Exposure Limit 1 (Sept. 2007) (“Kogut Report”); see 2008 Notice, 73 Fed. Reg. at 29,059–60. The 2008 Notice stated that MSHA would provide a “protocol for calculating a location specific adjustment” to a miner’s personal sample based on TC and EC measurements. 73 Fed. Reg. at 29,059. On the same date, May 20, 2008, MSHA also
issued the 2008 Policy Letter describing how it intended to use a miner’s personal TC sample and samples from areas of a mine to validate whether the miner’s DPM exposure had exceeded the 160 TC standard. Industry filed petitions for review; NMA filed a petition in this court and MARG then filed a petition in the Fifth Circuit, which granted MSHA’s motion to transfer MARG’s petition to this court.
II.
Industry contends that in withdrawing the promised rulemaking and simultaneously issuing its enforcement strategy, MSHA failed to provide an adequate explanation, relied on a scientific article and a consultant’s report that do not address whether identifying a TC:EC conversion factor is too difficult, and directly contradicted what MSHA had told this court in 2007. Further, industry notes, MSHA had agreed as part of the 2002 Settlement to propose a final DPM standard that used EC instead of TC as a DPM surrogate. In these circumstances, industry contends that MSHA should be required to provide notice and afford the public an opportunity to comment on the basis for its change of position, and seeks a stay of the 160 TC standard and a remand of MSHA’s rulemaking withdrawal and enforcement strategy publication with instructions to MSHA to engage in further notice-and-comment rulemaking.
This court has jurisdiction under the All Writs Act, 28 U.S.C. § 1651, to review industry’s challenge to the 2008 Notice on the ground that MSHA was arbitrary and capricious in deciding not to propose a rule to convert the final DPM standard of 160 TC to EC. The All Writs Act provides that federal courts “may issue all writs necessary or appropriate in aid of their respective jurisdictions.” Id. § 1651(a). As this court explained in the context of MSHA’s withdrawal of a proposed rule in International Union, United Mine Workers of America v. U.S.
Department of Labor, 358 F.3d 40, 43 (D.C. Cir. 2004), “the withdrawal of a proposed rule defeats this [c]ourt’s prospective jurisdiction” because such withdrawal is similar to unreasonable delay of agency action. This court’s authority to review the withdrawal of MSHA’s published intention to propose a rule to convert the final DPM standard of 160 TC to EC is a similar “necessary implication” of the court’s jurisdiction to address claims of unreasonable agency delay in order to protect the court’s prospective jurisdiction over the final rule resulting from the promised proposed rule. Id. Upon applying the arbitrary and capricious standard of review, see id., we conclude MSHA was not arbitrary and capricious in issuing the 2008 Notice.
“‘[A]n agency’s refusal to institute rulemaking proceedings is at the high end of the range’ of levels of deference we give to agency action under our ‘arbitrary and capricious’ review.” Defenders of Wildlife v. Gutierrez, 532 F.3d 913, 919 (D.C. Cir. 2008) (quoting Am. Horse Prot. Ass’n, Inc. v. Lyng, 812 F.2d 1, 4–5 (D.C. Cir. 1987)). The 2008 Notice advised that MSHA would enforce the final DPM standard of 160 TC and not convert it to EC because MSHA “could not identify a single, constant conversion factor for EC at any level below 230 TC.” 2008 Notice, 73 Fed. Reg. at 29,059. MSHA’s decision has ample support in the record. MSHA explains that, consistent with the efficiency requirements for instituting a rulemaking, see Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993), and the Mine Act’s requirement that a new mandatory health or safety standard may not provide less protection to miners than an existing mandatory standard, see 30 U.S.C. § 811(a)(9), it did not institute a rulemaking to convert the DPM standard of 160 TC to EC because it lacked scientific data necessary to identify a single, constant EC conversion factor that would ensure no impairment of the miner protection achieved under the DPM standard of 160 TC. In the 2005 Proposed Rule MSHA alerted industry (and others) generally that the TC:EC conversion ratio
of 1.3 might not apply at DPM concentrations lower than 400 TC and requested comments on how to make the conversion. See 2005 Proposed Rule, 70 Fed. Reg. at 53,287. In response, NMA and several mine operators agreed more scientific research was needed, while MARG argued the DPM standard of 160 TC could not be converted to EC and should be deleted from the DPM rule.1 The year after this court’s 2007 decision in Kennecott, MSHA concluded that the latest available scientific evidence appeared in the February 2007 Noll-Bugarski Study, whose authors had found that the variability of the TC:EC ratio increases below 230 TC. See 2008 Notice, 73 Fed. Reg at 29,059. In the absence of other data MSHA thus concluded it could not identify a single, constant TC:EC conversion factor below 230 TC. See id. NIOSH agreed that MSHA’s evidence did not allow identification of a constant TC:EC conversion factor below 230 TC. In these
The comments included NMA’s statement that “NMA must insist that . . . the final outcome of the rulemaking to be conducted by MSHA on a TC to EC conversion factor will result in an accurate, scientifically supportable conversion factor.” The Stillwater Mining Company commented that “Stillwater believes that additional research is needed in order to determine an appropriate conversion factor.” So too, the FMC Corporation commented that it “respectfully suggests that MSHA wait for the NIOSH . . . study report to be issued so that NIOSH can share their scientific determination of the potential risks and feasibility related to DPM.” And Kennecott Greens Creek Mining Company and its parent Kennecott Minerals Holding Company (“KMC”) commented that they “agree with MSHA that more work is required to develop an appropriate conversion factor from TC to EC for the proposed phased-in final limits. . . . [I]dentifying an accurate, scientifically supportable, and peer-reviewed conversion factor is absolutely fundamental to KMC’s acceptance of any staggered effective date schedule.” MARG stated that “the proposed conversion of TC limits to EC limits is not feasible” and that it “is hopeful that MSHA will finally correct its flawed rules, by deleting the 160 limit.”
circumstances, MSHA could reasonably conclude it lacked a way to convert the TC standard to EC at the 160 TC level using a constant conversion factor.
Industry properly acknowledges that MSHA can abandon a prior contemplated course of action if it offered an adequate explanation. See Int’l Union, UMWA, 358 F.3d at 45. But industry contends MSHA’s explanation was superficial, implausible, and contrary to facts of record. Specifically NMA maintains that neither the Noll-Bugarski Study nor the Kogut Report support MSHA’s May 20, 2008 decision. The Noll- Bugarski Study, as NMA suggests, was limited to the actual in- mine data of only four mines, which the authors acknowledged did not necessarily provide a good representation of all metal/non-metal mines. See Noll-Bugarski Study, 41 Envtl. Sci. & Tech. at 715. True enough, but this does not meet MSHA’s point that the Noll-Bugarski Study was the latest scientific evidence. See 2008 Notice, 73 Fed. Reg. at 29,059.
Contrary to industry’s view, there was no inconsistency between MSHA’s position in Kennecott that it could enforce the DPM standard of 160 TC and its statement in 2006 that to enforce the standard it needed “to validate a TC sample result, which cannot be done without an appropriate conversion factor for EC at that level,” 2006 Rule, 71 Fed. Reg. at 28,976. As MSHA states in its brief, “[i]n context, the statement addressed MSHA’s inability to identify a practical sampling strategy that would adequately remove organic carbon interferences,” MSHA Resp’t Br. 21, and was not, as industry asserts, a statement that MSHA could not enforce the DPM standard of 160 TC without converting it to EC. The Kogut Report provided MSHA with practical sampling strategies to enforce the DPM standard of 160 TC and thus supported MSHA’s decision to enforce this standard. NMA misses the mark when objecting that the Kogut Report provided no support for MSHA’s decision to enforce the
DPM standard of 160 TC because it did not address the feasibility of finding a TC:EC conversion factor. Although NMA claims that MSHA should have done further work on the EC conversion instead, it was within MSHA’s discretion, given the data available, simply to allow the 160 TC standard to take effect under the previously promulgated rule rather than to embark on a conversion of that standard to EC. See Prof’l Drivers Council v. Bureau of Motor Carrier Safety, 706 F.2d 1216, 1222 (D.C. Cir. 1983).
Industry also contends that MSHA acted arbitrarily because its decision not to proceed with a rulemaking on converting the 160 TC standard to EC flies in the face of the rulemaking promise MSHA made in its brief to this court in Kennecott. However, MSHA’s brief to the court addressed several options open to the court in disposing of the petitions in Kennecott, one of which was to uphold the DPM standard of 160 TC, see Kennecott, Resp’ts Br. 32–36, 2006 WL 3622119, which is what the court did. This hardly indicates MSHA misled the court into thinking the validity of the DPM standard of 160 TC was contingent on its conversion to EC. To the extent NMA suggests the court in Kennecott took “some comfort,” Pet’r NMA Br. 21, that upholding the reasonableness of the final TC standard would be of limited consequence in the long run because MSHA had “no intention of using TC as a stand alone proxy,” Kennecott, 476 F.3d at 956, NMA reads into the court’s holding a qualification that is not there. The court simply recognized that the DPM standard of 160 TC could have a limited impact if MSHA made the EC conversion or, if MSHA did not make the conversion, that it could be enforced with additional sampling strategies. And the fact that MSHA offered—and the court in Kennecott rejected—the option of declining to rule on the final TC standard because of the likelihood that it would be converted to EC does not render the 2008 Notice an arbitrary and capricious “withdraw[al] from a
promised action without notice and comment.” Pet’r NMA Br. 23. The analogy NMA suggests to Weaver v. U.S. Information Agency, 87 F.3d 1429, 1437 (D.C. Cir. 1996), where an agency adopted an interpretation of a rule that it urged upon the court and the opposing party, and so was bound by that position in the future unless it explained the basis for a contrary position, is inapt.
MSHA’s “pledge” to convert 160 TC to EC, Pet’r NMA Br. 23, was conditioned on having scientific data to support a conversion for EC at low TC levels. See 2005 Rule, 70 Fed. Reg. at 32,870 (converting the 400 TC interim DPM standard to 308 EC but stating “evidence in the record is inadequate for MSHA to make determinations regarding revisions to the final DPM limit” standard of 160 TC); 2005 Proposed Rule, 70 Fed. Reg. at 53,287 (suggesting the 1.3 TC:EC conversion factor may not be appropriate for 160 TC and requesting comments on using EC and TC measurements); 2006 Rule, 71 Fed. Reg. at 28,983 (concluding the DPM rulemaking record was inadequate for converting 160 TC to EC, and stating MSHA’s intent to consider TC and EC conversion comments in a separate 160 TC conversion rulemaking). The record indicates that MSHA did not have the needed data to identify a TC:EC conversion constant at 160 TC before the final DPM standard of 160 TC was to take effect in May 2008. Thus, in the 2008 Notice, MSHA stated it had concluded “insufficient data exist to proceed with further rulemaking to convert the DPM final limit using a single, constant conversion factor” based on the “latest scientific evidence” in the Noll-Bugarski Study that the TC:EC ratio varies below 230 TC, but indicated that MSHA “will continue to monitor and encourage research in this field.” 73 Fed. Reg. at 29,059–60.
NMA’s suggestion that MSHA’s “misrepresentations,” Pet’r NMA Br. 22, albeit unintentional, cast a cloud over the
legitimacy of the DPM standard of 160 TC does not advance its position. In Kennecott the court upheld the DPM standard, and MSHA’s options for its effective enforcement improved with the Kogut Report. Contrary to NMA’s view, MSHA in May 2008 was thus not “exactly where it was in 2006,” Pet’r NMA Br. 23, with respect to reliable enforcement of the DPM standard of 160 TC in the absence of an EC conversion factor. Instead, what NMA mistakenly characterizes as MSHA’s prior “commit[ment] to an EC standard rulemaking for the final [DPM standard] as a matter of necessity,” id. at 22, had evolved upon receipt of the latest scientific data.
Industry is on no firmer ground in contending that the 2008 Notice’s withdrawal of MSHA’s rulemaking intent violated the terms of the 2002 Settlement arising from challenges to the 2001 Rule. It is true that MSHA agreed in the 2002 Settlement to propose a final DPM exposure limit that used EC as the DPM surrogate. However, industry repudiated the 2002 Settlement when it petitioned for review of the 2001 Rule in Kennecott. See Village of Kaktovik v. Watt, 689 F.2d 222, 231 (D.C. Cir. 1982). NMA retreats from this contention in its reply, presumably recognizing it is not in a position to bind MSHA to a settlement NMA repudiated. MARG considers MSHA to be still bound by the 2002 Settlement’s provision requiring completion of the EC rulemaking before dismissal of the pending DPM petitions, but the issues in the pending petitions were litigated in Kennecott; even if MSHA had completed the contemplated EC rulemaking there would be no pending petitions to dismiss. As the court noted in Village of Kaktovik, 689 F.2d at 231, “[a] live and enforceable settlement simply cannot coexist with a party’s efforts to acquire a court determination of the very issues the settlement was supposed to resolve without litigation.” MSHA was no longer bound by the 2002 Settlement when it issued the 2008 Notice.
NMA is mistaken when it suggests that on the basis of the Noll-Bugarski Study, MSHA effectively “repromulgated the 160 TC standard.” Pet’r NMA Br. 19. The DPM standard of 160 TC was set to take effect on May 20, 2008 pursuant to the 2006 Rule upheld in Kennecott. See 30 C.F.R. § 57.5060(b)(3); 2006 Rule, 71 Fed. Reg. at 29,012. Absent a stay or amendment to the 2006 Rule, the final DPM standard of 160 TC would take effect by operation of law irrespective of the 2008 Notice and so the 2008 Notice was not a repromulgation requiring notice and comment under the Administrative Procedure Act (“APA”), 5 U.S.C. § 553. As the court observed in ICORE, Inc. v. FCC, 985 F.2d 1075, 1082 (D.C. Cir. 1993), an agency does not enact a new rule when a transition rule expires or when the agency decides not to modify a rule, states that additional study is needed, or concludes that no new transition rule is needed.
Finally, industry contends the 2008 Notice’s withdrawal of MSHA’s rulemaking intent was unlawful because MSHA did not provide notice of or opportunity for comment on its action as required by the Mine Act, 30 U.S.C. § 811(a), and the APA, 5 U.S.C. § 553. In industry’s view MSHA substituted for the promised EC standard the 2008 Notice’s enforcement strategy, without giving prior public notice or opportunity for comment on either its intent to do so or the data on which it relied. NMA contrasts this circumstance with what would have happened if the Noll-Bugarski Study and the Kogut Report had been part of the rulemaking record in Kennecott. It cites American Radio Relay League, Inc. v. FCC, 524 F.3d 227, 239 (D.C. Cir. 2008), where the court held the agency had to make public and available for comment those studies on which it relied, including the redacted pages on which the agency claimed not to have relied. This contention, as framed by NMA, does not challenge MSHA’s failure to afford notice of and opportunity to comment on the 2008 enforcement strategy itself, but rather MSHA’s failure to afford notice of and opportunity to comment on the
Noll-Bugarski Study and the Kogut Report before dropping the idea of issuing a notice of proposed rulemaking. See Pet’r NMA Br. 1-2, 8, 28, 30. (Although NMA states in a footnote in its principal brief that MSHA “also promulgated, again with no opportunity for notice and comment, a complex six-page program policy letter,” Pet’r NMA Br. 29 n.7, this footnote statement is not sufficient to preserve the issue. See Wash. Legal Clinic for the Homeless v. Barry, 107 F.3d 32, 39 (D.C. Cir. 1997).)
NMA contends that MSHA failed to comply with required notice and comment procedures by withdrawing its intent to propose a TC to EC conversion rulemaking and simultaneously issuing an enforcement strategy for the DPM standard of 160 TC “without giving prior notice of, and an opportunity to comment on, their intent to do so or the data that informed that decision.” Pet’r NMA Br. 2. However, the 2008 Notice was not subject to APA notice and comment procedures. It neither enacted a new rule, since the 160 TC standard would have replaced the interim DPM standard on May 20, 2008 regardless of the 2008 Notice, nor modified the 160 TC standard, and “[n]ot modifying a rule is not the same as ‘formulating, amending, or repealing a rule,’ the APA definition of ‘rule making’” provided by 5 U.S.C. § 551(5). See ICORE, 985 F.2d at 1082. In addition, MSHA’s statement in the 2006 Rule that it intended to propose a rulemaking to convert the 160 TC standard to EC is similar to the comment in a rulemaking by the agency in ICORE that further study was needed. The court in ICORE held that “[a]n agency statement in one rulemaking, that a pending study may generate need for another, neither initiates a second rulemaking nor cancels the timetable adopted in the first rulemaking.” Id. Nor did MSHA adopt a new rule when it concluded in the 2008 Notice that no EC conversion was needed for the 160 TC standard. Id. NMA’s reliance on rulemaking precedent such as American Radio Relay League, 524 F.3d 227, in maintaining
that MSHA had to disclose critical factual data, is thus inapposite. Moreover MSHA, while claiming on appeal that it was not legally obligated to disclose the data, notes that the Noll-Bugarski Study was published and made available on NIOSH’s website, and that in April 2009 MSHA released the unredacted Kogut Report as well. See Resp’t MSHA Br. 13 n.2 & 26 n.3; Pet’r NMA Br. 9 n.3.
III.
MARG individually contends this court should order NIOSH to comply with the Federal Advisory Committee Act (“FACA”), 5 U.S.C. app. 2, and prior court orders by providing Congress, MARG, and intervenor union with information involving NIOSH’s study. It also individually contends this court should order NIOSH to release its study to MSHA and the public, and should remand the instant case to MSHA with instructions to reopen the DPM rulemaking, add the NIOSH study to the rulemaking record, and consider this study in promulgating final DPM rules. To accomplish this goal, MARG has joined NIOSH and its parent the U.S. Department of Health and Human Services (“HHS”) as respondents. We must dismiss these requests for lack of jurisdiction.
First, NIOSH and HHS are not proper respondents for two reasons. Under the Mine Act, petitions for review are authorized to the extent they challenge the validity of a U.S. Department of Labor mandatory health or safety standard promulgated pursuant to the Mine Act. 30 U.S.C. § 811(d). Although NIOSH is authorized by 29 U.S.C. § 671(c)(1) to “develop and establish recommended occupational safety and health standards,” this provision is not part of the Mine Act. The Mine Act references NIOSH and HHS as providers of information to MSHA, see 30 U.S.C. § 811(a)(1), but it does not provide a basis for naming respondents other than the agency
that promulgated the challenged standard. Under section 811(d), a petition challenging a MSHA standard may be filed only if the petitioner is adversely affected by a mandatory Department of Labor health or safety standard promulgated pursuant to section 811 and the petition is challenging the validity of that standard.
In a similar situation, the court held in Bangor Hydro- Electric Co. v. FERC, 78 F.3d 659, 661–62 (D.C. Cir. 1996), that although the U.S. Department of the Interior was authorized to participate in and have its views made part of a FERC order, only FERC was a proper respondent where the Federal Power Act, 16 U.S.C. § 825l(b), provided for review of a petition filed by a person aggrieved by the order issued by FERC and asking that the FERC order be modified or set aside. Similarly, as NIOSH suggests, only Department of Labor entities can be proper respondents to a petition filed pursuant to the Mine Act, 30 U.S.C. § 811(d). Cf. Oil, Chem. & Atomic Workers Local Union No. 6-418 v. NLRB, 694 F.2d 1289, 1298 (D.C. Cir. 1982). Although MARG asserts NIOSH is a proper respondent because the validity of MSHA’s DPM rule depends on the information MSHA considered, the contents of the rulemaking record must be resolved in litigation with MSHA itself. Statutes such as the Mine Act and the Federal Power Act authorizing rulemaking contributions by other agencies do not thereby make the other agencies parties in a subsequent judicial challenge. See, e.g., Bangor Hydro-Elec., 78 F.3d at 662. If MARG prevailed here, the result would be a remand to MSHA. Thus, consistent with our precedent, only MSHA and its parent, the Department of Labor, are proper respondents. NIOSH and HHS are powerless to rescind a mandatory health or safety standard promulgated by MSHA, and their participation as respondents serves no meaningful purpose.
Additionally, pursuant to Federal Rule of Appellate Procedure 15,2 the agency to be named as a respondent to a petition challenging an agency order is the parent agency and its subparts that promulgated the challenged action. See Ingalls Shipbuilding, Inc. v. Dir., Office of Workers’ Compensation Programs, 519 U.S. 248, 267 (1997). MARG’s individual petition challenges MSHA’s 2008 Notice and 2008 Policy Letter, which MARG styles as a “final rule.” Pet’r MARG Br. ii. But as Ingalls Shipbuilding makes clear, MARG properly named only MSHA and its parent the Department of Labor as respondents. Therefore, we dismiss NIOSH and HHS as respondents.
Second, regarding the FACA claim, insofar as MARG seeks enforcement of the order issued by the U.S. District Court for the Western District of Louisiana, see MARG v. United States, No. 96-2430 (W.D. La. June 5, 2001), its request must be directed to that court. See Baker ex rel. Thomas v. General Motors Corp., 522 U.S. 222, 236 (1998); Peters v. Nat’l R.R. Passenger Corp., 966 F.2d 1483, 1487–88 (D.C. Cir. 1992). This court lacks jurisdiction.
Third, to the extent MARG maintains NIOSH has unreasonably delayed publication of its DPM study and seeks to compel agency action unreasonably delayed, its claim must be brought initially in a district court (assuming it can be brought). See Moms Against Mercury v. FDA, 483 F.3d 824, 827 (D.C. Cir. 2007); see also Weber v. United States, 209 F.3d 756, 758–59 (D.C. Cir. 2000). The APA contains no grant of jurisdiction. See Int’l Union, UMWA, 358 F.3d at 42. Although
Federal Rule of Appellate Procedure 15(a)(2) provides that a petition for review of an agency order “must: . . . (B) name the agency as a respondent . . .; and (C) specify the order or part thereof to be reviewed.”
a court may exercise authority under the All Writs Act, 28 U.S.C. § 1651, to issue writs of mandamus necessary to protect its prospective jurisdiction, see Telecomms. Research & Action Ctr. v. FCC, 750 F.2d 70, 76 (D.C. Cir. 1984) (“TRAC”), this court’s interest in protecting its future jurisdiction “does not arise if the final agency action is not reviewable” in this court, Moms Against Mercury, 483 F.3d at 827. MARG points to no statute that would authorize this court to review NIOSH’s study upon its completion. See Weber, 209 F.3d at 758–59; see also Bennett v. Spear, 520 U.S. 154, 178 (1997). Mandamus is an extraordinary remedy unavailable where the right to relief is not clear or where another adequate remedy is available. See Ass’n Flight Attendants-CWA v. Chao, 493 F.3d 155, 159 (D.C. Cir. 2007); Cmty. Nutrition Inst. v. Young, 773 F.2d 1356, 1361 (D.C. Cir. 1985). In any event, MARG’s petition did not indicate it sought mandamus relief from NIOSH and HHS, and MARG has not filed a separate petition for mandamus. See FED. R. APP. P. 21(a). MARG invokes no other statute that would allow this court to exercise jurisdiction.
MARG’s effort to have this court exercise its ancillary jurisdiction fails. MARG points to no precedent suggesting this court should exercise ancillary jurisdiction as to another agency when it is exercising jurisdiction under the All Writs Act to address MSHA’s withdrawal of its intent to issue a proposed rule. These circumstances do not suggest this is an occasion where “substantial considerations of fairness or efficiency demand” the exercise of auxiliary jurisdiction. Public Citizen, Inc. v. Nat’l Highway Traffic Safety Admin., 489 F.3d 1279, 1288 (D.C. Cir. 2007) (quotation marks omitted). Moreover, in In re Tennant, 359 F.3d 523, 529 (D.C. Cir. 2004), this court cautioned that it was inappropriate to invoke mandamus “solely on the basis that events might lead to a filing before an agency or lower court, which might lead to an appeal to this court.” Cf. Am. Iron & Steel Inst. v. EPA, 115 F.3d 979, 985–86 (D.C. Cir.
1997); Shell Oil Co. v. FERC, 47 F.3d 1186, 1194–95 (D.C. Cir. 1995).
Accordingly, we deny the industry petitions, and with regard to MARG’s individual challenges, we dismiss NIOSH and HHS as respondents, decline to exercise ancillary jurisdiction, and dismiss for lack of jurisdiction. |
Subsets and Splits