Split Fourth Circuit: N.C. Courts Wouldn't Give Collateral Estoppel Effect To N.C. Default Judgment Arising From Discovery Sanction

Today the Fourth Circuit split over an unresolved issue of N.C. law: whether a state default judgment, entered as a penalty for a party's failure to comply with a N.C. court's discovery order, has collateral estoppel effect in subsequent litigation (in this case, litigation in bankruptcy court). Federal courts must give the same preclusive effect to a state court judgment as the forum that rendered the judgment would give it. The bankruptcy court and district court had concluded that the N.C. courts would give collateral estoppel effect to this default judgment; the Fourth Circuit majority disagreed. Judge Motz authored the decision, joined by Judge Michael. Chief Judge Williams dissented. The case is Sartin v. Macik.

The gist of the majority's ruling: N.C. default judgments don't have collateral estoppel effect because the issues determined by a default judgment aren't "actually litigated" -- one of the prerequisites for collateral estoppel. (But default judgments do have preclusive effect for purposes of res judicata .) The majority said, "We recognize that good policy reasons would seem to support a holding that gives collateral estoppel effect to at least some default judgments. Judgments like the present one, which result from the deliberate abuse of the judicial process, seem to merit preclusive effect. Were we deciding this case as a matter of federal common law, such considerations might well be dispositive." But the court had to apply N.C. law--i.e., had to predict how the N.C. Supreme Court would resolve this unresolved issue as a matter of state law.

On that score, the majority noted with some frustration that N.C. has not adopted a process for federal courts to certify unresolved questions of state law to the N.C. Supreme Court.

Chief Judge Williams disagreed with the majority's account of N.C. law and with the majority's reading of the pertinent section of the Restatement of Judgments. "[A] fair reading of North Carolina law," she wrote, "suggests that a party who begins litigating an issue but ultimately forestalls its resolution on the merits by refusing to comply with discovery orders is collaterally estopped from relitigating that same issue." She also thought that the N.C. Supreme Court would be moved by policy policy reasons and might find persuasive the fact that every federal circuit court to address the question has held that a default judgment entered as a sanction for refusal to comply with discovery orders has preclusive effect.

COA Applies Heightened Pleading Standard To Wrongful Discharge Case

Today in Gillis v. Montgomery County Sheriff's Dept., a wrongful discharge case, the Court of Appeals (COA) held that if a plaintiff relies on the public-policy exception to the at-will employment doctrine, the complaint must plead that exception with particularity. If it doesn't, it will be dismissed.

When an employee has no definite term of employment, he is an employee at will and may be discharged without reason. This is known as the at-will employment doctrine. An exception to the doctrine exists if the employee was terminated for reasons that would violate the public policy of this State. This is known as the public-policy exception. Today the COA held that to claim this exception it's not good enough for the plaintiff to plead generically that she was wrongfully terminated for reasons that are "against the public policy of North Carolina." Such generic pleading won't put the defendant on notice of what public policy is violated. To survive dismissal the complaint must identify an explicit statutory or constitutional provision that the defendant violated or a law that the defendant encouraged the plaintiff to violate.

COA Holds That Full Faith And Credit Clause Doesn't Permit Broad Collateral Review Of Class Action Settlements Approved By Foreign Courts

Today the Court of Appeals (COA) ruled that the Business Court erred in failing to give full faith and credit to a nationwide class action settlement approved in Illinois. The case is Moody v. Sears Roebuck & Co. (We represented Sears on appeal.)

The COA held that when a court enters a judgment approving a class action settlement, the Full Faith and Credit Clause doesn't permit a second court to undertake a broad collateral review of the foreign judgment to decide for itself if the settlement comports with due process (e.g., to determine for itself whether it deems the issuing court's notice plan adequate). Rather, the only due-process review permitted on collateral review is a limited one--essentially limited to determining whether the issuing court itself determined that the settlement comported with due process. In today's case, the Illinois Circuit Court that approved the class action settlement had determined that the notice plan and settlement terms adequately protected the due process rights of absent class members; therefore, under the Full Faith and Credit Clause, the Business Court couldn't properly second guess the Illinois court's determinations, the COA held.

The COA also addressed a matter of first impression under Rule 23 of the N.C. Rules of Civil Procedure: Does Rule 23(c) require trial court approval of a voluntary dismissal of a case that was filed with the aspiration of becoming a class action (a so-called putative class action) but that was never certified as a class action? The COA answered that in the negative, holding that Rule 23(c) doesn't apply pre-certification. That is, when a named party gives notice that it's voluntarily dismissing its class-action complaint, Rule 23(c) doesn't require trial court approval of the dismissal if the case was never certified as a class action. But the COA held nonetheless that a trial court has inherent authority to conduct a limited inquiry of the dismissal: "We therefore hold that when a plaintiff seeks voluntary dismissal of a pre-certification class-action complaint, the trial court should engage in a limited inquiry to determine (a) whether the parties have abused the class-action mechanism for personal gain, and (b) whether dismissal will prejudice absent putative class members. If the trial court finds that neither of these concerns are present, the plaintiff is entitled to a voluntary dismissal. However, if the trial court finds that one or both of these concerns are present, it retains discretion to address the issues." This limited review is, of course, subject to the Full Faith and Credit Clause.

COA Reverses 2 Orders Granting New Trials

In two unrelated slip-and-fall cases, the COA today reversed the trial courts' setting aside jury verdicts and ordering new trials. In the one, Harrell v. Sagebrush of N.C., LLC, the COA held that the trial court abused its discretion -- a high bar -- when it ordered a new trial because the video of a deposition, the key testimony of which had already been read into the record, had been excluded. In the other, Hines v. Wal-Mart Stores E., L.P., the COA held that the trial court abused its discretion by improperly shifting the burden of proof from the plaintiff to the defendant, improperly making the defendant show that it hadn't acted negligently.

COA To Practitioners: Perfect Your Service Before Voluntarily Dismissing

In Camara v. Gbarbera, the COA today made clear that practitioners should perfect service before voluntarily dismissing their cases. In Camara, the plaintiffs filed a personal injury negligence suit arising from an almost 3-year-old auto collision. And the statute of limitations for the suit was 3 years. Then, before perfecting service, the plaintiffs voluntarily dismissed the suit -- and the plaintiffs were thereby "returned to the legal position enjoyed prior to filing the complaint." Plaintiffs refiled the suit within a year per Civil Procedure Rule 41(a) -- but after the three-year mark from the collision from which the suit arose. Because proper service wasn't achieved before the dismissal, and because the refiling put plaintiffs in the position in which they had been before the dismissal, proper service of process was not achieved prior to the passage of the 3-year statute of limitations and the action was therefore barred.

COA Reaches Merits, Affirms Summary Judgment In Medical Negligence Case, Despite Appellate Procedure Errors

In Azar v. The Presbyterian Hospital, the COA today reached the merits of a medical negligence case despite the appellant's substantial violations of the rules of appellate procedure. The appellant's errors: 1) The record lacked a summons or personal jurisdiction statement; 2) The hearing transcript was missing; 3) Documents in the record didn't show their filing dates; 4) The assignments of error referenced the wrong record page; 5) The standard of review was misplaced; 6) Not all factual statements in the brief had record cites; and 7) The statement of facts was argumentative. The COA noted that the violations were non-jurisdictional, and therefore, pursuant to Dogwood, the NC SCT's recent and key appellate rules case (362 N.C. 191), the COA had to "determine 'whether [the] noncompliance with the appellate rules rises to the level of a substantial failure or gross violation[.]' If not, we are to address the merits of the appeal to the extent possible. If so, we may sanction the responsible party pursuant to Rules 25 and 34." Here, because of the number and nature of the violations, the COA held the violations to be "gross" or "substantial" and therefore taxed the appeal costs to the appellant's attorney.

The COA then went on to address the substance of the appellant estate administrator's challenge and held that because evidence of causation as to the medical negligence had not been demonstrated, the trial court rightfully granted summary judgment for the appellees. The COA held that the medical expert testimony as to whether bed sores caused the decedent's death was speculation -- even though the expert testified, among other things, that the improperly treated bed sores were a significant, but not sole, cause of an infection that ultimately caused the decedent's demise.

COA Opinions Today

The NC COA published opinions today, including 14 civil published opinions. More on these cases to come...

Fourth Circuit Affirms Dismissal Of Defamation Suit Against NY Times Re: Post-9/11 Anthax Incidents

Today the Fourth Circuit affirmed summary judgment for the NY Times in a defamation suit arising from articles written by NY Times commentator Nicholas Kristof regarding the government's investigation of the post-9/11 anthrax incidents. The case is Hatfill v. New York Times.

After the 9/11 attacks someone sent letters laced with anthrax through the U.S. mail to members of Congress and news organizations. Five people who handled the mail died from contact with the anthrax. Kristof's articles criticized the FBI's investigation and suggested that Dr. Steven Hatfill, a biodefense research scientist, was a suspect. In one of his articles, Kristof demanded that the FBI either exculpate Dr. Hatfill or arrest him.

Dr. Hatfill sued the NY Times for defamation. Today the Fourth Circuit held that Dr. Hatfill was a "limited-purpose public figure" because he voluntarily thrust himself into the controversy surrounding the threat of bioterrorism and the nation’s lack of preparedness for a bioterrorism attack. Therefore, to establish defamation, he was required to show actual malice by clear and convincing evidence (under the Supreme Court's New York Times v. Sullivan and Gertz v. Robert Welch, Inc. line of cases). Dr. Hatfill couldn't do that--indeed, the record showed that Kristof actually believed that Dr. Hatfill was the prime suspect--so the NY Times won.

Aside from being an interesting read, this is an important case concerning the "limited public figure" doctrine.

COA Splits On Personal Jurisdiction

Today in Rossetto USA, Inc. v. Greensky Financial, LLC, the Court of Appeals (COA) held that personal jurisdiction was lacking over one Georgia-based defendant but not over another. Judge Arrowood authored the majority decision, joined by Judge McCullough. Judge Tyson dissented on both of the majority's personal-jurisdiction rulings: where the majority said "yes," Judge Tyson said "no"; and where the majority said "no", Judge Tyson said "yes."

The NC-based plaintiff sells and distributes furniture. It sold furniture to a GA-based company, Eclecticglobal, over a period of years. The first issue was whether NC had personal jurisdiction over a foreign financing company, Greensky, that financed Eclecticglobal's purchases from plaintiff. The majority held that NC could exercise personal jurisdiction over the foreign financing company (which also was based in GA) because: (1) that company made frequent payments to the NC-based plaintiff on behalf of Eclecticglobal, either by mailing checks to plaintiff's office in NC or by wiring payments to plaintiff's account in NC; (2) plaintiff received at its NC office numerous communications and phone calls from the financing company; and (3) the financing company at one point attempted to sell plaintiff's furniture (presumably not in NC, however). Judge Tyson dissented, citing cases for the proposition that the mere mailing of payments or correspondence to NC isn't enough to give rise to personal jurisdiction under the "purposeful availment" (due process) test.

The court next confronted whether NC has personal jurisdiction over a second defendant: Furniture Retailers, a GA-based company alleged to have assumed control of or taken over the operations of Eclecticglobal, plaintiff's customer. The complaint alleged that plaintiff learned of this takeover or assumption of control from the financing company. The complaint alleged that Furniture Retailers received a shipment of furniture from plaintiff, and that an employee of Furniture Retailers called plaintiff to ask questions about the furniture. The COA majority held that this evidence merely established that Furniture Retailers was a passive recipient of furniture that plaintiff intended for Eclecticglobal, and that this was insufficient to establish minimum contacts with NC. Again, Judge Tyson dissented. He concluded that, once Furniture Retailers assumed control of or took over Eclecticglobal's operations and accepted delivery of furniture shipped/invoiced to it from NC, it could reasonably anticipate being haled into court in NC.

The Supreme Court likely will now have to sort this all out given Judge Tyson's dissent.

Today's COA Decisions

The Court of Appeals released 10 published decisions today, six of which are civil cases (involving annulment, underinsured motorist coverage, child support, a handgun license, retirement benefits, and personal jurisdiction). There was one dissent, and it was in the case dealing with personal jurisdiction. We'll have more on that case later.