The Communications Decency Act Meets Ashcroft v. Iqbal: The Fourth Circuit's Decision In Nemet Chevrolet, Ltd. v.

A split Fourth Circuit affirmed the dismissal yesterday of a defamation claim against a consumer complaint website, in Nemet Chevrolet, Ltd. v., Inc. The Court found the Defendant,, to be entitled to immunity under the Communications Decency Act, relying on the heightened standard for considering a Motion to Dismiss from the Supreme Court in Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009). 

Even if you don't practice in an area that implicates the CDA, the Nemet case is significant for its further development of the Iqbal standard in the Fourth Circuit. It is another indication, after the opinion earlier this month in Francis v. Giacomelli, that the Court is becoming much more exacting on how Motions to Dismiss should be evaluated.

Background on the CDA

The CDA carves out a broad immunity from state law claims (like defamation claims) for providers of "interactive computer services." The Defendant,, is such a provider. It runs a website soliciting complaints from consumers about businesses with which they've dealt.

The Fourth Circuit emphasized the breadth of the immunity, and the need to resolve its applicability "at the earliest possible stage of the case." In that respect, said the Court, the CDA immunity is much like the qualified immunity to which state officials are entitled.

The issue in Nemet was whether the Plaintiff had presented a complaint with enough plausibility to show that the Defendant fell outside the scope of the immunity because it was an "information content provider." Such a provider, per 47 U.S.C. §230(f)(3), is "any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service."

The Plaintiff, a Chevrolet dealer who had been lambasted in twenty posts on Defendant's website, offered two arguments why the Defendant wasn't entitled to immunity. The first was that the Defendant had participated in creating and developing the posts by the way it had structured its website and also through hands-on revision of the comments in question. The second was that some of the comments were fabricated by the Defendant, and it was therefore responsible for their content.

The Fourth Circuit rejected both arguments, though over a partial dissent.

The "Creation And Development" Claim Wasn't Plausible

On the argument about creation and development, Judge Agee, writing for the majority, distinguished the Ninth Circuit's decision in Fair Housing Council v., LLC, 521 F.3d 1157 (9th Cir. 2008), a seminal CDA decision. There, the website operator wasn't entitled to immunity because it had specifically designed its website to develop unlawful content, which included requesting tthe sex, family status, and sexual orientations of the site users seeking housing as well as those of their desired roommates.

In Nemet, the Plaintiff said that the Defendant had structured its website to be a clearinghouse for class action lawyers seeking plaintiffs, and that it therefore wasn't entitled to immunity. The Court disagreed, and said "there is nothing unlawful about developing this type of content; it is a legal undertaking: Federal Rule of Civil Procedure 23, for instance, specifically provides for class-action suits."

Relying on Iqbal, the Court said that even assuming all the facts regarding the structure and design of the website were true, that this "does not show, or even intimate" that the Defendant had contributed to the allegedly false nature of the comments. Plaintiff, according to the Court, hadn't even shown that it was a "likely possibility" that the Defendant was an information content provider, and certainly not that this was "plausible" under Iqbal.

The Fourth Circuit also trashed the Chevy dealer's argument that the Defendant had been involved in developing or creating the content. It said that the Plaintiff hadn't pled any facts showing the nature of the claimed revising and redrafting of the comments, or that such rewriting went beyond a "traditional editorial function." It invoked Iqbal's admonition that "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."

The Fabrication Claim Was "Pure Speculation"

The Court then turned to the Plaintiff's claim that the Defendant had fabricated the posts and was therefore responsible for their substance and content. It dismissed these allegations as "pure speculation and a conclusory allegation" that the Defendant had created the information. It said, relying on Iqbal, that these were "bare assertions 'devoid of further factual enhancement,' which are not entitled to an assumption of truth."

The dismissal of the "fabrication claim" provoked a dissent from Judge James P. Jones of the Western District of Virginia, sitting by designation.

He found some of the allegations made by the Plaintiff to support the fabrication claim rendered it plausible, including Plaintiff's assertion that it had no record of ever having sold a car to the persons that had supposedly made the complaints.

Judge Jones said that there had to be a distinction between the pleading requirements of Rule 8 and the summary judgment standard of Rule 56. He stated "[i]t cannot be the rule that the existence of any other plausible explanation that points away from liability bars the claim. Otherwise, there would be few cases that could make it past the pleading stage."

He said that the proper application of Iqbal was that "it is only where there are 'more likely explanations' for the result that the plausibility of the claim is justifiably suspect."


Business Court Sanctions Defendants For Failing To Appear At Mediation

Sanctions were awarded by the Business Court in Red Ventures, LLC v. Modern Consumer, LLC, when two of the four Defendants didn't show up for a mediated settlement conference.

The mediation had been scheduled by agreement, and all parties had received notice of the conference. Two of the Defendants, however, decided not to appear and didn't provide any advance notice that they were not going to do so. The other parties showed up, but decided not to proceed without the missing Defendants.

The Court observed that Rule 4 of the Rules Implementing Statewide Mediated Settlement Conferences "requires all individual parties to attend a mediated settlement conference." The same rule provides specific procedures for a party to follow if it wishes to be excused from the conference.

The Defendants said that the conference wasn't covered by the Rule, because it was a "voluntary" proceeding. Judge Diaz made short shrift of that argument, stating that "there simply is no basis in the record for Defendants' belief that they were free to attend the Conference -- or not -- at their pleasure." He also rejected their argument that Plaintiff should have gone ahead without the missing Defendants.

Mediation Rule 5 authorizes monetary sanctions against a non-attending party. Judge Diaz required the AWOL Defendants to reimburse the mediator fees in full; to pay the hourly fees for the lawyers for the other parties in attending the conference; and also to pay the fees in preparing and arguing the Motion for sanctions. The Court found the Plaintiff's lawyer's hourly rate of $405 to be "comparable to the rates of other attorneys with similar experience and practices in the Charlotte, North Carolina market."  The total sanctions awarded were $5,000.

There are a couple of other Business Court decisions involving mediations and sanctions, including Hemenway v. Hemenwayand Mattress Now, Inc. v. Vickers; and the Court of Appeals entered a mediation sanctions opinion earlier this year in Perry v. GRP Financial Services Corp.

I mentioned the Red Ventures decision to Andy Little, who is a great mediator and who was one of the leaders in implementing mediation in North Carolina. Andy pointed out that the mediation rules used to provide for even harsher sanctions for a non-attending party, including dismissal of the case, and told me that the Court of Appeals affirmed such a sanction years ago, in Triad Mack Sales and Service, Inc. v. Clement Brothers Co., 438 S.E.2d 485 (N.C. App. 1994). Rule 5 would not permit that type of sanction today.

The cartoon at the top is by Charles Fincher, a lawyer who is also a cartoonist. You can find his "inside baseball" comics for lawyers at The one I used, with his permission and which he owns, is from a series of one-panel cartoons called Scribble-in-Law.

Brief in Support of Motion for Sanctions

Brief in Opposition to Motion for Sanctions

Reply Brief in Support of Motion for Sanctions

An Important Procedural Point For Contested Tax Cases In The North Carolina Business Court

Read this if you litigate with the North Carolina Department of Revenue over tax matters, or know someone who does. The subject is a Business Court decision which makes clear an important prerequisite for obtaining review of a tax case in the Court.

The Business Court has jurisdiction over parties seeking judicial review of a contested tax case decided in the Office of Administrative Hearings by an Administrative Law Judge. It has had such jurisdiction since 2008 amendments to the General Statutes, including Section 7A-45.4(a)(7) and Section 105-24.16, which says that:

A taxpayer aggrieved by the final decision in a contested case commenced at the Office of Administrative Hearings may seek judicial review of the decision in accordance with Article 4 of Chapter 150B of the General Statutes. Notwithstanding G.S. 150B-45, a petition for judicial review must be filed in the Superior Court of Wake County and in accordance with the procedures for a mandatory business case set forth in G.S. 7A-45.4(b) through (f). A taxpayer who files a petition for judicial review must pay the amount of tax, penalties, and interest the final decision states is due.

The statute says that the taxpayer must pay the tax with penalties and interest, but it doesn't say when the payment is to be made and says nothing about payment being a prerequisite to judicial review .

In Franklin County Board of Education v. North Carolina Department of Revenue, 2009 NCBC 28 (N.C. Super. Ct., December 23, 2009), the first case in the Business Court seeking judicial review pursuant to the statute, Franklin County hadn't paid the tax and interest before filing its Petition. The Department of Revenue pointed this out to the County, and the County promptly paid in full. Nevertheless, DOR moved to dismiss because the payment had not been made before the filing in the Business Court.

Judge Tennille denied the Motion based on his power under G.S. §150B-45 to allow an untimely Petition "for good cause shown." He said that the statute "is not a model of clarity," and that it "should have made it clear that the tax, penalties, and interest had to be paid before or contemporaneously with the filing of the Petition." He also pointed out that DOR had not said in the Notice of Appeal Rights provided to the County that it was required to pay the tax before seeking judicial review. 

That pass given to Franklin County won't extend to future cases, and that's the important part. The Court said "[n]ow that the Statute has been clarified by the Court, attorneys are on notice of the requirement." DOR will presumably provide notice of this requirement to taxpayers, because the Court said that DOR "would be well advised to make the payment requirement clear in its notice of appeal procedures."

Seller's Environmental Cleanup Waived "Time Is Of The Essence" Provision

The impact of a "time is of the essence" provision on a real property transaction delayed by the discovery of environmental contamination was the subject of the Court of Appeals decision yesterday in Phoenix Limited Partnership v. Simpson.

The decision supersedes and replaces a March 2009 decision by the Court, in which it had reversed a grant of summary judgment in favor of the Plaintiff (the buyer). After a rare grant of a Petition for Rehearing, the Court reversed itself and affirmed the trial court's ruling in full, granting specific performance of the contract.

The property involved was the subject of a "put option" by which Plaintiff was required to purchase the property. After the exercise of the put, but before the date scheduled for closing, the Defendants discovered significant environmental problems on the property.

The Defendants informed the Plaintiff that they intended to clean up the property. Three years after the closing date called for in the contract, the Plaintiff asked about the status of the remediation, and learned the Defendants hadn't finished the cleanup. Instead, they had contracted to sell the property to another buyer for approximately $400,000 more than the option purchase price.

Plaintiff sued for specific performance notwithstanding the three year delay. The Defendants argued that they were relieved from the obligation to complete the transaction because of the "time is of the essence" provision. They also contended that because the Plaintiff hadn't sought to close within a reasonable time after the scheduled closing date, the option had terminated.

The Court of Appeals disagreed and said that the time is of the essence provision had been waived, ruling:

defendants' conduct in pursuing an environmental cleanup -- including hiring their own environmental consultant, telling plaintiff that they were conducting an environmental investigation, notifying plaintiff of the results of that investigation, and stating that they wanted to enroll the . . . property in the [North Carolina Dry-Cleaning Solvent Act program] -- coupled with the fact that an environmental cleanup could take years to complete, indicated to plaintiff that defendants still intended to perform under the contract despite the passing of the original closing date. 

In the absence of a time is of the essence provision, the law in North Carolina is that the parties are allowed "a reasonable time after the date set for closing to complete performance." In its first opinion, the Court of Appeals had found a question of fact on this issue. It abandoned that ruling in the new opinion, however, finding that it was unnecessary to reach the reasonableness issue.

The Court, relying on the North Carolina Supreme Court's decision in Fletcher v. Jones, 314 N.C. 389, 333 S.E.2d 731 (1985), held that "in order for the clock to start ticking on the reasonable time frame, defendants were required to notify plaintiff that they had completed their cleanup and were ready and able to perform." Defendants had never done so.

They Can't Hear You Now: Fourth Circuit Dismisses Class Action Based On Cellphone Carrier's Coverage Maps

Maybe, when you decided which cellphone provider to sign on with, you took a look at its coverage map showing what excellent coverage you would have throughout the country.

If you relied on that map in picking your carrier, you probably shouldn't have. That's the essence of an unpublished decision from the Fourth Circuit Court of Appeals last Friday in Johnson v. Sprint Solutions, Inc.

The claim by Johnson was that Sprint had charged her roaming fees in areas where she said its coverage maps showed she should have been within the carrier's coverage. Her core allegation was "that various maps provided and displayed by Sprint formed part of [her contract with Sprint], and that these maps outlined where Sprint customers would, and would not, be subject to roaming fees."  She sought class certification on her claims.

The Court agreed that the maps were a part of the contract, but held based on the written agreements signed by Johnson that the maps "were no more than approximate representations of service coverage areas and provided no geographic promises depicting where Johnson could and would not be subject to roaming fees." 

The dismissal of Plaintiff's claims was affirmed.

Saturday Night Live And North Carolina's Nominees To The Fourth Circuit Court Of Appeals

Things actually got funny during the Senate Judiciary Committee's hearing today on the nominations of Judges Albert Diaz and James Wynn of North Carolina to the Fourth Circuit Court of Appeals. You can see that for yourselves in the video at the left.

Funny happened when Senator Al Franken, formerly of Saturday Night Live, expressed concern about the possible lack of diversity of the Fourth Circuit if both nominees are confirmed. Judge Wynn and Judge Diaz will add great diversity to the Fourth Circuit, so the Senator wasn't asking about diversity in the usual sense.

The "diversity" he asked about involved the similar military backgrounds of Judge Wynn and Judge Diaz, who both served as attorneys in the military and as military judges. The comedian turned Senator also questioned whether Judge Wynn, formerly a Navy captain, and Judge Diaz, formerly a lieutenant-colonel in the Marines Corps Reserves, could be fair to litigants from other branches of the armed forces. Both Judges responded by pledging to treat all members of the military equally, a bit tongue in cheek, to a deadpan Senator Franken.

Up until that point, the hearing was the serious affair that you would expect. The Committee Chairman (Senator Benjamin Cardin of Maryland, sitting in for an absent Senator Patrick Leahy) and the ranking minority member (Senator Jeff Sessions of Alabama) opened the proceedings by observing the rarity of the Committee considering two nominees simultaneously.  Senator Cardin attributed the unusual double hearing to the bipartisan support that North Carolina's nominees have received from North Carolina Senators Kay Hagan and Richard Burr. 

Senator Burr, who introduced the nominees, asked the Committee to give the Judges an "expedited review and referral" to the full Senate. The process is already moving quickly. This hearing took place less than six weeks after the nominations from President Obama.

After subsequent remarks from Senator Hagan about the need for North Carolina to have greater representation on the Fourth Circuit, Judge Wynn and Judge Diaz each gave a brief opening statement, and introduced the many family members and other persons who had come to support them at the hearing.

There was then a brief period of questioning from the Committee. Both nominees were asked about the role of "empathy," a word which became somewhat of a flashpoint during the hearings on Justice Sonia Sotamayor's nomination, in judicial decisionmaking. Neither Senator Sessions nor Senator Cardin decided to wade in and ask Judge Diaz about derivative actions, fiduciary duties, or any other corporate matters based on his many Business Court opinions. The only question even approaching a hardball was Senator Sessions asking Judge Wynn about a couple of his Fourth Amendment decisions.

The Judiciary Committee's website describes the procedure from here out. There is a short period for follow-up written questions by members of the Committee. After those are asked and answered, the nominations can be listed for consideration by the full Committee during an Executive Business Meeting. If the Committee orders the nominations to be reported, they are placed on the Senate's Executive Calendar for consideration by the full Senate. Let's hope the process continues to move at a fast pace, though Senator Leahy pointed out in a written statement that nominations are stalling when they reach the Executive Calendar. 

If you want to watch the entire hearing, there's a full webcast available. 

You Need More Than A Scintilla: North Carolina Supreme Court Sets Aside Jury's Award Of Punitive Damages

Lawyers defending against punitive damages claims ought to put on their dancing shoes after the North Carolina Supreme Court's decision Friday in Scarborough v. Dillard's, Inc.

That's because the majority opinion by Chief Justice Parker makes it easier for trial and appellate judges to set aside a jury's award on punitive damages. With Scarborough on the books, a "scintilla of evidence" is no longer enough to support a judgment granting punitive damages.


The Plaintiff in Scarborough was a shoe salesman for Dillard's. Dillard's had him indicted for embezzlement for letting two customers leave the store without paying for shoes. He said was a mistake and that his employer's actions were malicious.

A jury found the Plaintiff not guilty, and he then sued Dillard's for malicious prosecution. He won a jury award of $30,000 in compensatory damages and $77,000 in punitive damages.

Dillard's moved for JNOV on the punitive damages award. The trial court granted the motion, ruling that the plaintiff hadn't shown the "clear and convincing evidence" required by G.S. §1D-15(b) for an award of punitive damages.

The Court of Appeals reversed in a 2-1 ruling and reinstated the punitive damages award. It ruled that the JNOV motion should have been denied based on the familiar standard that such a motion should be denied so long as there was "more than a scintilla of evidence to support the plaintiff's prima facie case."

The Majority Opinion

The Supreme Court majority ruled that a different standard than a "scintilla of evidence" applies to a JNOV motion when punitive damages are at issue.

The proper standard, said the majority, was the one set out in Section 1D-15(b) itself: the trial judge must be satisfied that the evidence to support the award is "clear and convincing." Chief Justice Parker ruled that the evidence hadn't been clear and convincing, that the trial judge had properly set aside the award of punitive damages, and reversed the Court of Appeals.

The holding was: "the proper standard of review of a trial court's ruling on a motion for judgment notwithstanding the verdict as to punitive damages is whether the nonmovant produced clear and convincing evidence of of one of the statutory aggravating factors for punitive damages."

That's a whole lot different than looking for a "scintilla." The Random House Dictionary defines a scintilla as "a minute particle; [a] spark; [a] trace."  Merriam-Webster's Dictionary of Law says it is "a small trace or barely perceptible amount of something."

The Dissent

Justice Timmons-Goodson disagreed, quite strongly. She said that the standard for setting aside a jury verdict doesn't change because the burden of persuasion is higher than the usual preponderance of the evidence standard, as it is when punitive damages are involved.

She ruled that once the jury is instructed on the clear and convincing standard, the determination of whether that burden had been met is "the exclusive province of the factfinder." And once the jury has made its decision, Justice Timmons-Goodson ruled, it should not be set aside "unless only a single inference, unfavorable to the plaintiff, is possible from the evidence."

Justice Timmons-Goodson said that the majority's statement of the facts, and its perception that they did not rise to the level of being clear and convincing, "illuminate[d] the difficulty of reviewing a cold record." She observed that the majority's interpretation of the evidence might be right, but that there was "an equally plausible view of the evidence" that would support a punitive damages award.

She concluded with this statement:

It was the jury's role to sift through the evidence, evaluate the demeanor and credibility of the witnesses, and determine whether plaintiff met his burden of persuasion by producing clear and convincing evidence in support of his claim for punitive damages. The jury did so and found in favor of plaintiff. The majority's decision usurps the jury's role and imposes its own view of the evidence, contrary to well-established case law.

Last Word

This is a decision that is going to have a broad day to day (or at least trial to trial) application. And if defense lawyers really are dancing in the streets over this one, plaintiffs' counsel have got to be tearing their hair out.  Judges now have way more authority to question the conclusion of a jury on punitive damages and to throw out such an award.




The Investiture Of Magistrate Judge Patrick Auld, The Middle District Of North Carolina's Newest Judge

The Middle District's new Magistrate Judge, Patrick Auld, was invested yesterday in a ceremony at the federal courthouse in Greensboro.

Cameras are allowed in the courthouse on ceremonial occasions like this, so I'm able to share with you a couple of photographs of the ceremony. That's Judge Auld in the photo on the left, and the four District Judges of the Middle District in the other (from left, Judge Tilley, Judge Osteen, Chief Judge Beatty, and Judge Schroeder, applauding Judge Auld).

Judge Auld attended Wake Forest University and then Yale Law School.  He clerked for Judge Woody Tilley of the Middle District, and then for Judge Phyllis Kravitch of the 11th Circuit Court of Appeals. He practiced in Atlanta after his clerkships, and then joined the U.S. Attorney's office in the Middle District in 1998.  He has been Deputy Chief of the Criminal Division in this District since 2004.

Magistrate Judge Trevor Sharp, who introduced Judge Auld, noted the new Judge's sense of humor and informed him that his jokes will now be much funnier, at least to the lawyers appearing before him. True to form when judicial humor is involved, there was robust laughter from the crowded courtroom at Judge Sharp's remarks.

Judge Auld will be resident in Winston-Salem. He takes the seat held by Magistrate Judge Russell Eliason, who retired after more than thirty years as a Magistrate Judge.

Yippee-Ki-Yay: The First Case Database Roundup

Every so often, I add cases decided by the Business Court to the Case Database part of this blog. These cases are less significant than those that get a blog post-- at least in my unbridled and unchecked editorial discretion over this blog -- but nevertheless include some valuable points.

Email and RSS notifications don't go out when I add these cases, so you won't have seen them unless you've done some searching through the Database.

Here's a short list of the last several cases I added to the Database, with links to the summaries:

Abraham v. Jauregui: denying a motion opposing mandatory designation of a case involving a real estate development, and setting out factors why the case was appropriate for designation to the Business Court. (There are many other cases in the database involving the mandatory jurisdiction of the Court).

Allen v. Land Resource Group: Dismissing negligence and fraud claims against lenders which had financed residential lot purchases in a failed real estate development. Also dismissing claims under the Interstate Land Sales Full Disclosure Act.

BB&T BOLI Plan Trust v. Massachusetts Mutual Life Ins. Co.: granting a motion to stay discovery pending resolution of a motion to dismiss.

Charlotte-Mecklenburg Hospital Authority v. Wachovia Bank, Inc.: granting a motion to dismiss fiduciary duty claims and unfair and deceptive practices claim by bank customer against the bank for alleged mismanagement of securities investments.

Griffin v. Carolina Power and Light: granting motion that a shareholder who guarantees the debt of a corporation does not have an injury "separate and distinct" from the injury sustained by the corporation itself giving him standing to sue for the breach of a contract with the corporation. Further holding that a shareholder "cannot assert claims against a third party for loss of its equity investment in a corporation."

Laney v. Corn: enforcing a mandatory forum selection clause.

Mattress Now, Inc. v. Vickers: sanctioning a pro se party for failing to appear at a mediation.

Napco, Inc. v. PBM Graphics, Inc.: denying a motion for preliminary injunction under the North Carolina Trade Secrets Protection Act.

You can get to the Case Database -- where you can search by keyword -- by clicking the link at the upper left hand corner of the blog.

Business Court Grants Motion To Disqualify Counsel

The Business Court granted a Motion to Disqualify counsel today in Ferguson Fibers, Inc. v. Foster, and sent a cautionary word to lawyers who represent the employees of their corporate clients in what they might believe to be unrelated matters.

The issue was whether the attorney for Plaintiff Ferguson Fibers should be disqualified because he had previously represented Foster in a child support matter and in a lawsuit involving the sale of the business of Foster's wife. The new lawsuit appeared to be completely unrelated to those past representations. It involved claims by Ferguson Fibers that Foster had engaged in inappropriate conduct while employed by Ferguson Fibers.

Rule 1.9 of the North Carolina Rules of Professional Conduct provides that "a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related mater in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing."

The test for whether matters are "substantially related" is "if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter."

Foster asserted that he had discussed with his former lawyer during the past representations his employment and business dealings with Ferguson Fibers, his role in helping his employer move part of its business to Mexico, and his "strained relationship" with his boss. He said that disqualification was warranted because this information might be relevant to the lawyer in his representation of his former employer.

The attorney disputed that he had ever discussed such matters with his former client, but Judge Tennille held that this made no difference. He observed that a court should "prevent even the appearance of impropriety and thus resolve any and all doubts in favor of disqualification." He said "[t]he Court need not resolve this factual dispute. Its existence is sufficient to require disqualification," and that "Foster's perception of events, as the client, is of 'paramount importance' in preventing the appearance of impropriety."

The Court also provided a quick word of advice to lawyers who represent organizations as well as their employees: "Attorneys who represent various constituents of an organization, be they investors, employees, suppliers, or customers, are in a better position than lay persons to protect against potential conflicts of interest. Where counsel represents both a company and its employees, it is the duty of the lawyer to inform the client about the implications of the dual relationship."

Other decisions by the Business Court involving Motions to Disqualify are The Cottages of Stonehenge Condominium Homeowners Association, Inc. v. Dominion Mid-Atlantic Properties II, LLC, Chemcraft Holdings Corp. v. Shayban, and Flick Mortgage Investors, Inc. v. The Epiphany Mortgage, Inc.

Brief in Support of Motion to Disqualify

Brief in Opposition to Motion to Disqualify

Reply Brief in Support of Motion to Disqualify

Fourth Circuit Holds That Attorneys Can't Be Assessed With Fees For Improperly Removing A Case To Federal Court

If an attorney improperly removes a case to federal court, the Fourth Circuit concluded today in In re Crescent City Estates, LLC that he or she can't be liable for attorneys' fees. The Court interpreted 28 U.S.C. §1447(c), which says that "[a]n order remanding the case may require payment of just costs and and any actual expenses, including attorneys fees, incurred as a result of the removal." It held that this statute allows fees to be imposed only on parties, not their counsel.

The issue was whether the silence in the statute on the power to assess fees on attorneys should be read to allow it. The Appellants said that the lack of mention in the statute as to counsel was the equivalent of Congressional permission, but Judge Wilkinson held that  "the proper presumption is that when a fee-shifting statute does not explicitly permit a fee award against counsel, it prohibits it."

The Court premised its decision on the American Rule, which provides that "the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser."  It referred to the Rule as "a longstanding legal principle" and said that it was the Court's "duty to keep the American Rule intact."

The potential chilling effect of imposing fees on counsel was a fundamental part of the Court's decision.  It held that "holding counsel responsible under §1447(c) could begin to transform what it means to practice law. A lawyer should not be required to risk personal liability merely for acting in a representational capacity or for seeking to place a client in a more favorable litigation posture."

The Court observed that in an exceptional case, a "particularly blameworthy" removal could result in an imposition of fees on the attorney under Rule 11 or 28 U.S.C. §1927. 

The Fourth Circuit said that it is only the only Circuit Court to address whether fees can be assessed on counsel under the removal statute, and it observed that the district courts considering the issue "are badly divided."

It's Getting Tougher To Get Past A Rule 12(b)(6) Motion In The Fourth Circuit

The standard for getting past a 12(b)(6) Motion in federal court in North Carolina inched higher yesterday with the Fourth Circuit's decision in Francis v. Giacomelli.  

The opinion from Judge Niemeyer, relying on the United States Supreme Court's June 2009 decision in Ashcroft v. Iqbal, affirmed the grant of a Motion to Dismiss in a political firing case. 

Although Francis isn't a business case, you should definitely look at it if you are dealing with a Motion to Dismiss in federal court. It takes a stern view of pleading requirements after Iqbal, including a discussion of the need to deter "strike suits" and to avoid the "high costs of frivolous litigation."

The Court actually went so far as to suggest that the Federal Rules never really allowed notice pleading:

Overlooking the broad range of criteria stated in the Federal Rules for a proper complaint, some have suggested that the Federal Rules, when adopted in 1938, simply created a “notice pleading” scheme, pointing for support to Rule 8(a)2), which requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” and Rule 8(d)(1), which provides that “[n]o technical form [for stating allegations] is required.” But the “notice pleading” characterization may itself be too simplistic, failing to recognize the many other provisions imposing requirements that permit courts to evaluate a complaint for sufficiency early in the process. Rule 8 itself requires a showing of entitlement to relief. Rule 9 requires that allegations of fraud, mistake, time, place, and special damages be specific. Rule 11 requires that the pleading be signed and provides that the signature “certifies” (1) that the claims in the complaint are not asserted for collateral purposes; (2) that the claims asserted are “warranted”; and (3) that the factual contentions “have evidentiary support.” And Rule 12(b)(6) authorizes a court to dismiss any complaint that does not state a claim “upon which relief can be granted.” The aggregation of these specific requirements reveals the countervailing policy that plaintiffs may proceed into the litigation process only when their complaints are justified by both law and fact.

Senator Arlen Specter has introduced legislation to repeal Iqbal.  It is called the Notice Pleading Restoration Act of 2009.  The legislation would reinstate the liberal pleading standard of Conley v. Gibson, 355 U.S. 41 (1957) discarded by the Supreme Court in Iqbal and an earlier decision, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

High Stakes Civil Litigation: BB&T's Hedge Fund Lawsuit

Courtroom View Network is the "leading provider of live and on-demand video for high stakes civil litigation."  CVN was in North Carolina providing that video coverage for the hearing on a Motion to Dismiss in BB&T's lawsuit regarding a $55 million hedge fund investment turned sour. That's certainly a "high stakes" matter.

The videos from CVN are part of a subscription service, but the company has graciously provided me with two clips of the hearing before Judge Diaz, which you can view below. 

Before you do that, a little background. The case is BB&T BOLI Plan Trust v. Massachusetts Mutual Life Insurance Co. BB&T invested in a Citigroup hedge fund, Falcon Strategies, LLC. The investment was made in connection with BB&T's purchase of bank owned life insurance (BOLI) through Defendants MassMutual and Clark Consulting, Inc.

BB&T paid a $112 million premium to MassMutual for the BOLI. About $55 million was placed in the Falcon hedge fund. The hedge fund's performance, according to BB&T, was so poor that it triggered BB&T's right to reallocate that investment. 

BB&T claims that MassMutual and Defendant Clark nevertheless falsely advised them that no "reallocation event" had occurred, resulting in a significant loss.  The first video clip shows BB&T's lawyer arguing the claimed false statement by the Defendants.

The Amended Complaint doesn't specify the amount of BB&T's loss, but Falcon is reported to have lost more than 80% of its value. That would mean BB&T lost $44 million on this investment.

Other banks had far more substantial losses in Falcon than BB&T. The bank formerly known as Wachovia lost $315 million.  Fifth Third Bank had $612 million invested in Falcon, and has sued over its losses in federal court in Ohio.

Another issue before Judge Diaz at the hearing was whether discovery should be stayed pending resolution of the Motion to Dismiss. The second clip shows Winston-Salem attorney Mike Robinson arguing in favor of the stay.  Judge Diaz granted that motion in a short order the following day. He hasn't ruled yet on the Motion to Dismiss.

MassMutual's Brief In Support Of Motion To Dismiss

BB&T Response

MassMutual's Reply Brief

Clark Consulting's Brief In  Support Of Motion To Dismiss

BB&T Response

Clark Consulting's Reply Brief

New Cases In The North Carolina Business Court: November 2009

Nine  new cases were designated to the Business Court during November 2009:

Alexander Hospital Investors, LLC v. Frye Regional Medical Center, Inc. (Alexander)(Tennille): dispute between the owner of Alexander Community Hospital and its former tenant regarding the Defendant's alleged actions in causing the facility to lose its Medicare and Medicaid certification.

American Mechanical, Inc. v. Bostic (Randolph)(Diaz): claims against officers and directors of an insolvent corporation for constructive fraud and breach of fiduciary duty to creditors. The same claims are made in the Yates Construction case, below, and are similar to claims in an already pending case in which the Court has issued an opinion on the obligations of corporate insiders in a situation of deepening insolvency.

CCE Development Corp. v. Jebara Investments, LLC (Mecklenburg)(unassigned): lawsuit regarding a like-kind exchange in which Plaintiff sought to pierce the corporate veil between the attorney handling the transaction and a related title services company. The case was immediately remanded to Superior Court by a short order in which the Court ruled that allegations seeking to pierce the corporate veil are, standing alone, not sufficient for mandatory Business Court jurisdiction.

Lee v. Coastal AgroBusiness, Inc. (Sampson)(Jolly): claims regarding an inoculant applied by Plaintiff to its peanut crop, which Plaintiff alleges caused damage to the crop. Jurisdiction is based on the Business Court's jurisdiction over biotechnology matters.

Phelan v. Harbor Capital Management (Haywood)(Diaz): Claims by Defendant, a registered investment adiviser, against two of its former representatives who left the Defendants' firm, including claims for breach of fiduciary duty, tortious interference, misappropriation of trade secrets, and unfair competition.

Polytec, Inc. v. Andrews (Iredell)(Diaz): claims for breach of covenant not to compete and tortious interference with contract.

Press Communications, LLC v. Wachovia Bank, N.A. (Mecklenburg)(Tennille): claims regarding interest rate swaps.

Tyson v. Tyson: minority shareholder dispute. Claims for dissolution, breach of fiduciary duty, breach of reasonable expectations, conversion, fraud, and accounting, among others.

Yates Construction Co. v. Bostic (Rockingham)(Diaz): claims against officers and directors of an insolvent corporation for constructive fraud and breach of fiduciary duty to creditors. The same claims are made in the American Mechanical case, above, and are similar to claims in an already pending case in which the Court has issued an opinion on the obligations of corporate insiders in a situation of deepening insolvency.