U.S. Tobacco Cooperative Inc. et al v. Big South Wholesale of Virginia, LLC d/b/a Big Sky International et al
ORDER granting 825 Motion for Reconsideration and denying as moot as moot 703 PROPOSED Sealed Motion to Dismiss or, in the Alternative, For Judgment on the Pleadings for Counts Four through Nine and Seventeen. Signed by US District Judge Terrence W. Boyle on 8/14/2017. Counsel is reminded to read the order in its entirety for important deadlines. (Stouch, L.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
U.S. TOBACCO COOPERATIVE, INC.,
BIG SOUTH WHOLESALE OF
VIRGINIA, et al.,
This cause comes before the Court on plaintiffs' renewed motion to reconsider the
Court's order of November 7, 2016. The appropriate responses and replies have been filed and a
hearing was held on the matter before the undersigned on July 20, 2017, at Raleigh, North
Carolina. For the reasons discussed below, plaintiffs' motion to reconsider is granted.
The Court hereby incorporates by reference as if fully set forth herein the factual
background of this matter provided in its November 7, 2016, order. [DE 635]. Defendants Big
South Wholesale of Virginia, LLC d/b/a Big Sky International, Big South Wholesale LLC,
Carpenter, and Small (Big South defendants) petitioned on June 1, 2016, for certification under
the Westfall Act, specifically 28 U.S.C. § 2679(d)(3), that they were acting within the scope of
their office or employment with the United States at the time of the incidents from which the
claims alleged by plaintiffs arose. [DE 448]. The Big South defendants sought substitution of
the United States as a party defendant in lieu of themselves as to plaintiffs' fourth through ninth,
twelfth through fourteenth, and eighteenth claims for relief, and for dismissal of those claims.
Plaintiffs and the United States opposed substitution. In its order of 7 November 2016, the
Court, after having conducted an evidentiary hearing, allowed the Big South defendants' petition
to substitute in part, substituting the United States as defendant for the Big South defendants as
to plaintiffs' fourth through ninth and seventeenth claims for relief.
Plaintiffs sought the Court's reconsideration of its order substituting the United States for
the Big South defendants as to some claims, which the Court denied after finding that plaintiffs
had raised no arguments which could not have been raised prior to the Court's original order and
that plaintiffs had presented no new evidence upon which to base reconsideration. [DE 702]. In
the instant motion, plaintiffs again seek reconsideration of the Court's order substituting the
United States for the Big South defendants as to claims four through nine and seventeen, citing
as new evidence an April 2011 memorandum from the Bureau of Alcohol, Tobacco, Firearms,
and Explosives (ATF) setting forth guidance applicable to churning investigations. Plaintiffs
contend that the memorandum establishes that the ATF recognizes that Carpenter and Small's
actions in churning funds from one cigarette operation into others violated federal law and
exceeded any authority Carpenter and Small would have had as employees or agents of the
government. Therefore, plaintiffs argue, Carpenter and Small's actions were outside the scope of
any immunity under the Westfall Act.
The government has responded to plaintiffs' renewed motion for reconsideration,
supporting the relief request but for reasons other than those cited by plaintiffs. Specifically, the
government contends that Carpenter and Small were not federal employees at the time of the
allegations in plaintiffs' complaint, that Carpenter and Small were at best independent
contractors for the ATF, and that as such Carpenter, Small, and the remaining Big South
defendants are unprotected by the Westfall Act. The Big South defendants have responded in
opposition to plaintiffs' renewed motion to reconsider, arguing that the substitution order was
correctly decided and the United States is the proper party defendant for claims four through nine
Rule 54(b) of the Federal Rules of Civil Procedure provides that a court may revise any
order entered prior to entry of final judgment. The decision to do so lies within the discretion of
the court, which is not bound by the strict standards applicable to requests to reconsider final
judgment but should be guided by the principles of the doctrine of law of the case. Am. Canoe
Ass'n v. Murphy Farms, Inc., 326 F.3d 505, 514-15 (4th Cir. 2003). "Thus, a court may revise
an interlocutory order under the same circumstances in which it may depart from the law of the
case: (1) a subsequent trial producing substantially different evidence; (2) a change in applicable
law; or (3) clear error causing manifest injustice." Carlson v. Boston Sci. Corp., 856 F.3d 320,
325 (4th Cir. 2017) (internal quotation, alteratipns, and citation omitted) (noting similarity of this
standard to that applicable to Rule 59(e) motions except that law-of-the-case standard allows for
new evidence discovered during litigation as opposed to evidence not available at trial to serve as
basis for reconsideration motion). Moreover, where, as here, the order which has been requested
to be reconsidered was entered by a different judge, "the latter judge should be hesitant to
overrule the earlier determination." Id (citing Harrell v. DCS Equip. Leasing Corp., 951 F.2d
1453, 1460 n.24 (5th Cir~ 1992)).
Under the Federal Torts Claims Act (FTCA) as amended by the Federal Employee
Liability Reform and Tort Compensation Act (Westfall Act), 28 U.S.C. §§ 1346(b), 2671-80, a
federal employee is immunized from liability for negligent or wrongful acts or omissions
committed while acting within the scope of his office or employment. Maron v. United States,
126 F.3d 317, 321 (4th Cir. 1997); see also Osborn v. Haley, 549 U.S. 225, 229 (2007). Under
the FTCA, an employee is defined to include, as is relevant here, "persons acting on behalf of a
federal agency in an official capacity, temporarily or permanently in the service of the United
States, whether with or without compensation." 28 U.S.C. § 2671. It is a question of federal law
whether a person is a contractor or employee for purposes of the FTCA, and courts apply the
common-law distinction between the two in deciding the issue. Robb v. United States, 80 F.3d
884, ·887-8 (4th Cir. 1996); see also Logue v. United States, 412 U.S. 521, 528 (1973)
(distinction between employee and independent contractor turns on the "absence of authority in
the principal to control the physical conduct of the contractor in performance of the contract.").
Whether an employee was acting within the scope of his employment when the tortious
conduct occurred is a separate inquiry. Where the United States Attorney General has certified
under the Westfall Act, 28 U.S.C. § 2679(d)(l), that a defendant's allegedly tortious acts fell
within the scope of his federal employment, the burden of proof is on the plaintiff to establish by
a preponderance of the evidence that the defendant was not acting within the s<;:ope of his
employment at the relevant time in order to refute the Attorney General's certification. Maron,
126 F.3d at 323; see also Feldheim v. Turner, 743 F. Supp. 2d 551, 556 (E.D. Va. 2010)
(Attorney General's scope of employment determination conclusive unless challenged). When
the Attorney General has refused to certify that a defendant was acting within the scope of his
office or employment, that defendant may petition the court to make such determination. A
court applies "the law of the state in which the tort occurred," Maron, 124 F.3d at 324, to
determine whether the conduct fell within the scope of an employee's employment or office.
This Court, Fox., J. presiding, previously found that Carpenter and Small were federal
employees and that they were acting within the scope of their employment when they committed
the torts alleged by plaintiffs. [DE 635]. Having reviewed the record and the filings of the
parties, the Court now holds that Carpenter and. Small were not federal employees and
alternatively were not acting within the scope of their employment and that substitution of the
United States as a defendant in this action was not proper.
Carpenter and Small characterize themselves as a confidential informant and cooperating
witness, respectively, for the ATF, [DE 457 at I], and the government in its opposition to
Westfall certification has agreed that Carpenter and Small "provided invaluable assistance to
federal law enforcement agencies, particularly ATF." [DE 474 at 5]. As the Court previously
recognized, however, government informants generally do not qualify as government employees.
This is because "[a]n individual cannot be an 'employee of the government' under the FTCA
absent governmental authority to supervise or control that person's daily activities." Means v.
United States, 176 F.3d 1376, 1380 (11th Cir. 1999). Absent from this case is evidence that the
government, through its ATF or other agents, had the authority to control the daily actions of
Carpenter or Small; while Carpenter and Small "may have voluntarily done everything [ATF
agents] ... asked, ... that does not mean that the [ATF] had the power to coerce [these
defendants] into doing things at their will." Daniels v. Liberty Mut. Ins. Co., No. 2:06-CV-213, ·
2006 WL 2644949, at *6 (N.D. Ind. Sept. 14, 2006); see also Thompson v. Dilger, 696 F. Supp.
1071, 1075 (E.D. Va. 1988) (noting also that the inclusion of "acting on behalf of the
government" in the definition of employee does not detract from the requirement of government
supervision or control).
During the time frame relevant to plaintiffs' claims, Carpenter and Small were employed
and paid a salary by plaintiffs. Carpenter and Small were not on the government payroll and
received no direct compensation for their services. See Daniels, 2006 WL 2644949, at *7; [DE
602] Hr'g Tr. 135-136. Rather, Carpenter and Small retained proceeds from their own cigarette
business independent from their activities with the ATF, but the ATF never paid them
compensation for their activities engaging with targets of government investigation. Hrg. Tr.
137. Only when Carpenter and Small sold tobacco products in an ATF investigation did ATF set
the price of the tobacco products; all prices for tobacco products sold as a part of Carpenter and
Small's tobacco distribution business were set by Carpenter and Small. [DE 629]; Kaye Deel.~
The confidential informant contract signed by Carpenter expressly stated he was not a
government employee and Small never had a written agreement with the ATF. [DE 474-1].
Carpenter and Small seek to shield themselves behind the cloak of immunity afforded to
federal employees who commit torts while performing their duties, but the Court is simply
unconvinced that, although they were much more than defendants who conducted a few drug
buys, Carpenter and Small were anything more than informants. Indeed, Carpenter and Small
the ATF .because of their legitimate tobacco .business, and while there is
certainly evidence that the ATF controlled Carpenter and Small's actions related to AFT targets,
there is no evidence that the ATF or any other government agency exerted control over all of
their business dealings; more specifically, the ATF has denied involvement in those dealings
associated with the claims in plaintiffs' complaint relating to the sale of cigarettes from
defendant Big Sky to plaintiff Big South Distribution. See, e.g., Hrg. Tr. 153--S6; Hrg. Tr. 16265.
Plaintiffs have correctly noted that those cases finding that a government informant was
an employee for purposes of the Westfall Act involved claims arising out of the specific conduct
undertaken by the informant at the direction and on behalf of the government agency. See, e.g.,
Wang v. Horio, 741 F. Supp. 1373, 1379 (N.D. Cal. 1989 ("IRS exercised total control over the
details of all of Horio's activities that are at issue") (emphasis added); see also Patterson &
Wilder Const. Co. v. United States, 226 F.3d 1269, 1275 (11th Cir. 2000) (pilots deemed
employees for claims by owner of plane arising out of damage to plane sustained during
narcotics operation conducted for Drug Enforcement Agency). Here, plaintiffs' claims simply
do not arise out of any activity which was undertaken at the direction of the ATF in relation to
cigarette smuggling or other targets. Further, while not dispositive of the inquiry, Carpenter and
Small received no fixed salary from the government, see Logue, 412 U.S. at 531 (reference to
uncompensated persons in employee definition intended to cover the "'dollar-a-year man' who is
in the service of the Government without pay"), and the Court is unaware of any evidence that
Carpenter and Small could not have refused the call for assistance at any time. Slagle v. United
States, 612 F.2d 1157, 1160 (9th Cir. 1980).
Relatedly, the Court now holds that at the time of the incidents which form the basis of
plaintiffs' claims, Carpenter and Small were not acting within the scope of any alleged
employment by the ATF. See Wang, 741 F. Supp. At 1378 (noting that whether an individual
was an employee and whether he was acting within the scope of his employment are closely
related inquiries in the context of an informant). The government has expressly disavowed that it
had any control over Carpenter and Small's legitimate business operations, and Carpenter and
Small's attempts to paint every action they undertook in relation to the cigarette business as
having been undertaken as an employee of the federal government fails. Again, Carpenter and
Small were not recruited by the ATF to act as sworn undercover agents nor were they the subject
of any letters of marque; rather, their position and presence in the legitimate tobacco business
made them prime suspects for recruitment as informants, and any activities by Carpenter and
Small which did not concern their work to gain information or engage in dealings with known or
potential targets of government investigation, which it is undisputed that plaintiffs were not,
cannot be considered as having taken place within the scope of any government employment. To
the extent Carpenter and Small claim that all of their activities relating to plaintiffs were at the
direction of their ATF handler, the ATF April 2011 memorandum regarding its churning policy
relied upon by plaintiff demonstrates that many of these actions would have been in violation of
ATF' s own policy and therefore outside Carpenter and Small's limited scope of employment or
office. See [DE 826-1].
It is for these reasons that the Court, with caution, has determined that its prior holding as
to the substitution of the United States as a defendant for claims four through nine and seventeen
was m error.
Accordingly, for the reasons discussed above, plaintiffs' renewed motion to reconsider
[DE 825] is GRANTED. The United States is dismissed as a substituted defendant in this action
and its motion to dismiss based on sovereign immunity and other grounds [DE 703] is DENIED
Plaintiffs are afforded through and including August 31, 2017, to file or amend any
response to the Big South defendants' motion for summary judgment.
SO ORDERED, this
l!:f_day of August, 2017.
UNITED STATES DISTRICJUDGE
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