Week of February 19, 2018 through February 23, 2018
Carlton & Harris Chiropractic v. PDR Network, LLC (Diaz 02/23/2018): The Fourth Circuit held that the sending of unsolicited faxes that offer free goods and services violates the Telephone Consumer Protection Act’s (47 U.S.C. § 227, “TCPA”) prohibition on sending “unsolicited advertisements.” Because the Hobbs Act, 28 U.S.C. § 2342 et seq., deprives district courts of jurisdiction to consider the validity of final orders issued by the Federal Communications Commission (“FCC”), the court concluded that the jurisdictional command of the Hobbs Act requires district courts to apply FCC interpretations of certain statutes, including the TCPA. Because the district court failed to follow the FCC’s interpretation of the TCPA and the plain meaning of the TCPA’s text, the court vacated the district court’s judgment and reinstated the appellant’s claim alleging violations under the TCPA. Full Opinion
Phillip J. Singer v. Kenneth Reali (King 02/22/2018): The Fourth Circuit held that a securities fraud class action complaint adequately alleges the material misrepresentation element of a section 10(b) claim within the context of a fraudulent reimbursement scheme when it establishes either that the company knew that its reimbursement practices were illegal and deceived investors as to that fact, or that it failed to sufficiently disclose or omitted entirely its reimbursement practices to investors. As it relates to the scienter element of a 10(b) claim within the same context, the court held that a complaint adequately alleges scienter when it establishes that the fraudulent reimbursement scheme was known to the officers of the company, was clearly illegal, and was fundamental to the company’s success, as this shows the danger of misleading investors was either known to the officers or so obvious they must have been aware of it. Lastly, as it relates to the loss causation element of a 10(b) claim within the same context, the court held that a complaint adequately alleges loss causation when it establishes that losses resulted from the relevant truth leaking out about a company’s previously concealed fraudulent reimbursement scheme, such as a drop in stock price. Accordingly, the court vacated the judgment of the district court that the complaint failed to satisfy the misrepresentation and scienter elements, and, as to the cross appeal, affirmed the lower court’s ruling that the complaint sufficiently alleged the loss causation element. Full Opinion
Norfolk Southern Railway v. Sprint Communications (Motz 02/22/2018): The Fourth Circuit held that a Majority Decision by price appraisers used to resolve a fee dispute between commercial parties is not an enforceable “final” arbitration award under the Federal Arbitration Act, 9 U.S.C. § 10(a)(4) (“FAA”), when one of the appraisers reserves his assent to the award subject to extraordinary appraisal assumptions. The court reasoned that such a Majority Decision is not “mutual, final, and definite” as required by the FAA because it fails to resolve the issue presented by the parties to the arbitrators. Accordingly, the court reversed the district court’s decision granting the appellee’s motion to confirm the arbitration award and remanded with instructions to the district court to vacate the majority decision. Full Opinion
United States v. Damian Phillips (Motz 02/21/2018): The Fourth Circuit held as a matter of first impression that the appropriate test for third-party standing in civil forfeiture cases is the “colorable interest” test, which requires a claimant to present “some evidence of ownership” beyond the mere assertion of an ownership interest in the property. Thus, a claimant challenging a civil forfeiture must have a colorable interest in that property, which he or she must support with some evidence beyond a mere assertion of ownership to survive summary judgment. Here, where the appellant not only failed to produce any objective evidence corroborating his claim of ownership, but where the undisputed evidence affirmatively proved to the contrary, the court concluded the appellant lacked standing to intervene. Accordingly, the Fourth Circuit affirmed the district court’s decision to dismiss the claim for lack of standing. Full Opinion
Ralph Janvey v. Peter Romero (Wilkinson 02/21/2018): The Fourth Circuit held that although a debtor’s bad faith in filing for bankruptcy may constitute “cause” for dismissal of the petition under 11 U.S.C. § 707(a), the remedy of dismissal must be reserved for cases of real misconduct. Applying this principle, the court reasoned that the fact that a bankruptcy petition was filed in response to a single debt – just one of the factors in the eleven-factor bad-faith test utilized by the bankruptcy court – need not alone constitute bad-faith cause for dismissal absent additional evidence of fraud or misconduct. The court also concluded that a bankruptcy petitioner’s attempt to settle with a judgment creditor does not constitute “cause” for dismissal under § 707(a) because the law encourages voluntary settlements between the parties when debts cannot be paid in full. Lastly, the court reinforced the principle that a debtor’s ability to repay debts does not alone amount to cause for dismissal under § 707(a) and concluded that forcing a debtor to repay his debts using exempt assets before resorting to bankruptcy would undercut the entire exemption scheme designed by Congress. Accordingly, the Fourth Circuit affirmed the district court’s decision not to disturb the bankruptcy court’s order denying the appellant’s attempt to dismiss the appellee’s bankruptcy petition for cause. Full Opinion
Deborah Hickerson v. Yamaha Motor Corporation, U.S.A. (Agee 02/20/2018): The Fourth Circuit held that a district court does not abuse its discretion when it excludes expert opinions under Daubert where the opinions are neither tested nor based on specific relevant research, data, or studies and therefore bear no indicia of reliability. The court also concluded that the plain language of § 402A of the Restatement (Second) of Torts, in combination with South Carolina court decisions applying it, allow a product manufacturer to rely on a legally adequate warning to avoid liability for an alleged defective design, thereby rejecting the appellant’s contention that design claims are “independent” of any warning claim. Accordingly, the Fourth Circuit affirmed the judgment of the district court excluding the appellant’s expert’s opinions as to alternative and inadequate warnings, and because the appellant’s case relied exclusively on her expert’s opinions, the court also affirmed the district court’s decision to grant summary judgment in favor of the appellees and its denial of the appellant’s motion for reconsideration. Full Opinion
Loretta Elliott v. American States Insurance Co. (Floyd 02/20/2018): The Fourth Circuit held that service of process on a statutory agent is not valid service on a defendant within the meaning of 28 U.S.C. § 1446(b). Thus, when service is effected on a statutory agent, rather than on an agent appointed by the defendant, the time to remove the action to federal court under § 1446(b) runs from the defendant’s actual receipt of the complaint, not from the time of service on the statutory agent. The court also held that a “direct action,” as the term is used in 28 U.S.C. § 1332(c)(1), does not include an insured’s suit against his or her own insurer for breach of the terms of the insurance policy or the insurer’s own alleged tortious conduct. Rather, a “direct action” under § 1332(c)(1) refers to a tort claim in which the insurer essentially stands in the shoes of its legally responsible insured. Lastly, the court held that the district court did not err in granting the appellee’s Rule 12(b)(6) motion to dismiss because the appellant failed to plead facts that plausibly stated a claim that the appellee’s conduct constituted an unfair or deceptive practice in the settling of insurance claims in violation of state law. Accordingly, the Fourth Circuit affirmed the district court’s decision to deny the appellant’s motion to remand based on untimely filing for notice of removal and to grant the appellee’s motion to dismiss for failure to state a claim. Full Opinion
Deborah Hickerson v. Yamaha Motor Corporation, U.S.A., No. 17-1075
Decided: February 20, 2018
The Fourth Circuit held that a district court does not abuse its discretion when it excludes expert opinions under Daubert where the opinions are neither tested nor based on specific relevant research, data, or studies and therefore bear no indicia of reliability. The court also concluded that the plain language of § 402A of the Restatement (Second) of Torts, in combination with South Carolina court decisions applying it, allow a product manufacturer to rely on a legally adequate warning to avoid liability for an alleged defective design, thereby rejecting the appellant’s contention that design claims are “independent” of any warning claim. Accordingly, the Fourth Circuit affirmed the judgment of the district court excluding the appellant’s expert’s opinions as to alternative and inadequate warnings, and because the appellant’s case relied exclusively on her expert’s opinions, the court also affirmed the district court’s decision to grant summary judgment in favor of the appellees and its denial of the appellant’s motion for reconsideration.
In 2012, plaintiff/appellant Deborah Hickerson (“Appellant”) was a passenger riding on a personal water craft (“PWC”) in Lake Hartwell, South Carolina, manufactured by the defendants/appellees Yamaha Motor Corporation and Yamaha Motor Co (“Appellees”). Appellees fell off the back of the PWC into the jet thrust behind it and sustained serious internal injuries. Three other passengers were on the PWC in addition to Appellant at the time of the accident. A ten-year-old was driving the PWC, and Appellant admitted she had consumed alcohol prior to riding. Moreover, Appellant admitted that she did not read any on-craft or manual warnings before riding the PWC. When she was injured, Appellant was wearing normal swimwear – a bikini – and no wetsuit. The PWC had on-craft warnings, which were repeated in the operator’s manual and that advised riders to wear protective clothing to avoid internal injuries. One such warning stated that normal swimwear did not adequately protect against forceful water entry into the body as a result of falling into the water or being near the jet thrust nozzle. Specifically, it stated that all riders “must wear a wet suit bottom or clothing that provides equivalent protection.” The PWC and accompanying owner’s manual also contained warnings that only three people may ride the PWC at a time, that the operator should be at least sixteen years old, and that a person should not ride after consuming alcohol.
Appellant filed a complaint against Appellees, alleging product liability claims under South Carolina law for design and warning defects. During discovery, Appellant proffered the expert testimony of a mechanical engineer familiar with PWCs. Among the opinions the expert intended to give was that an alternative set of warnings were better than those Appellees placed on the PWC and that the warnings actually placed on the PWC were inadequate. However, the district court granted Appellees’ motion in limine to excluded the expert’s proffered opinion for a set of alterative warnings as unreliable under Daubert. The district court concluded that because the expert’s proposals were neither tested nor based on specific relevant research or studies, they bore no indicia of reliability. Later, when deciding whether to grant summary judgment for Appellees, the district court concluded that the expert’s inadequate warning testimony should also be excluded because it was not supported by studies, research, or other scientific basis of verification needed to establish reliability under Daubert. Because Appellant’s warning defect claim relied exclusively on the expert’s testimony as to alternative warnings and inadequate warnings, the district court awarded summary judgment to Appellees on all warnings claims.
As to the design defect claims, the district court first held that South Carolina continues to follow Comment j to § 402A of the Restatement (Second) of Torts, which allows adequate product warnings to “cure” alleged design defects. Because Appellant failed to produce admissible evidence that the PWC’s warnings were inadequate, the district court found that the product’s warnings were adequate as a matter of law. Accordingly, under Comment j, the district court concluded that the adequate warnings cured any alleged design defects such that the PWC could not be deemed defectively designed. Thus, the district court granted judgment as a matter of law as to all of Appellant’s claims and later denied Appellant’s motion to reconsider. Appellant timely appealed and challenged the district court’s exclusion of her expert’s opinion on inadequate warnings, its grant of summary judgment, and its denial of her motion for reconsideration.
On appeal, the Fourth Circuit affirmed the judgment of the district court excluding Appellant’s expert’s opinion on inadequate warnings, and because Appellant’s case relied exclusively on her expert’s opinions, the court also affirmed the district court’s decision to grant summary judgment in favor of Appellees and its denial of Appellant’s motion for reconsideration. Relying on the Daubert factors pertaining to the reliability of evidence, the Fourth Circuit noted that the expert’s report stating the PWCs warnings were inadequate was not based on research data or scientific theories. The expert had not tested his inadequate warning opinion and much of it came from his own personal recollection. Even worse, the opinion was supported primarily by the expert’s alternative warning opinion, which the district court excluded and Appellant did not challenge on appeal. Thus, because Appellant failed to provide evidence that the PWC’s warnings were defective, and because the warnings plainly warned of the danger of internal injury of the kind suffered by Appellant, the court held the district court did not err in awarding summary judgment to Appellees on the defective warnings claims.
As to Appellant’s design defect claims, the Fourth Circuit rejected Appellant’s contention that Comment j to § 402A of the Restatement (Second) of Torts allowed her to bring defective design claims even if her defective warnings claims failed. The court instead endorsed Appellees’ argument that Comment j’s plain text and applicable South Carolina case law allow a product manufacturer to rely on a legally adequate warning to avoid liability for an alleged defective design. The court noted that the South Carolina Court of Appeals has repeatedly applied the plain language of Comment j’s text to confirm that an adequate warning operates to “cure” a product’s alleged design defects. Moreover, prior case law from both the Fourth Circuit and South Carolina district courts interpret Comment j to shield a manufacturer from liability for product defects if the product contains an adequate warning. As such, the Fourth Circuit concluded that even if it assumed, without deciding, that the PWC was defectively designed, Comment j allowed Appellees to avoid liability for any design defects because the PWC’s warnings were legally adequate such that, if they were followed, the PWC was not in defective condition, nor was it unreasonably dangerous when Appellant was injured.
Accordingly, because the record was devoid of admissible evidence as to Appellant’s theories of warning and design defects, the Fourth Circuit affirmed the district court’s entry of summary judgment for Appellees on all claims.
Raymond J. Prince