We all sometimes say things that we are sorry to have said.  Even judges. Those types of statements by a District Court Judge in South Carolina, which the Fourth Circuit called "neither wise nor temperate" were the subject of a recusal motion ruled on last week by the Fourth Circuit, in Belue v. Aegon USA, Inc.   The Court also discussed the circumstances under which a pro hac vice admission can be withdrawn, taking issue with the trial judge’s revocation of that status.

The comments by Judge Anderson of the District of South Carolina were made in connection with a hearing in a  class action matter.  He criticized a related settlement in another jurisdiction as possibly being one "of those buddy settlements  we have to watch out for."  He was also critical of the defendants’ approach in another case and suggested that the settlement in that case had been "improper."

This prompted the defendants’ lawyers to file a motion to recuse Judge Anderson pursuant to 28 U.S.C. sec. 455 (b)(1), which requires recusal when a judge "has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding."

The Judge’s reaction to the motion to recuse was fiery.  He said it was the defense counsel’s reaction to negative rulings, saying "you lose the case and attack the judge."  He called the request for recusal "the most inappropriate motion in the world."

Judge Wilkinson, writing for the Fourth Circuit, said that recusals based on in-trial conduct generally involved "singular and startling facts."  He noted that the Supreme Court has said that the bias should stem from a source outside of the judicial proceeding, usually requiring an "extrajudicial source." 

The Fourth Circuit called the recusal motion "decidedly ill founded."  Judge Wilkinson said that "strong views" expressed by a judge about a case were not grounds for recusal, stating that:

Litigation is often a contentious business, and tempers often flare. But to argue that judges must desist from forming strong views about a case is to blink the reality that judicial decisions inescapably require judgment. Dissatisfaction with  a judge’s views on the merits of a case may present ample grounds for appeal, but it rarely — if ever — presents a basis for recusal.

Op. p.15. 

The opinion expresses a general disfavor of recusal motions, saying that they should not "become a form of brushback pitch for litigants to hurl at judges who do not rule in their favor," and that "no appellate court can afford to leave trial judges prey to a slew of groundless calls for recusal from litigants whose major objection to those judges appears to be a perceived disagreement with them."Continue Reading The Fourth Circuit On Recusals And Pro Hac Vice Admissions

Diversity is determined differently for corporations and limited liability companies. Corporations are citizens of the states in which they are incorporated and the state where they have their principal place of business, but an LLC is a citizen of each state in which its members reside.  See, e.g., General Technology Applications, Inc. v. Exro Ltda, 388 F.3d 114 (4th Cir. 2004).

But when the Class Action Fairness Act is involved, things are different. Last Friday, the Fourth Circuit ruled in Ferrell v. Express Check Advance of SC LLC that a limited liability company is an "unincorporated association" for CAFA purposes, and that the determination of the "principal place of business" of an LLC should be determined using the same test applied to a corporation. In other words, the citizenship of the members of an LLC isn’t necessarily determinative of diversity in a CAFA case, and it wasn’t in Express Check.


The LLC defendant conducted its operations in South Carolina, but its sole member was a corporation incorporated in Missouri with a principal place of business in Kansas. It had been sued by a Plaintiff who was an individual resident of South Carolina.

The Defendant, relying on the Missouri and Kansas citizenship of its sole member, removed the case to federal court based on diversity jurisdiction, and the Plaintiff moved for a remand.

If CAFA hadn’t been at issue, the general rule for determining the citizenship of an "unincorporated association" would have applied. That rule looks to the citizenship of each member of the entity, so an LLC would be a citizen of each state in which its members resided. There would have been diversity under that test because the Defendant was either a Missouri entity or a Kansas entity. 

An LLC Is An Unincorporated Association Under The Class Action Fairness Act 

But under CAFA, Congress changed the traditional rule, and said that an "unincorporated association" should be treated like a corporation, and deemed a citizen of the State "under whose laws it is organized" and also where it has its principal place of business. 28 U.S.C. Sec. 1332(d)(1).

Express Check, concerned that its principal place of business might be found to be diversity-defeating South Carolina, sought to get out from under the CAFA rule. It said that an LLC wasn’t intended by Congress to be included in the definition of an "unincorporated association." The Fourth Circuit cut through that argument quickly, calling it "linguistic," and held that an LLC’s "citizenship for purposes of CAFA is that of the State under whose laws it is organized and the State where it has its principal place of business."

The decision sweeps beyond LLCs, as Judge Niemeyer ruled that the term "unincorporated association," under CAFA, "refers to all non-corporate business entities."

The Court then turned to the issue of where the LLC had its principal place of business.Continue Reading Fourth Circuit Rules On Determining The “Principal Place Of Business” Of A Limited Liability Company Under The Class Action Fairness Act

We’ll probably never know the identity of the Appellant in Lefkoe v. Jos. A. Bank Clothiers, Inc., decided yesterday by the Fourth Circuit.  Whether anyone, including the Defendant, was entitled to know that person’s name was the whole point of the appeal by the party referred to by the Fourth Circuit as the "Doe Client."

The Doe Client had accused Jos. A. Bank, a publicly traded company, of serious accounting fraud. That individual, who claimed a constitutional right to anonymity, appealed a ruling of a trial judge in the District of Maryland ordering his or her identity to be disclosed to the Defendant.

The Fourth Court’s ruling touches both deposition and subpoena procedure under the Federal Rules of Civil Procedure as well as issues of freedom of speech under the First Amendment.


You’ll need more than a little bit of background, as the case has elements of a John Grisham novel. Lefkoe is a securities class action. Plaintiffs assert fraud based on a sharp drop in the clothing company’s share price when it delayed an earnings report.

The delay occurred because Bank’s Audit Committee had received, shortly before the report’s due date, a letter from the law firm of Foley & Lardner making detailed charges of accounting improprieties.The letter was sent by the law firm on behalf of a shareholder who it said "held several hundred thousand shares" of Bank stock. The shareholder was not identified in the letter.

Bank hired lawyers and accountants to investigate the charges. The conclusion of the investigation was that the charges were "without substance." In the securities lawsuit, filed in federal court in Maryland, Bank sent a subpoena to the law firm seeking to require it to present a witness to testify as to the identity of its client. The subpoena was issued from the Massachusetts district court.

The law firm objected there to the subpoena, asserting that its client had "a right of anonymity as protected by the First Amendment." The Massachusetts judge permitted the deposition to take place. The law firm presented the Doe Client as the witness. The Court ordered the deposition sealed and entered a protective order stating that the lawyers for Bank couldn’t tell their client the name of the Doe Client.

The lawyers for Bank investigated the Doe Client, and found facts suggesting it had taken "deliberate and successful actions to drive down the market price" of Bank stock, and furthermore that it was a short seller who held a substantial quantity of puts on Bank stock.  The Doe Client therefore stood to profit from the decline in Bank stock.

The clothing company’s lawyers then asked the Maryland judge to permit them to provide the name of  the Doe Client to Bank. The Maryland judge agreed to a wider disclosure, but only to Bank’s in-house counsel.

The Doe Client appealed to the Fourth Circuit, arguing that the Maryland court didn’t have the authority to modify the Massachusetts’ court’s ruling, and furthermore that the ruling violated the Doe Client’s First Amendment rights.Continue Reading Law Firm’s Client Didn’t Have First Amendment Right To Be Anonymous

The Fourth Circuit ordered certification of a race discrimination class action last Friday in Brown v. Nucor Corp. reversing the district court. The 2-1 decision ordered the lower court to certify a class of employees making claims for disparate impact, disparate treatment, and hostile work environment.

The majority opinion, written by Judge Gregory, discussed: (1) when discrimination claims meet the commonality and typicality requirements of Rule 23, (2) the use of statistical evidence when the historical data to make such calculations has been destroyed, and (3) whether the plaintiffs could represent employees who worked in other  departments of the employer.

The plaintiffs, African-American employees at Nucor’s South Carolina plant, asserted that Nucor’s promotion procedure allowed white managers and supervisors to use subjective criteria in promotion decisions, and that this had a disparate impact on African-American employees applying for promotions. 

The trial court had determined that subjectivity in decision-making alone couldn’t establish a disparate impact claim, and had found the statistical evidence presented by the class plaintiffs insufficient to make out a disparate impact. The Fourth Circuit disagreed with both conclusions.

Commonality and Typicality

The Court held that "[a]llegations of similar discriminatory employment practices, such as the use of entirely subjective personnel processes that operate to discriminate, satisfy the commonality and typicality requirements of Rule 23(a)."  It further found that the plaintiffs had "presented compelling direct evidence of discrimination," including:

denials of promotions when more junior white employees were granted promotions, denial of the ability to cross-train during regular shifts like their white counterparts, and a statement by a white supervisor [who wore a Confederate flag emblem on his hardhat] that he would never promote a black employee.

The Court held that "[t]his evidence alone establishes common claims of discrimination worthy of class certification."

The opinion stressed that "[t]he question before the district court was not whether the appellants have definitively proven disparate treatment and a disparate impact; rather the question was whether the basis of appellants’ discrimination claims was sufficient to support class certification." Op. at 11. It further observed that "evidence need not be conclusive to be probative, and even evidence that is of relatively weak probative value may be useful in meeting the commonality requirement." Op. at 12.

Statistical Evidence

On the point of statistical evidence, the main issue involved Nucor’s destruction of promotion records from before 2001.  The plaintiffs had attempt to fill in the missing data by extrapolating from change-of-status forms showing positions filled during the 1999-2000 time period and assuming that the racial composition of the bidding pool had been the same then as in later years.

The Fourth Circuit held that the trial court had improperly refused to consider these calculations:

when an employer destroys relevant employment data, the plaintiffs may utilize alternative benchmarks to make up for this lost data. Certainly, the benchmarks will not be as good as the destroyed data themselves — that would be next to impossible to achieve. Nevertheless, the plaintiffs should not be penalized by the destruction (however innocent) of such data.

Op. at 10 n.4.

There are other significant points on statistical evidence in the opinion, including a discussion of a two standard deviation threshold and the "80% rule."Continue Reading Fourth Circuit Orders Certification Of Race Discrimination Class Action

The Court determined that it could rule on a dispositive motion in a putative class action before ruling on class certification.  It held "in appropriate cases it is neither unusual nor inappropriate for a court of jurisdiction to consider merits issues prior to determining class certification matters."

The Court granted summary judgment on a Fair

Given the dinosaur-like status of the fax, it was a surprise that there were two North Carolina decisions last week, one from the Court of Appeals and one from the Business Court, that involved faxes. The appellate decision is a class action case; the Business Court decision addressed the more mundane subject of how much