U.S. Tobacco Cooperative Inc. v. Big South Wholesale of Virginia, LLC, 080318 FED4, 17-2070

Docket Nº:17-2070
Opinion Judge:TRAXLER, Circuit Judge.
Party Name:U.S. TOBACCO COOPERATIVE INC.; U.S. FLUE-CURED TOBACCO GROWERS, INC.; BIG SOUTH DISTRIBUTION, LLC, Plaintiffs-Appellees, v. BIG SOUTH WHOLESALE OF VIRGINIA, LLC, d/b/a Big Sky International; BIG SOUTH WHOLESALE, LLC; JASON CARPENTER; CHRISTOPHER SMALL, Defendants-Appellants, and UNITED STATES OF AMERICA, Intervenor-Appellee, and UNIVERSAL SERVI...
Attorney:Gary S. Parsons, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Raleigh, North Carolina, for Appellants. Patrick George Nemeroff, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee United States. Richard P. Bress, LATHAM & WATKINS LLP, Washington, D.C., for Appellees U.S. ...
Judge Panel:Before TRAXLER, AGEE, and WYNN, Circuit Judges.
Case Date:August 03, 2018
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
SUMMARY

The Fourth Circuit vacated the district court's order granting reconsideration, under Federal Rule of Civil Procedure 54(b), of a predecessor district judge's order which had granted defendants' petition to substitute the United States as a party defendant under the Westfall Act. Judge Boyle had been assigned the case upon retirement of Judge Fox, and reconsidered his predecessor's order. The... (see full summary)

 
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U.S. TOBACCO COOPERATIVE INC.; U.S. FLUE-CURED TOBACCO GROWERS, INC.; BIG SOUTH DISTRIBUTION, LLC, Plaintiffs-Appellees,

and

UNITED STATES OF AMERICA, Intervenor-Appellee,

v.

BIG SOUTH WHOLESALE OF VIRGINIA, LLC, d/b/a Big Sky International; BIG SOUTH WHOLESALE, LLC; JASON CARPENTER; CHRISTOPHER SMALL, Defendants-Appellants,

and

UNIVERSAL SERVICES FIRST CONSULTING, a/k/a Universal Services Consulting Group; EMORY STEPHEN DANIEL; ALBERT M. JOHNSON, Defendants.

No. 17-2070

United States Court of Appeals, Fourth Circuit

August 3, 2018

Argued: May 9, 2018

Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Terrence W. Boyle, District Judge. (5:13-cv-00527-BO)

ARGUED:

Gary S. Parsons, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Raleigh, North Carolina, for Appellants.

Patrick George Nemeroff, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee United States.

Richard P. Bress, LATHAM & WATKINS LLP, Washington, D.C., for Appellees U.S. Tobacco Cooperative Inc., U.S. Flue-Cured Tobacco Growers, Inc., and Big South Distribution, LLC.

ON BRIEF:

Julia C. Ambrose, W. Michael Dowling, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Raleigh, North Carolina; Alan D. Mathis, BUTLER SNOW, LLP, Birmingham, Alabama, for Appellants.

A. Tevis Marshall, Richmond, Virginia, Kimberly J. Lehman, OGLETREE DEAKINS NASH SMOAK & STEWART, PC, Raleigh, North Carolina; Kathryn H. Ruemmler, Elana Nightingale Dawson, Genevieve P. Hoffman, LATHAM & WATKINS LLP, Washington, D.C., for Appellees U.S. Tobacco Cooperative Inc., U.S. Flue-Cured Tobacco Growers, Inc., and Big South Distribution, LLC.

Chad A. Readler, Acting Assistant Attorney General, Jessie K. Liu, United States Attorney, Mark B. Stern, Patrick G. Nemeroff, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee United States.

Before TRAXLER, AGEE, and WYNN, Circuit Judges.

Vacated and remanded by published opinion. Judge Traxler wrote the opinion, in which Judge Agee and Judge Wynn joined.

TRAXLER, Circuit Judge.

Defendants Jason Carpenter, Christopher Small, Big South Wholesale, LLC, and Big South Wholesale of Virginia, LLC, d/b/a Big Sky International, appeal the district judge's order granting a motion to reconsider a predecessor district judge's order which had granted Defendants' petition to substitute the United States as a party defendant under the Westfall Act. See 28 U.S.C. § 2679(b). The Westfall Act provides "federal employees absolute immunity from common-law tort claims arising out of acts they undertake in the course of their official duties." Osborn v. Haley, 549 U.S. 225, 229 (2007). We hold that the district judge abused his discretion in granting the motion to reconsider. Therefore, we vacate the district court's order granting reconsideration under Rule 54(b) and remand with instructions to reinstate the prior order granting Defendants' petition to substitute.

I.

The Plaintiffs in this action are a tobacco growers cooperative, its manufacturing arm, and its distribution arm. Plaintiff U.S. Tobacco Cooperative, Inc. ("USTC") "is a cooperative of flue-cured tobacco growers which processes and markets its members' tobacco to domestic and international customers." J.A. 452-53. Plaintiff U.S. Flue-Cured Tobacco Growers Inc. ("USFC") "manufactures cigarettes and other tobacco products." J.A. 453. It is a wholly owned subsidiary of USTC and shares the same Board of Directors.

Defendants Carpenter and Small have been established businessmen in the wholesale tobacco distribution business for many years. They operated two wholesale tobacco distribution companies-Defendants Big South Wholesale, LLC ("BSW") and Big South Wholesale of Virginia, LLC ("BSV"). As discussed in more detail below, in early 2011, USFC negotiated the purchase of BSW's and BSV's assets, and formed Plaintiff Big South Distribution, LLC ("BSD") to close the purchase and thereafter act as the distribution arm for Plaintiffs. This lawsuit arises out of that contract to purchase and the actions taken by Carpenter and Small thereafter as a consultant and employee, respectively, for BSD, while simultaneously operating as confidential informants for the United States Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF").

A.

Prior to the events at issue in this lawsuit, the ATF was investigating numerous complex tobacco-trafficking cases and the illicit tobacco trade. Among other things, such tobacco trafficking served "as a means of funding organized crime." J.A. 617. However, due to the "close-knit subculture of groups and individuals who operated in the same circles and, often times, employed the same fraud schemes," the ATF realized that "it was impossible to simply appear on scene as a new distributor or buyer, as ATF's initial efforts attempted to do. The subculture was too wise and the effort failed." J.A. 618. It needed the help of an established tobacco distributor to gain the trust of tobacco industry participants. Defendant Carpenter fit the bill, and he agreed to help.

"Over time, Carpenter's cooperation became significant and on November 9, 2006, he agreed to become a documented ATF confidential informant." J.A. 617. In connection with his duties, Carpenter signed an "Informant Agreement," in which he agreed to "[m]ake controlled purchases of evidence, wear a transmitter/recorder, provide testimony in Grand Jury, testify in court, and [render] other assistance as required." J.A. 437. The agreement provided that he would "be working closely with ATF for purposes of th[e] investigation," but that he was "not a law enforcement officer, an employee, or agent of ATF" and would "not hold [himself] out to be such." J.A. 437. ATF was required to "reimburse [Carpenter] for expenses incurred that [were] deemed by ATF to be reasonable and in furtherance of th[e] investigation," and Carpenter "underst[ood] that any monetary or other type of reward given to [him] by ATF, either for services rendered or information provided, must be declared as other income on any income tax return [that he] may be required to file." J.A. 437. Defendant Small "was eventually provided knowledge of the [undercover] ATF operation" as well, and he became a cooperating witness for ATF. J.A. 617.1 Although there were a number of ATF offices and ATF agents involved in the undercover operation with Carpenter and Small, their primary ATF handler was Senior Special Agent Thomas Lesnak.

Over the next several years, Carpenter and Small worked with ATF and several other federal law enforcement agencies. Unlike many confidential or undercover informants, Carpenter and Small at all times worked voluntarily and as result of their status in the tobacco industry. They were never under threat of criminal prosecution. The undercover operations were conducted under the legitimate cloak of BSW/BSV, which served "as somewhat of a 'Trojan Horse.'" J.A. 618. "Th[e] operation, and the others that followed, targeted corrupt cigarette retailers, wholesalers, brokers, distributors and manufacturers. Some of the targets were very specific in nature while others were unknown until they proposed corrupt deals to Carpenter, other [confidential informants], or ATF undercover [special agents] acting as employees of Carpenter's company." J.A. 617. Both Carpenter and Small "placed themselves in precarious, as well as dangerous situations, in support of ATF and other federal agency investigations." J.A. 617.

During the ATF investigations, proceeds from the tobacco sales were deposited in one of two different accounts-a "churning account" or a "management account." Churning accounts are seeded with funds appropriated by Congress "up front to purchase cigarettes and then sell them to targets for a markup." J.A. 618. "Additionally, some cigarettes used in these transactions . . . may have been transacted in furtherance of another violation of federal law, such as mail/wire fraud, structuring, or even traded for controlled substances or firearms." J.A. 618. "In a typical churning operation involving the investigation of contraband cigarette trafficking activity," the proceeds were "deposited into an undercover bank account"-the churning account-"and re-invested into the operation as a means to fund the investigation." J.A. 618. The ATF "churning investigations utilizing Carpenter and Small were duly authorized and closely monitored by case agents and ATF Headquarters. Additionally, these same investigations have been audited several times by ATF and the Department of Justice Office of the Inspector General." J.A. 619.

Management accounts were used to hold funds that were generated from sales to non-targets. Carpenter's and Small's "undercover roles required them to...

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