United States of America v. Cochran, et al

Filing 191

ORDER granting 177 Motion in Limine to Exclude Arguments Relating to Co-Defendants' Joint and Several Liability and Richard's Personal Liability - Signed by District Judge Louise Wood Flanagan on 01/14/2015. (Baker, C.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
EASTERN DIVISION
No. 4:12-CV-220-FL

UNITED STATES OF AMERICA,
Plaintiff,
v.
WILLIAM I. COCHRAN, III; WRC,
LLC; EKP, LLC; EMLAN
PROPERTIES, LLC; and RICHARD A.
COCHRAN,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)

ORDER

This matter comes before the court on defendants’ motion in limine to exclude certain
arguments and contentions relating to defendants’ asserted joint and several liability and liability
of Richard Cochran (DE 177). Plaintiff responded to the motion, and in this posture the issues raised
are ripe for ruling. For the following reasons, the court grants the motion.
BACKGROUND
In September 2012, plaintiff filed complaint asserting a claim under the Fair Housing Act
(“FHA”), 42 U.S.C. §§ 3601-3619, against individual defendant William I. Cochran, III (“William
Cochran”) and the various entities for which he has managed residential rental properties, namely
defendants WRC, LLC (“WRC”); EKP, LLC (“EKP”); and EmLan Properties, LLC (“EmLan”).
Plaintiff seeks damages on behalf of certain tenants and associated persons asserted to be “aggrieved
persons” allegedly injured by defendants’ discriminatory conduct. On September 19, 2013, plaintiff

filed, with leave of court, an amended complaint, adding Richard A. Cochran (“Richard Cochran”),
William Cochran’s brother, as a defendant.
As pertinent here, the amended complaint includes the following allegations regarding the
parties and their conduct. “In his establishment of policies and procedures and his management
activities relating to the rental properties, William Cochran acted as the agent of Defendant [WRC],
[EmLan], [EKP], and [Richard Cochran].” (Am. Compl. ¶ 5). “WRC rented its properties to tenants
through the actions of its agent, William Cochran.” (Id. ¶6). “EKP rented its properties to tenants
through the actions of its agent, William Cochran.” (Id. ¶7). “Emlan rented its properties to tenants
through the actions of its agent, William Cochran.” (Id. ¶8). “Richard Cochran and William
Cochran rented their property(-ies) to tenants through the actions of William Cochran.” (Id. ¶9).
“Since at least 2003, William Cochran has maintained unlawful discriminatory policies and
engaged in unlawful discriminatory practices at the residential properties owned by the Defendants,
because of race or color.” (Id. ¶11). “The Defendants are liable for the discriminatory conduct of
their agent and manager, William Cochran, described above.” (Id. ¶13). Plaintiff seeks relief
including an award of “monetary damages to each person injured by the Defendants’ discriminatory
conduct.” (Id. p. 6).
In its brief in opposition to summary judgment, plaintiff summarized its theory of liability
for defendants in this case. In particular, it stated, “[William] Cochran, acting as an agent of the
LLCs, primarily handles the daily management of residential rental properties that are or were
owned by Defendants.” (DE 121 at 2). “Defendants [WRC], [EKP], [EmLan] and [Richard
Cochran] are each vicariously liable for the actions of William Cochran as manager of the properties
each owns.” Id. It confirmed, further, “[i]ndeed, Defendants do not raise any arguments to the

2

contrary in their motion, nor could they – there is no factual dispute that William Cochran had
primary responsibility for all aspects of the day-to-day rental and maintenance of the Defendants’
properties.” (Id. at 3).
At pretrial conference, held December 23, 2014, defendants voiced objection to inclusion
of plaintiff’s contentions in proposed joint pre-trial order that William Cochran and Richard Cochran
commingled funds between and amongst the LLC defendants, their personal funds, and additional
businesses, Cochran Builders and Build Tech, Inc. (Pretrial Conf. Tr. at 71). Defendants objected
to the inclusion of the contention that all of the LLC defendants could be held jointly and severally
liable, premised on alter ego or piercing the corporate veil, for all of the actions taken by William
Cochran, where that theory of liability was not pleaded. (Id. at 66-68, 70-71). Defendants also
objected to the contention that Richard Cochran could be held liable for acts of William Cochran
directed at properties other than the one he owns. (Id. at 68-70).
The court directed defendants to file an appropriate motion by January 5, 2015, and plaintiff
to file a response in opposition by January 9, 2015, a matter of days before the scheduled
commencement of trial on January 13, 2015, now underway. Defendants filed their motion on
January 5, supported by memorandum filed January 6, which motion specifically seeks exclusion
from trial “any argument, allegation, jury instruction, or factual contention” that –
(1) William I. Cochran, III’s co-defendants (EKP, LLC; EmLan Properties, LLC;
WRC, LLC; and Richard A. Cochran) may be held jointly and severally liable for
William’s purportedly wrongful conduct, and/or
(2) that Richard A. Cochran may be held vicariously liable for actions that occurred
at or relate to properties other than the one property in which Richard holds a direct
ownership interest.

3

(DE 177). In opposition, the government contends it has properly pleaded and will show that “all
Defendants are jointly and severally liable for [William Cochran’s] discriminatory acts as a matter
of law.” (DE 186 at 1). In addition, it contends that all defendants “are jointly and severally liable
for the discriminatory acts attributable to [a] single integrated enterprise, because Defendants were
on notice of their potential liability including the facts alleging a failure to follow corporate
formalities sufficient to pierce the corporate veil.” Id. at 2.
At the start of trial, the court entered an amended joint pre-trial order including the following
stipulation:
At all times relevant to this matter, Defendant William I. Cochran, III (hereinafter
“Defendant William Cochran”) acted as the manager and primary decision-maker for
the properties owned by EKP, LLC, WRC, LLC, and EmLan Properties, LLC.
Defendant William Cochran’s decision-making authority included the selection of
tenants, when and what repairs would be made to the individual properties, and the
eviction of tenants. His duties included collecting rent, receiving requests for
maintenance, performing, or hiring contractors to perform, repairs or maintenance,
and determining whether to credit tenants for repairs they made themselves.
(Pretrial Order at 3). The pretrial order includes the following factual contentions by plaintiff:
e. Defendant William Cochran, as manager of the properties owned by Defendants
EKP, LLC, WRC, LLC, and EmLan Properties, LLC, comingled funds between and
amongst the LLC Defendants and his personal funds, including his personal business,
Cochran Builders.
f. EKP, LLC, WRC, LLC, and EmLan Properties, LLC were insufficiently
capitalized.
g. Defendant Richard Cochran comingled his personal funds and the funds of his
company Build Tech, Inc. with the funds of Defendant WRC, LLC.
h. Defendant William I. Cochran, III operated WRC, LLC, EKP, LLC, and EmLan
Properties, LLC as a single, integrated enterprise.
(Id. at 7).

4

In addition, the pretrial order includes the following issues asserted by plaintiff:
a. Defendants EKP, LLC WRC, LLC, EmLan Properties, LLC and Richard A.
Cochran are vicariously liable for the actions of Defendant William Cochran as their
agent. See Meyer v. Holly, 537 U.S. 280, 285 (2003).
*

*

*

g. Defendants Richard Cochran and William Cochran have used WRC LLC, EKP,
LLC, and EmLan Properties, LLC as alter egos.
h. Defendants are jointly and severally liable for compensatory damages to persons
designated as aggrieved in this matter.
i. WRC, LLC, EKP, LLC, and EmLan LLC are a single, integrated enterprise.
(Id. at 8-9). Finally, jury instructions proposed by plaintiff reflect a joint and several theory of
liability, on the basis that the corporate defendants acted as a single integrated enterprise, including
through intermingled funds. (DE 182 at 21-22).
DISCUSSION
The Federal Rules of Civil Procedure require “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). “Even though the requirements
for pleading a proper complaint are substantially aimed at assuring that the defendant be given
adequate notice of the nature of a claim being made against him, they also provide criteria for
defining issues for trial.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). A properly
pleaded complaint provides to an opponent “illumination as to the substantive theory under which
[plaintiff] [i]s proceeding, which is the function of pleadings under the Federal Rules.” Atl.
Purchasers, Inc. v. Aircraft Sales, Inc., 705 F.2d 712, 717 (4th Cir. 1983).
In addition, Federal Rule of Evidence 402 provides that “[r]elevant evidence is admissible,”
and “[i]rrelevant evidence is not admissible.” Evidence is relevant if “it has any tendency to make

5

a fact more or less probable than it would be without the evidence; and the fact is of consequence
in determining the action.” Fed. R. Evid. 401 (emphasis added). Thus, “[r]elevancy . . . exists only
as a relationship between an item of evidence and a matter properly provable in the case.” Id.
Advisory Committee Note.
Accordingly, a case may not proceed to trial on “an unpleaded theory of recovery” without
“express or implied consent of the parties.” Pinkley, Inc. v. City of Frederick, MD., 191 F.3d 394,
401 (4th Cir. 1999); McLeod v. Stevens, 617 F.2d 1038, 1040 (4th Cir. 1980). Further, “a court will
not imply consent to try a claim merely because evidence relevant to a properly pleaded issue
incidentally tends to establish an unpleaded claim.” Quillen v. Int’l Playtex, Inc., 789 F.2d 1041,
1044 (4th Cir. 1986). Rather, a party must amend the complaint, or the parties must “constructively
amend the complaint” by, for example, “agreeing . . . to litigate fully an issue not raised in the
original pleadings,” or by addressing a theory of liability “in their summary judgment briefs.”
Interstate Petroleum Corp. v. Morgan, 249 F.3d 215, 227 (4th Cir. 2001) (quotations omitted); see
also Whitaker v. T.J. Snow Co., 151 F.3d 661, 663 (7th Cir.1998) (explaining that “[b]ecause both
parties squarely addressed the strict liability theory in their summary judgment briefs, the complaint
was constructively amended to include that claim”) (emphasis added).
The Fourth Circuit and other circuit courts have in various circumstances upheld decisions
to limit the scope of issues at trial to those theories of relief or claims properly pleaded. For example,
in Elmore v. Corcoran, 913 F.2d 170, 173 (4th Cir. 1990), the court reversed a district court finding
of liability following bench trial on an unpleaded “due process theory” of relief. In Atlantic
Purchasers, the court affirmed a limitation imposed at trial where a plaintiff sought relief, not
previously pleaded, on the basis of “an unusual remedy that goes beyond ‘the general damages the

6

law normally awards to compensate plaintiff for the injury he seeks to have redressed.’” 705 F.2d
at 717 (quoting 5 Fed. Prac. & Proc: Civil § 1310)). In Quillen, the court affirmed the district
court’s decision to limit trial on action for negligent manufacture and negligent failure to warn,
excluding an unpleaded claim for “negligent testing,” where it would have required defendant “to
defend against a claim for which it was unprepared.” 789 F.2d at 1044; see also Crigger v.
Fahnestock & Co., 443 F.3d 230, 237 (2d Cir. 2006) (holding that where “the district court refused
plaintiffs’ request to charge the jury on conspiracy to defraud or on aiding and abetting the fraud,
[t]he aiding and abetting charge was properly omitted because that legal theory was not pleaded in
the complaint”) (emphasis added); Marmott v. Maryland Lumber Co., 807 F.2d 1180, 1185 (4th Cir.
1986) (recognizing that plaintiff properly was restricted from asserting claim based upon “concerted
action” where not pleaded).
Joint and several liability, based upon alter ego or piercing the corporate veil, is a distinct
theory of relief separate from the agency theory that plaintiff alleged in the complaint. As noted in
its brief on summary judgment, and reiterated again in the pretrial order, defendants’ liability is
based upon the conduct of William Cochran, acting as their agent, under a theory of vicarious
liability, which is a straightforward, well-established, avenue of relief in a Fair Housing Act case.
The Supreme Court, in Meyer v. Holley, noted that “it is well established that the Act provides for
vicarious liability,” and that “traditional vicarious liability rules ordinarily make principals or
employers vicariously liable for the acts of their agents or employees in the scope of their authority
or employment.” 537 U.S. 280, 285 (2003). The allegations in the amended complaint, and agency
contentions in the pretrial order, apply directly to this vicarious liability theory, where they allege
that William Cochran acted as the agent of the LLC defendants and Richard Cochran, and that each

7

of the LLC defendants rented its properties to tenants through the actions of its agent, William
Cochran. (Am. Compl. ¶¶5-8; Pretrial Order at 7 (citing Meyer, 537 U.S. at 285)).
A joint and several liability theory of relief, by contrast, based upon alter ego or piercing the
corporate veil, is an unusual, exceptional, and specialized theory of relief. Notably, the Supreme
Court in Meyer expressly declined to consider whether, in a Fair Housing Act case, “the
corporation’s liability may be imputed to the corporation’s owner in an appropriate case through a
‘piercing of the corporate veil.’” Meyer 537 U.S. at 292. Further, the court rejected expanding its
holding from imposing liability “in accordance with traditional agency principles, . . . normally
impos[ing] vicarious liability upon the corporation,” id. at 282, to “special circumstances” or “an
unusual modification of those rules,” which might lead to liability for the “owner or officer” of a
corporation. Id. at 286.
“[A] corporate entity is liable for the acts of a separate, related entity only under
extraordinary circumstances, commonly referred to as ‘piercing the corporate veil.’” Vitol, S.A. v.
Primerose Shipping Co., 708 F.3d 527, 544 (4th Cir. 2013) (emphasis added). “Piercing the
corporate veil is an equitable remedy, and the burden rests with the party asserting such claim.”
Kinney Shoe Corp. v. Polan, 939 F.2d 209, 211 (4th Cir. 1991) (emphasis added); see Vitol, 708
F.3d at 544 (addressing merits of “alter ego claim as pled” in complaint). “This power to pierce the
corporate veil . . . is to be exercised reluctantly and cautiously.” DeWitt Truck Brokers, Inc. v. W.
Ray Flemming Fruit Co., 540 F.2d 681, 683 (4th Cir. 1976). “[I]n extraordinary cases, such as the
corporate form being used for wrongful purposes, courts will pierce the corporate veil and disregard
the corporate entity.” Vitol, 708 F.3d at 544.

8

“Several factors . . . guide the determination of whether one entity constitutes the alter ego
of another.” Id. “These factors include gross undercapitalization, insolvency, siphoning of funds,
failure to observe corporate formalities and maintain proper corporate records, non-functioning of
officers, control by a dominant stockholder, and injustice or fundamental unfairness.” Id. (quotations
omitted). “Other factors properly considered by the district court in this case include intermingling
of funds; overlap in ownership, officers, directors, and other personnel; common office space; the
degrees of discretion shown by the allegedly dominated corporation; and whether the dealings of
the entities are at arm’s length.” Id.
Plaintiff did not in this case plead such joint and several liability, based upon a theory of alter
ego or piercing the corporate veil, nor did plaintiff plead facts upon which to assert such a claim of
relief. Plaintiff did not allege, as it now does, that William Cochran and Richard Cochran
intermingled funds, that the LLC defendants were insufficiently capitalized, nor that the defendants
operated as a single, integrated enterprise. Plaintiff did not assert that William Cochran and Richard
Cochran used the LLC defendants as alter egos, nor did it assert that defendants are jointly and
severally liable for compensatory damages, as it now does.
In sum, joint and several liability, based upon alter ego or piercing the corporate veil, must
be pleaded to be actionable at trial. Where plaintiff did not plead such a theory of relief, plaintiff’s
present assertions of liability on this basis must be excluded from trial. Such excluded assertions
include any argument, allegation, jury instruction, or factual contention, that William Cochran and
Richard Cochran used the LLC defendants as alter egos, such that all defendants may be held jointly
and severally liable for William Cochran’s purportedly wrongful conduct, even where his conduct
did not involve a property owned by all defendants. Such excluded assertions also include any

9

argument, allegation, jury instruction, or factual contention that Richard Cochran may be held liable
for actions by William Cochran that occurred at or related to properties other than the one property
in which Richard Cochran holds a direct ownership interest.
Plaintiff suggests that a theory of joint and several liability is included within the concept
of vicarious liability and agency, which it pleaded in its complaint, and thus that no more specific
pleading was required to litigate a claim of joint and several liability. Plaintiff suggests, for
example, that it has already pleaded that William Cochran “acted as the agent of all named
Defendants, and therefore all Defendants are jointly and severally liability for his discriminatory acts
as a matter of law.” (DE 186 at 1). A critical allegation missing from the complaint, however, is that
William acted as agent of all named Defendants without differentiation, as a single, integrated
enterprise, as plaintiff now asserts in its contentions included in the pretrial order. No such
allegation was included or implied by the allegations in the amended complaint, however.
Indeed, the amended complaint describes the actions of William Cochran on behalf of each
of the LLCs, not alleging that they are a single, integrated, enterprise, but rather with separate
reference to each individual LLC and Richard Cochran (Am. Compl. ¶¶ 6-9). To proceed on a theory
that William Cochran acted as an agent of all the LLC defendants and Richard Cochran together as
a single unit, requires an antecedent finding of alter ego or piercing the corporate veil, which was
not pleaded.
Plaintiff also suggests that defendants had sufficient notice through discovery of facts that
the LLCs were undercapitalized, shared common ownership, co-mingled funds, and failed to follow
corporate formalities, and that defendants William Cochran and Richard Cochran were in control
of these entities such that they did not have separate personalities, requiring piercing the corporate

10

veil. “[D]iscovery,” however, “is an exercise in fact-finding, and it is the complaint – not
depositions or interrogatories – that provides ‘fair notice’ to defendants of the allegations against
them.” Stevenson v. City of Seat Pleasant, Md., 743 F.3d 411, 420 (4th Cir. 2014). Information
sought or obtained in discovery, therefore, “is inapposite of the notice issue,” and plaintiff may not
rely upon discovery responses to introduce a new theory of liability into trial. Id.; see also Doe v.
Roe, No. 89-6817, 1990 WL 86285 *2 (4th Cir. June 13, 1990) (holding that district court properly
refused to consider at summary judgment “discovery related to a new, unpleaded theory of
[plaintiff’s] case,” liability under a “‘failure to train’ theory,” where “the case had been pending for
nearly six months and was set for trial within two weeks,” and defendants “would be prejudiced by
preparing to defend against a new cause of action at that late date”).
Finally, to the extent plaintiff suggests that it should be permitted to amend its complaint,
such amendment is not warranted. While “leave [to amend] shall be freely given when justice so
requires,” Fed. R. Civ. P. 15(a), a “motion to amend may be denied when it has been unduly
delayed and when allowing the motion would prejudice the nonmovant.” Lone Star Steakhouse &
Saloon v. Alpha of Va., Inc., 43 F.3d 922, 940 (4th Cir.1995). “Whether an amendment is prejudicial
will often be determined by the nature of the amendment and its timing . . . . [T]he further the case
progressed before judgment was entered, the more likely it is that the amendment will prejudice the
defendant or that a court will find bad faith on the plaintiff’s part.” Laber v. Harvey, 438 F.3d 404,
427 (4th Cir.2006). For example, in Newport News Holdings Corp. v. Virtual City Vision, Inc., 650
F.3d 423, 439, 440 (4th Cir. 2011), the Fourth Circuit held that district court did not abuse its
discretion in denying amendment to a counterclaim to “include allegations of conspiracy and fraud”
where the amendment was not fully briefed until “two weeks before the scheduled trial date” and,

11

if allowed, “would likely have required further discovery,” and “would substantially change the
nature and scope of trial.”
In this case, plaintiff’s suggested amendment to add a theory of joint and several liability,
based upon alter ego or piercing the corporate veil, is prejudicial and unduly delayed. As in
Newport News, the suggestion of amendment was made at the “eleventh hour before the thenscheduled trial date,” and if allowed “would substantially change the nature and scope of the trial,”
id. at 440, which is already underway. Defendants have had no reason to explore or prepare possible
defenses to these new theories, some aspects of which involve corporate entities, Cochran Builders
and Build Tech, Inc., that are not parties to the case. As such, the new theory of liability would
require further investigation, preparation, and possibly further discovery, during the midst of trial.
Accordingly, amendment at this point in trial would prejudice defendants.
Further, where plaintiff knew of evidence allegedly supporting its new theory during the
course of discovery, it unduly delayed in asserting this theory of relief. If the parties had “squarely
addressed the . . . liability theory in their summary judgment briefs” then the complaint could have
been constructively amended to include that claim. Interstate Petroleum, 249 F.3d at 227 (quoting
Whitaker, 151 F.3d at 663).1 But, plaintiff did not do so, and indeed suggested in its summary
judgment brief that its theory of liability, based upon agency and vicarious liability, was all but
settled and conceded. As noted above, plaintiff represented in its summary judgment brief that

1

Partly in this respect, the court also finds inapposite United States v. Gumbaytay, 757 F.Supp.2d 1142, 114950 (M.D. Ala. 2011), cited by plaintiff, in which the court denied summary judgment on a pattern or practice claim
against individual property owners although there was no evidence that the individual owners acted in concert in hiring
a particular property manager who engaged in discriminatory housing conduct. Gumbaytay was decided at the summary
judgment stage of the case, and it did not address the issue presented here, where on the eve of trial, plaintiff introduces
a joint and several liability theory of relief, premised upon alter ego or piercing the corporate veil. Gumbaytay addresses
neither pleading issues, nor application of alter ego or piercing the corporate veil.

12

“Defendants [WRC], [EKP], [EmLan] and [Richard Cochran] are each vicariously liable for the
actions of William Cochran as manager of the properties each owns.” (DE 121 at 2) (emphasis
added). It invited no further discussion or inquiry as to this theory of liability, noting instead that
“[i]ndeed, Defendants do not raise any arguments to the contrary in their motion, nor could they –
there is no factual dispute that William Cochran had primary responsibility for all aspects of the dayto-day rental and maintenance of the Defendants’ properties.” (Id. at 3) (emphasis added). Only
now, on the eve of trial, has plaintiff introduced a contention that could transform an essentiallystipulated agency theory of liability into a sharply-contested joint and several theory of liability,
premised upon alter ego and piercing the corporate veil. As such, the court finds that plaintiff
unduly delayed in seeking amendment to its claims.
Accordingly, the court rejects plaintiff’s arguments that it should be allowed to present at
trial a joint and several liability theory of relief, premised upon alter ego or piercing the corporate
veil. Nothing in this order is intended to prevent plaintiff from making any argument, allegation,
jury instruction, or factual contention that the defendants EKP, WRC, EmLan, and Richard Cochran
are vicariously liable for the actions of defendant William Cochran as their agent with respect to
properties owned by each such defendant, not dependent upon a theory of joint and several liability
arising from alter ego or piercing the corporate veil.
CONCLUSION
For the foregoing reasons, the court GRANTS defendants’ motion in limine (DE 177).
Plaintiff is prohibited from offering at trial any argument, allegation, jury instruction, or factual
contention that William Cochran’s co-defendants may be held jointly and severally liable for
William Cochran’s purportedly wrongful conduct. Plaintiff is prohibited from offering at trial any

13

argument, allegation, jury instruction, or factual contention that Richard Cochran may be held liable
for actions by William Cochran that occurred at or related to properties other than the one property
in which Richard Cochran holds a direct ownership interest.
SO ORDERED, this the 14th day of January, 2015.

_____________________________
LOUISE W. FLANAGAN
United States District Judge

14