COA Expands Ch. 75 Exception For "Overlapping Statutory Schemes"

Yesterday the Court of Appeals (COA) expanded the judge-made exception to Chapter 75 for overlapping statutory schemes. The case is State v. Ridgeway Brands Mfg., LLC.

The case falls in the Lindner/Skinner/Hajmm line of cases.

In Lindner (1985) the Fourth Circuit held that 75-1.1 doesn't apply to securities transactions. The court reasoned that the General Assembly wouldn't have intended the statute, with its treble damages provision, to apply to securities transactions which were already subject to pervasive and intricate regulation under the NC Securities Act and federal acts.

In Skinner (1985) the NC Supreme Court cited Lindner as persuasive authority.

In Hajmm (1991) the NC Supreme Court expanded the exception by holding that the statute didn't apply to a corporation's refusal to redeem revolving fund certificates issued by the corporation. The court reasoned that the application of 75-1.1 in this context would "create overlapping supervision, enforcement, and liability in [an] area [that] is already pervasively regulated by state and federal statutes and agencies."

Yesterday's case deal with a statute, N.C.G.S. 66-291, which regulates tobacco manufacturers who choose not to become participating manufacturers in the so-called Master Settlement Agreement. The statute imposes on them an escrow obligation (requiring them to deposit in escrow a percentage of monies from cigarettes sold), and it provides a remedy for failure to comply with the statute: a civil action by the Attorney General and a civil penalty fixed as a percentage of monies withheld from escrow.

The COA held that 66-291 is analogous to the regulations in Lindner, Skinner, and Hajmm, because the statute "itself provides an extensive remedy for failure to comply with the escrow obligation." The COA held that these cases stand for the proposition that 75-1.1 is inapplicable in "the presence of other statutory schemes" with "enough legislative apparatus already in place" and "overlapping supervision, enforcement, and liability."

Under this reasoning, there surely are many other areas where 75-1.1 liability should be foreclosed (preempted, as it were) by "the presence of other statutory schemes."

COA Allows Veil Piercing And Civil Conspiracy Claim To Go Forward, Despite Intracorporate Immunity Doctrine

In a case yesterday, the COA reversed a trial court's Rule 12(b)(6) dismissal of veil piercing and civil conspiracy claims brought by the State against an LLC and the owner and member-manager of the LLC. The COA held that the complaint's allegations were sufficient to state these claims.

In concluding that the State adequately pleaded a civil conspiracy claim, the COA also held that the State adequately pleaded around the intracorporate immunity doctrine (the doctrine provides that, since at least two persons must be present to form a conspiracy, a corporation can't conspire with himself, just as an individual can't conspire with himself). The COA held the complaint did so by pleading that the owner/manager had an independent personal stake in achieving the company's alleged illegal objective (which is an exception to the doctrine).

Judge Wynn dissented in part, concluding that the complaint didn't adequately plead a civil conspiracy claim. This marks two dissents yesterday by Judge Wynn in civil cases where he concluded, alone, that complaints didn't contain well-pleaded allegations establishing the elements of claims. (See today's post below on Pinewood Homes, where Judge Wynn concluded in dissent that the plaintiff failed to state claims for tortious interference and abuse of process.)

COA Rejects Takings Clause Challenge; Addresses Constitutional Issue Not Properly Raised

In an unusual case, the Court of Appeals (COA) yesterday reversed the trial court and rejected a takings clause challenge to a state law that essentially grants an easement over private property to the descendants of a deceased person buried on the property, for the purpose of visiting and maintaining the burial ground. The case is Massey v. Hoffman.

To begin with, it's unusual that the court even reached the constitutional issue. The issue was raised late, after trial, by way of an amended answer. Adopting the U.S. Supreme Court's view that a Rule 12(b)(6) issue may not be asserted post trial (see Arbaugh v. Y&H Corp., 546 U.S. 500, 507 (2006)), the COA held that the merits of the takings clause challenge was not properly before the trial court, and thus wasn't properly before the COA.

Yet the COA decided to address the constitutional issue anyhow, on the basis that the issue could arise in later cases--even though, if the COA had found a constitutional violation, it wouldn't have granted relief in this case. In other words, the COA seemed to issue an advisory constitutional opinion to govern not this particular case, but future cases.

Wait a minute. Isn't it hornbook law (as the COA itself recited as recently as three months ago, see Winebarger v. Peterson, 642 S.E.2d 544 (2007)) that a court will address a constitutional issue only when resolution of the issue is necessary? Is this a new exception to that established rule, an exception for constitutional issues likely to arise in later cases? But aren't all constitutional issues likely to arise in later cases? Where is the line to be drawn?

On the merits, the COA held that N.C.G.S. 65-75 doesn't violate the takings clause. The statute provides that the state (the clerk of superior court) may order a private property owner to grant entry to descendants of a decedent whose remains are reasonably believed to be interred in a grave on the private property, for the purpose of discovering, restoring, maintaining, or visiting the grave, even though private property owner doesn't consent. The trial court held that the statute violates the U.S. Constitution's takings clause (Fifth Amendment: "nor shall private property be taken for public use, without just compensation") and the cognate right implicit in the N.C. Constitution's "law of the land" clause (Art. I, section 19).

But the COA held that the state has a legitimate interest in preserving the sanctity of grave sites, that this is part of the state's police power, and -- here's the punchline -- that the constitutional prohibition against taking private property for public use without just compensation isn't applicable when the state properly exercises its police power.

That punchline seems broad. I need to look at the underlying state cases cited by the COA, but might there be a distinction between police power "regulatory takings" and takings of private property that essentially grant a permanent easement right to other citizens? The COA doesn't cite any federal decisions, even though the federal takings clause apparently was implicated. The U.S. Supreme Court has held that regulatory action is a per se taking requiring just compensation if government requires a property owner to suffer a permanent physical invasion of her property, however minor. See, e.g., Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 538 (2005); Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) (state law requiring landlords to permit cable companies to install cable facilities in apartment buildings effected a taking). Don't orders issued under N.C.G.S. 65-75 arguably require a property owner to suffer permanent physical invasion of her property, however minor, by granting descendants (generation after generation) access to visit and maintain permanent burial grounds that happen to be on the property? The COA seemed to treat this as a land-use regulation. But the law doesn't regulate the property owner's use of the property. It grants an easement to other persons to let them visit the property.

Also, it's not clear from the COA's opinion whether the property owner argued that the law doesn't effect a taking for "public use." Is it a public use for a descendant to visit and maintain her ancestors' grave site? The COA's answer likely would be that because "rights of burial" are "somewhat of a public nature" and police powers are implicated, the public-use requirement would be satisfied.

While it's tempting to think that a person who acquired property with notice of the access law must be barred from mounting a takings challenge on that basis, the U.S. Supreme Court recently rejected similar reasoning. See Palazzolo v. Rhode Island, 533 U.S. 606 (2001); but see id. (O'Connor, J., concurring).

COA Vacates Judgment Because Jury Charge Didn't Treat Plaintiffs Individually

Yesterday the Court of Appeals (COA) vacated a judgment and ordered a new trial based on a faulty jury instruction in a defamation case. The reason: the instruction lumped the two plaintiffs together, rather than treating them individually. A separate instruction should've been given for each plaintiff as to each defendant. The case is Blyth v. McCrary.

The case arose after defamatory documents were circulated in Haywood County about Blyth, owner of Elk Country Realty. Blyth and his company sued several defendants, some of whom were competitors in the real estate market.

Here's the offending jury instruction, which was given with respect to each defendant: "Did [name of defendant] libel (or slander) the plaintiffs, James D. Blyth and Elk Country Realty?"

The COA held the instruction was defective because it tended to mislead jurors into believing they could find in plaintiffs' favor only if they believed that both plaintiffs were defamed, and that defendants should win if only one plaintiff was defamed. "Failure to submit separate issues or at least to instruct the jury that it was to answer the issue separately for each plaintiff was error," the court held.

The error identified by the COA is all too common with jury instructions in multi-party cases. To avoid prolix jury charges and interrogatories in multi-party, mult-claim cases, parties and judges often lump plaintiffs and/or defendants together, without giving the jury an opportunity to parse each claim and treat each party individually. Lumping defendants together can prejudice innocent defendants by having them tied to parties the jury may want to tag with liability; if the jury isn't given separate interrogatories, it is faced with an all or nothing choice, implicating defendants' due process rights. Yesterday's case shows that this lumping problem may also affect plaintiffs.

COA Allows Abuse Of Process Claim Based On Issuance Of Injunction

Yesterday, in a split decision, the Court of Appeals (COA) allowed a plaintiff to go forward on abuse of process and tortious interference claims which were filed against defendants for obtaining and using a preliminary injunction. Abuse of process is, of course, this is one of the most difficult torts to advance, because it requires a plaintiff to speculate about a defendant's ulterior motive in doing something that the law permits--obtaining and using process. The case is Pinewood Homes, Inc. v. Harris.

Here's what happened. In an earlier case, defendants obtained a judgment for several hundred thousand dollars against Ritchie. Fearing that Ritchie would try to avoid execution, defendants obtained, after entry of the judgment, a preliminary injunction against Ritchie and all companies in which he maintained an ownership interest from selling, transferring, or encumbering assets until post-judgment collection proceedings were completed.

Because Ritchie was a shareholder of Pinewood Home, Inc. (Pinewood), the injunction effectively enjoined Pinewood--and, in effect, the real estate assets it held as trustee, which were subject to deed-of-trust liens, and which were not owned by Ritchie. Defendants may have mistakenly believed that Ritchie controlled those assets.

Pinewood was not a party in the suit against Ritchie and was not named in the injunction.

Pinewood sued defendants, contending they maliciously sought the injunction to coerce Pinewood to pay the judgment against Ritchie, a judgment for which Pinewood wasn't legally responsible. Pinewood asserted tort claims for abuse of process and tortious interference.

Meanwhile, after Pinewood filed suit, the COA, in an earlier case, vacated the preliminary injunction on an unrelated ground (to wit, that N.C.G.S. 1-355 doesn't allow a preliminary injunction to be entered until either a judgment has been returned unsatisfied or the terms of 1-355 are met).

Pinewood pressed on with its tort action. The trial court dismissed the complaint, holding that granting Pinewood relief would violate the rule against collateral attacks on judgments, since the case would require the trial court to interpret and affirm, limit, or redefine the (vacated) injunction.

Yesterday the COA reversed. The court held that the collateral-attack rule didn't apply because injunction had been vacated. And the court held that Pinewood stated claims for abuse of process and tortious interference.

Abuse of process requires the plaintiff to plead facts to support these elements: 1) that the defendant sought court process for an ulterior motive to achieve a collateral purpose not within the normal scope of the process used, and 2) that after issuance of the process, the defendant maliciously used or misapplied that process to accomplish some unwarranted purpose. In this case, the COA found it sufficient that plaintiff alleged: 1) defendants had an ulterior purpose of coercing Pinewood to pay a judgment it was not not obligated to pay; 2) defendants "maliciously refused to recognize the validity" of the trusts; and 3) defendants therefore gained "an advantage over the assets" held by plaintiffs. Based on these same allegations, the COA also held that Pinewood had adequately pleaded the legal malice element of tortious interference (i.e., absence of legal justification).

Judge Wynn dissented. He concluded the action was barred by the collateral-attack doctrine, because Pinewood was trying to collaterally attack an order (the injunction) granted in another proceeding. He also concluded that Pinewood's complaint didn't adequately plead abuse of process because the complaint didn't plead any use of the injunction other than for the purpose for which it was intended -- to prevent the sale or transfer of assets to which defendants believed, perhaps mistakenly, they were entitled. He also concluded that Pinewood didn't adequately plead the lack-of-justification element of tortious interference because, he said, the complaint admitted there was also a legitimate motive in seeking the injunction--maintaining assets and titles until Ritchie had satisfied the judgment.

This case should make counsel for judgment creditors think twice before ambitiously seeking broad injunctive relief during the judgment collection process.

President Nominates Judge Conrad To "NC Seat" On Fourth Circuit

Charlotte-based federal judge Robert Conrad of the WDNC has been nominated to a vacant seat on the Fourth Circuit. This is the seat that former judge (and UNC Law Dean) Dickson Phillips occupied. For the White House's official release, see here.

Lest There Were Any Doubt That You Can Find An Expert Witness For Almost Anything . . . .

This Fourth Circuit immigration case today has nothing to do with business. Ali was a major in the Egyptian Army and married to an Egyptian woman. He entered the U.S. on a diplomatic visa to undergo training. While here, he married an American woman with the last name "Stine," a name of Jewish descent (she was not herself Jewish). He deserted the Egyptian Army, overstayed his visa, and sought asylum, contending that, once the Egyptian government found out the last name of his American wife, they'd assume he'd have pro-Israeli opinions and torture him. He presented an expert witness--an expert on Egyptian law and practice--who testified that the Egyptian government would "cut [Ali] to pieces" because he married Stine, due to her Jewish last name. This is so, the expert testified, because "Jews are the enemy of Egyptians and the Arabs, and this is mentioned in the Koran." The Fourth Circuit upheld the denial of asylum because there wasn't evidence the Egyptian government would actually seek to persecute him for his marriage to Stine and because the expert witness acknowledged that the Egyptian government would investigate whether Stine is Jewish before seeking to punish Ali on that basis, at which point the Egyptian government would find out that, although Stine may be of Jewish descent, she doesn't consider herself Jewish.

Fourth Circuit Upholds Order Enjoining State Court Action

Today, in an interesting case that presented some thorny procedural issues, the Fourth Circuit upheld a district court order enjoining a North Carolina court from proceeding with a class action, invoking the so-called relitigation exception to the Anti-Injunction Act.

The Fourth Circuit left open a weird issue, which goes something like this: When a district court remands a claim to state court upon declining to exercise supplemental jurisdiction over it, thereby enabling the state court to retain jurisdiction over that claim, but the Fourth Circuit later vacates that district court order on the ground that the subject claim shouldn't have been remanded to state court but instead should've been dismissed, does the vacatur of the district court's order retroactively deprive the state court of jurisdiction? I bet that scenario doesn't arise very often.

Fourth Circuit Reissues FMLA Decision On Retrospective Waiver

The Fourth Circuit this week finally issued its awaited panel rehearing decision in Taylor v. Progress Energy, Inc., a very significant case under the Family and Medical Leave Act (FMLA).

In a split decision, the panel reinstated its original decision against the employer (Progress Energy), holding not only that a prospective waiver of FMLA rights is invlaid, but also that retrospective waiver is invalid, under a Department of Labor (DOL) regulation stating, "Employees cannot waive, nor may employers induce employees to waive, their rights under FMLA." 29 C.F.R. 825.220(d). Thus, under the panel majority's reasoning, an employee can't release an FMLA claim (in a settlement) without approval from a court or the DOL.

The panel majority reached this result even though the DOL, in an amicus brief, weighed in with an interpretation of its regulation and maintained that the regulation bars only the prospective waiver of FMLA rights, not the release or settlement of claims based on past violations of the FMLA. The Fourth Circuit panel concluded that the DOL's interpretation of its own regulation was inconsistent with the regulation's plain meaning and thus not entitled to deference. This decision is in tension with the policy of encouraging the private settlement of claims. Indeed, under Title VII and the Age Discrimination in Employment Act (ADEA), the retrospective waiver of claims is allowed. As a result of this decisions, employer-employee settlements of claims must be approved by the DOL or courts.

Judge Allyson Duncan dissented. She had joined the earlier panel decision, the one that issued before rehearing. But she flipped her vote, concluding that the DOL's amicus brief on rehearing, which injected into the case for the first time the DOL's interpretation of its regulation, changed the outcome. The DOL's interpretation is entitled to deference, she insisted.

This case should be heard en banc. Because a district judge sitting by designation is part of the majority, the two Fourth Circuit judges on the panel are split, which makes this case appropriate for en banc review.

In the end, if the panel decision stands, this case is destined to travel up I-95, from Richmond to Washington, since the Fourth Circuit panel majority disregarded the DOL's interpretation of its own regulation, and that interpretation was not plainly erroneous or inconsistent with the regulation. See Auer v. Robbins, 519 U.S. 452, 461 (1997) (deference to DOL's interpretation of its regulation presented in amicus brief).

* * *

One more interesting thing about this case. Judge Duncan's dissent disapproved of the DOL's clumsy handling of this case, making an entry as an amicus only after the panel issued its original decision: "timely intervention by the DOL before we issued Taylor I would have obviated the necessity of an additional hearing in this appeal, with its attendant expenditure of judicial and party resources," Judge Duncan wrote.

This brings to mind what a different panel wrote last summer in an order prepared by Judge Wilkinson in LaRue v. DeWolff, Boberg & Assoc., Inc. In LaRue, as in this week's Taylor v. Progress Energy case, the DOL waited until after the panel issued its decision before seeking leave to appear as an amicus urging that the panel got it wrong. Here is what the Fourth Circuit said last summer in LaRue:

"With respect to the Secretary's views, the court notes that they are always welcome on any matter in which the Secretary has an interest. The timely submission of those views, however, will assist the court in giving them the attention they deserve. Initial submission of these views in a petition for rehearing--and an untimely one at that--affords neither the litigants or this court a proper chance to review the case in single, rather than piece-meal, fashion. Thus, the Secretary's belated entry into [Taylor v. Progress Energy, Inc.] was a discourtesy both to the parties in that case and to the court.

"The same holds true of the even more untimely filing here. . . . [W]aiting until a petition for rehearing has been filed is a disfavored litigation tactic and fails to serve the litigants' interest in having all views considered thoroughly at the initial briefing and argument stage. While it may suit the agency's convenience to troll for panel results to which it takes exception, such a practice is not consistent with the orderly and conscientious disposition of claims in an appellate court. . . . Having served notice that untimely submissions will henceforth be disfavored, the court will out of respect for the Secretary address its views in the instant case."

Fourth Circuit Issues Decision Under FLSA "Combination Exemption" Regulation

In IntraComm, Inc. v. Bajaj today, the Fourth Circuit addressed the Department of Labor's (DOL's) "combination exemption" regulation under the FLSA, which exempts certain employees from minimum-wage and overtime pay requirements. The Court deferred to the DOL's interpretation of its regulation, unlike in the Taylor v. Progress Energy case discussed above, where the panel majority refused to defer to the DOL's interpretation of a different regulation.

LLC Member Not Liable For LLC Employee Injury

In Spaulding v. Honeywell International, Inc., the COA held that an LLC member could not be held liable based on its member status or for acts undertaken as a member.

Honeywell was a member of an LLC that was also plaintiff's employer. Plaintiff sued Honeywell and others, alleging exposure to hazardous chemicals in the workplace. The trial court granted summary judgment for Honeywell, and the COA affirmed.

The COA held that mere participation in the business affairs of a limited liability company by a member is insufficient, standing alone and without a showing of some affirmative independent conduct, to hold the member liable for harm caused by the LLC. This holding seems in tension with Hamby v. Profile Products, in which a divided COA panel indicated that tort liability is categorically excluded from a member-manager's participation in an LLC's ("regular") business but rather constitutes independent conduct. Judge Tyson, Spaulding's authoring judge, dissented in Hamby, which is currently pending before the Supreme Court. (And in the interest of full disclosure, WCSR represents Profile.)

Further, the COA held that because plaintiff had dismissed his claims against the employer LLC, derivative liability could not be pinned on Honeywell.

The COA also held that an affirmative undertaking would be required to hold an LLC member liable for an LLC employer's duty to ensure safety. Here, the COA held, there was no such affirmative undertaking.

NC Usury Claims Preempted By National Bank Act

In Citibank, S.D., N.A. v. Palma, the COA confirmed that state law usury claims are preempted by the National Bank Act.

In Palma, Citibank sought to collect on unpaid credit debt. Palma counter-claimed alleging usury and pleaded an unconscionability defense. The COA held that NC usury claims are barred by the National Bank Act, which provides the sole remedy for alleged overcharges and under which "there is ... no such thing as a state-law claim of usury against a national bank." And the COA held that because Palma's unconscionability defense boiled down to usury allegations, that defense was also barred.

Acts Outside SOL May Be Considered In Determining Injury In A Chapter 75 Debt Collector Harrassment Claim

In Williams v. HomEq Servicing Corporation, f/k/a The Money Store, a split COA panel held that activity occurring outside the applicable statute of limitations could be considered in a Chapter 75 debt collector harassment claim and looked to allegations of moderate depression and one phone call during the limitations period to give plaintiffs a green light to try their claim.

In Williams, plaintiff husband defaulted on a loan, with periodic payment problems arising over a number of years. In connection with those problems, HomEq made a number of phone calls to plaintiff, though apparently only one call during the four years prior plaintiff husband and wife's suit alleging, among other things, negligent infliction of emotional distress and chapter 75 claims.

The COA affirmed the dismissal of plaintiff's negligent infliction of emotional distress claim. Plaintiffs' allegations of moderate chronic depression, supported by only their own testimony, did not constitute the severe distress along the lines of neurosis, psychosis, or depression needed to sustain such a claim.

The COA also held that HomEq, a bank subsidiary, was exempted from application of the collection agency statutes by the statute's own language. HomEq raised the exemption issue not in its answer but at summary judgment, and the COA underscored that an answer may be deemed amended to conform to evidence presented at summary judgment. (Because of the statutory exemption, the COA did not address federal preemption doctrine -- though they did in Citibank v. Palma, another case filed yesterday and blogged above.)

But the COA split on whether plaintiffs could proceed on their chapter 75 debt collector harassment claim. The majority noted that what constitutes harassment under N.C. Gen. Stat. sec. 75-52(3) was an issue of first impression. The COA then noted that most other states with such statutes leave the question of whether conduct constituted harassment to juries as such determinations depend on the conduct's purpose and tone (citing as support only a 1977 Florida case). The majority held that here there were enough calls and allegations about their tone to raise a jury question. The majority reached that conclusion despite the fact that what it called "the majority" of the allegedly harassing calls, and what the dissent noted were all but one single call, occurred outside the applicable statute of limitations (four years). The majority held that while plaintiffs couldn't recover for pre-limitations conduct, that conduct could be considered as evidence in support of the harassment claim where at least some incident happened during the limitations period. And the majority held that plaintiffs' alleged (and uncorroborated) moderate depression (that couldn't sustain the negligent infliction claim) was sufficient actual injury to meet that element of their chapter 75 harassment claim.

Judge Jackson disagreed and dissented. Judge Jackson would have held that conduct outside the limitations period couldn't be used to sustain the harassment claim. Judge Jackson then would have held that one lone call does not an actual injury make. And Judge Jackson noted that plaintiff husband couldn't undo his deposition testimony demonstrating only one allegedly harassing call during the limitations period by later filing a contradictory affidavit alleging more calls.

(In the interest of full disclosure, WCSR represents HomEq.)

COA Splits On Appealability Of Interlocutory Order Granting Provisional Relief Pending Arbitration

Today in Scottish Re Life Corp. v. Transamerica Occidential Life Ins. Co., the COA split on the appealability of a trial court order granting provisional relief, which was granted in connection with an order compelling arbitration pursuant to NC's Revised Uniform Arbitration Act (RUAA).

In state court, interlocutory orders granting provisional relief (e.g., preliminary injunctions) generally are not appealable (unlike in the federal system, where by statute an order granting or denying a preliminary injunction is appealable, see 28 U.S.C. 1291(a)(1)). But today the COA majority allowed an appeal from an order granting provisional relief. The stated reasons: the trial court impinged appellant's right to sue and control a large amount of money ($30M); and there would be lengthy delays preceding arbitration. Judge Wynn concurred on the ground that dismissing the appeal as interlocutory would effectively render the matter moot, since the trial court's provisional remedy would last only until the arbitration panel is convened.

Judge Geer wrote a separate opinion disagreeing that the provisional relief order was immediately appealable. She voted to dismiss the appeal. She explained that an appeal of the provisional relief order could be deferred until the conclusion of the arbitration proceedings. And she added that if appellant obtains a favorable arbitration award, it can then seek recover on the $250k bond and recover damages that wouldn't have occurred but for the preliminary injunction. Thus, she concluded, there was no basis to exercise jurisdiction over the appeal.

Here's Something You Don't See Very Often ...

Today, in a criminal case, the COA ruled in favor of the criminal defendant in a split decision. Ok, that's not unusual. What is unusual is the lineup: Judges Calabria and Tyson in the majority ruling for the defendant; Judge Wynn dissenting.

The case has somewhat of a Nifongian feel to it. Defendant killed someone while driving recklessly on a highway. For that act, he was charged with second-degree murder. On the Wednesday before a Monday trial, the State notified defense counsel that it intended to call an expert to testify. Two days later (the Friday before the Monday trial) the State provided the expert's report, which was dated a month earlier. It was a report for "Retrograde Extrapolation of Alcohol Concentration." Basically, the expert took the blood alcohol levels from two hospital tests of defendant's blood after the accident (one at 1:38 a.m., the other at 3:00 a.m.), measured the difference, and then extrapolated backward to figure out his blood alcohol level at the time of the accident earlier in the evening.

Defendant moved to continue the trial since he had received the expert report so late. The trial court denied the motion, the trial proceeded, and defendant was convicted. He appealed the denial of his motion for continuance, contending his due process rights were violated.

The COA majority was concerned that the State may not have satisfied its statutory and constitutional duties to disclose all the information in its possession, including the fact that the second blood test was drawn at the hospital (the one at 3:00 a.m.) and the fact that the expert would testify. The majority thus remanded the case for a hearing with instructions for the trial court to make findings on eight specific issues dealing with the State's disclosure of information and defendant's knowledge of that information.

One wonders if the majority was sending an additional message to the State's prosecutors and trial courts in light of the Nifong disaster.

If Your Spouse Cheats, Hope It Happens In NC

Today the COA vacated a judgment for criminal conversation and alienation of affections on the basis that there was no personal jurisdiction over the defendant, a CA resident. The case is Brown v. Ellis.

Defendant and plaintiff's wife (Wife) had an affair. Wife lived in NC. Defendant lived in CA. They were coworkers who communicated regularly by phone. Apparently they hooked up during business trips outside NC. The trial court found personal jurisdiction. The case went to trial. Plaintiff won a judgment for $350k in compensatory damages and $250k in punitives. (At $600,000 affair, it was quite an expensive affair!)

Defendant appealed. Plaintiff argued jurisdiction was proper based on defendant's emails and phone calls to Wife. Specifically, plaintiff relied on the long-arm statute providing jurisdiction over a defendant where "[s]olicitation or services activities were carried on within this State by or on behalf of the defendant." Defendant countered that the record didn't establish that Wife was in NC when she received the calls and emails.

The COA reversed because plaintiff didn't allege that Wife was physically present in NC at the time of defendant's alleged solicitations.

If that sounds like a technicality, it is. But these cases are often decided along fine lines. For instance, in a 2000 case the COA found personal jurisdiction based on allegations that a SC defendant telephoned plaintiff's husband in NC to solicit his affections. But in a 2003 case the COA found no personal jurisdiction where defendant's only contact with plaintiff's spouse in NC was during a three-day period in which no misconduct was alleged.

COA Rejects Civil Suit Arising From The Phipps State Fair Affair

Today the COA issued a decision in a civil case arising from the state-fair conspiracy that sent many folks to prison, including former Dep't of Agriculture Comm'r Meg Scott Phipps. The case is Strates Shows, Inc. v. Amusements of America, Inc. It's a case about collateral estoppel. But it's also about more than that.

For more than 50 years uninterrupted, the plaintiff, Strates, had performed the contract to operate the midway at the annual state fair in Raleigh (you know, the place with chocolate covered snickers bars). In 2002 the midway contract went to Amusements of America (AOA). After investigations, it was determined that the contract was the product of criminal acts (only bribery, money laundering, extortion, conspiracy, election law violations, mail/wire fraud, witness tampering, etc.). Agriculture Commissioner Phipps and many others pleaded guilty or were convicted of crimes.

There then ensued a civil action in federal court (EDNC) filed by Strates against AOA and the other criminal coconspirators, including Phipps. That action alleged a violation of the federal RICO statute, as well as state law claims. The district court (Judge Flanagan) dismissed the RICO claim and declined to exercise jurisdiction over the state law claims. She dismissed the RICO claim on the ground that Strates couldn't satisfy RICO's "proximate cause" element, i.e., couldn't prove any state of facts showing that the illegal activities proximately caused Strates's injury of not receiving the 2002 midway contract, even though Strates had operated the contract for 50 years uninterrupted before the criminal conspiracy. Judge Flanagan emphasized that the 2002 contract was open to bidding, other bidders weren't involved in the criminal conduct, the selection process for awarding the contract lacked definitive criteria, and the award of a contract entailed administrative discretion--i.e., Strates could only speculate that, but for the illegal conduct, it would've been awarded the 2002 midway contract. Thus, she dismissed the RICO claim.

Then came today's case: after the federal court declined to exercise jurisdiction over the state law claims, Strates filed this action against the defendants in Wake County, alleging state law claims, namely a violation of Chapter 75 and various torts. Defendants moved to dismiss, arguing that because Judge Flanagan concluded that Strates couldn't satisfy the RICO element of proximate causation, Strates should be collaterally estopped from relitigating proximate causation, and therefore should be estopped from bringing the state law claims, since they, too, required a showing of proximate causation. The superior court denied their motions to dismiss.

The COA heard the interlocutory appeal, even though it was an appeal from the denial of a motion to dismiss, on the basis that res judicata and collateral estoppel implicate a substantial right. The COA then reversed the trial court, holding that Strates was collaterally estopped from relitigating the proximate causation issue, and that therefore its state law claims had to be dismissed: "the state claims must fail based upon the federal court's prior ruling on the issue of causation," the COA held. A sensible result.

This case demonstrates the difficulty of establishing causation in the bidded-contract context. A plaintiff typically can only speculate that "but for" the challenged conduct, the plaintiff would've been awarded the contract. This case really drives home the point, because in this case causation was rejected (at the Rule 12(b)(6) stage, no less) even though the plaintiff had previously performed the contract for 50 years uninterrupted and argued that it could expected to be awarded the contract again. If a plaintiff can't get past Rule 12 on an inference that it would've been awarded the same contract it had performed for a half century, it's difficult to imagine any plaintiff surviving a motion to dismiss in the context of a bidded contract.

This case is also important for reinforcing the importance of proximate cause as an essential element of a Ch. 75 claim.

Pro Se Appellant Dismissed For Rule Violations; Wynn Disagrees

Today a panel majority in Ord v. IBM dismissed an appeal for rule violations. The majority: Calabria and Tyson. The violations noted by the majority: "[P]laintiff assigns error to numerous findings and conclusions, but fails to argue specific findings and conclusions. She also fails to cite any authority in support of her arguments. In addition, plaintiff has failed to reference the assignments of error pertinent to each question presented, and has failed to identify the page numbers in the record where such assignments appear. Finally, plaintiff failed to include a statement of grounds for appellate review in her brief ...." The majority concluded there was no "manifest injustice" to justify suspending the rules per Rule 2.

Judge Wynn disagreed that dismissal was appropriate. He concurred, however, because he agreed the appeal failed on its merits. He added that addressing the merits was important because it would've "afforded her a day in court."