The government of the Virgin Islands appealed the Tax Court’s denial of its motion to intervene in a tax deficiency case.  The motion was denied on the basis that intervention would essentially create redundancy and delay resolution of the case.  The Fourth Circuit affirmed the Tax Court’s denial of the Virgin Islands’ motion to intervene.

Emmit McHenry sought to take advantage of substantial tax benefits offered by the Virgin Islands by filing tax returns for 2001, 2002, and 2003 only in the Virgin Islands, rather than with the IRS.  In 2009, the IRS issued a deficiency notice to McHenry stating that he was required to file tax returns with the IRS.  McHenry claimed that the IRS’s efforts to assess deficiencies were barred by a three year statute of limitations in I.R.C. § 6501(a), as the limitations period began when he filed income tax returns in the Virgin Islands.

The Virgin Islands filed a motion to intervene, contending that  the IRS’s construction and application of I.R.C. § 6501(a) reversed the IRS’s earlier interpretation — that filing an income tax return in the Virgin Islands commenced the limitations period.  The IRS’s new position not only threatened the government’s taxing autonomy and fiscal sovereignty, but also impaired the government’s ability to administer the tax laws.  Additionally, a decision against McHenry would discourage entrepreneurs from conducting business in the Virgin Islands.

The Tax Court denied permissive intervention under Rule 24(b)(2), which the Virgin Islands argued was an abuse of discretion, as the Tax Court never seriously considered the question of whether intervention would cause undue delay and inappropriately imposed a requirement that the Virgin Islands had to show its participation as a party was necessary to decide an otherwise unaddressed issue.  The Tax Court rules have no provisions regarding intervention by third parties.  “Borrowing” from the Federal Rules of Civil Procedure, the Tax Court previously concluded that it may permit third party intervention under Rule 24(b)(2) in unique situations where justice so requires.  Specifically, intervention may be granted where the moving party has a stake in the outcome of the case that will not be adequately protected by the current parties and intervention will lead to a more complete resolution of the issues. 

Rule 24(b)(2) authorizes permissive intervention by a government office or agency if a party’s claim or defense is based on a statute or regulation administered by the officer or agency.  The Virgin Islands does not claim to administer I.R.C. § 6501(a), but rather claims that its interest in enforcement of the statute in order to protect the Virgin Islands tax structure and Economic Development Program  is sufficient to satisfy the requirement.  Furthermore, no other pertinent provision of the I.R.C. is administered by the Virgin Islands, as the Virgin Islands does not manage, direct, or supervise the application of the provisions of the I.R.C.   The mere fact that the IRS’s interpretation of tax laws impacts the Virgin Islands does not mean that the Virgin Islands administer the tax code.  Accordingly, the Tax Court was within its discretion in denying permissive intervention under Rule 24(b)(2)

The Virgin Islands next argued that the Tax Court abused its discretion in denying its motion to intervene because the Tax Court misconstrued the criteria for permissive intervention in Rule 24(b)(3), providing that the court “must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties’ rights.”  The Virgin Islands focused on the Tax Court’s failure to use the term “undue,” but the Fourth Circuit found that the Tax Court did not have to use particular words in making a discretionary decision under 24(b)(2).  Instead, the assessment is substantive in nature.  The Tax Court found that the Virgin Islands intended to present evidence of the potential injury to its citizens and economy would complicate and delay the trial, thus the Tax Court was within its discretion in denying permissive intervention.

The Tax Court held that the Virgin Islands was not entitled to intervention as a matter of right under Rule 24(a)(2) because the Tax Court has not previously recognized third party intervention as a matter of right.  The court of appeals cannot grant intervention as a matter of right because it has no authority to create rules governing the Tax Court.  Additionally, the Tax Court found that the Virgin Island’s interest in McHenry’s deficiency proceeding was not direct, substantial, and legally cognizable, as, regardless of the outcome of McHenry’s case, the Virgin Islands would retain the right to administer its own Economic Development Program.  Because the Virgin Islands failed to demonstrate that it qualified for intervention as a matter of right, the Tax Court’s decision to deny intervention as a matter of right is affirmed.  The government of the Virgin Islands is not left without recourse, however, as it can still file an amicus brief to express its views on the IRS’s interpretation of the applicable Tax Code provisions.  

Full Opinion

-Michelle Theret

Rosetta Stone appealed the grant of summary judgment in favor of Google on its five trademark claims related to Google’s AdWords policy allowing the purchase of keywords for a sponsored link.  The Fourth Circuit Court of Appeals affirmed the District Court’s order of summary judgment for the vicarious infringement claims and the dismissal of the unjust enrichment claim, but vacated the order on the direct infringement, contributory infringement, and dilution claims and remanded for further proceedings on those three claims.

Google’s search engine sells paid advertisements through its AdWords advertising platform.  The “sponsored links” are purchased by a sponsor bidding on a keyword related to its business; the highest bidder for the keyword wins the most prominent place for an advertisement.  In 2004, Google amended its policy to allow sponsors to purchase keywords of third-party trademarks, but did not allow the use of trademarks in the advertisement text.  In 2009, Google further amended their policy to allow the use of trademarks in text in four specific situations.  Rosetta Stone alleges that these policy changes have created confusion for consumers, and they have been “plagued with counterfeiters” since the 2009 change.

On the direct trademark infringement claim, the District Court concluded there was no genuine issue of material fact as to whether Google’s use of Rosetta Stone created a likelihood of confusion, and that the “functionality doctrine” shielded Google from liability.  The Fourth Circuit held that the District Court erred on both grounds.  First, the summary judgment standard was not properly applied regarding the likelihood of confusion because the evidence presented related to this element of the claim was not considered in the light most favorable to the nonmoving party, Rosetta Stone.  This Court reasoned that the District Court did not appropriately consider some evidence offered by Rosetta Stone such as customer depositions, expert testimony, and Google’s in-house studies.  Further, the District Court inappropriately concluded that consumer sophistication should favor a finding that Google’s use of the trademarks was not likely to create confusion.  This Court identified this inference made by the lower court as appropriate only in the bench trial context.  Second, the District Court’s alternate basis for granting summary judgment was that Rosetta Stone’s claim was barred by the “functionality doctrine.”  However, Rosetta Stone’s name is not a functional part of the design of the product, therefore the doctrine does not apply here and is not a possible affirmative defense for Google.    

Regarding the contributory infringement claim, the District Court granted summary judgment to Google, reasoning that Rosetta Stone had not met its burden for a grant of summary judgment.  The appropriate standard for summary judgment is whether a reasonable trier of fact could find in favor of Rosetta Stone, the nonmoving party.  The District Court essentially turned the standard on its head and relied too heavily on a Second Circuit case which had a different procedural posture, and therefore limited applicability in this case. 

The District Court granted summary judgment for the trademark dilution claim, reasoning that Rosetta Stone could not establish one element of the claim without showing that Google used Rosetta Stone’s mark to identify its own products and services.  In support of this conclusion, the court relied on the fair use defense found in 15 U.S.C. § 1125(c)(3)(A).  However, the Fourth Circuit views this as an affirmative defense that Google would have to establish, and furthermore, the District Court failed to determine if Google’s use constituted “fair use” as defined by the statute.  The District Court’s analysis incorrectly collapsed the questions of good faith and fair use into one inquiry – whether Google uses Rosetta Stone’s mark as a source identifier for its own products. 

Also, the district court erred in its analysis regarding the fourth element of the trademark dilution claim because it only analyzed one of the factors: “likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark.”  The Court concluded that Rosetta Stone’s brand awareness had increased since the change in Google’s policy, and therefore they could not satisfy this element.  The Fourth Circuit remanded for that the District Court to determine whether Rosetta Stone’s mark was famous by 2004, which is the year that Google’s policy changed and Rosetta Stone alleges the trademark dilution began.

Full Opinion

 -Jennifer Routh

Ali Asad Chandia was convicted of conspiring to provide material support to terrorists, in violation of 18 U.S.C. § 2339A, and conspiring to and providing material support to a foreign terrorist organization, in violation of 18 U.S.C. § 2339B.  When sentencing Chandia, the District Court applied the sentencing enhancement for a “federal crime of terrorism” under Guidelines 3A1.4 (hereinafter “the terrorism enhancement”), which increased the Guidelines range for Chandia’s convictions from 63 to 78 months to 360 months to life. The District Court ultimately sentenced Chandia to 180 months in prison.

This is the third time Chandia has challenged the application of the terrorism enhancement and his resulting 180-month sentence. This Court remanded the case on Chandia’s first appeal, directing the sentencing court to determine whether Chandia had the requisite intent that is a required element of the terrorism enhancement, and to clearly outline the facts that support its conclusion. The terrorism enhancement requires that “the underlying felony [must have been] calculated to influence or affect the conduct of government by intimidation or coercion, or to retaliate against government conduct.” As such, “the court must resolve any factual disputes that it deems relevant to application of the enhancement.” After the District Court failed to fully resolve the factual disputes or sufficiently explain the factual support for its conclusion that Chandia possessed the requisite intent, Chandia appealed a second time, and this Court again remanded for resentencing.  On this third appeal, the Court finds that the sentencing court sufficiently clarified its factual findings and explained how specific facts support the conclusion that Chandia possessed the requisite intent, such that the terrorism enhancement is applicable.

On this appeal, Chandia broadly contends that the District Court erroneously applied the terrorism enhancement, and that even if the enhancement applies his sentence as augmented under the enhancement was unwarranted. The Court applied the clear error standard of review in assessing the Guidelines enhancement, which only requires reversal where the court is “left with the definite and firm conviction that a mistake has been committed,” and reviewed the reasonableness of Chandia’s sentence for abuse of discretion.

The Court addressed each of Chandia’s specific contentions in turn. First, the Court held that “a preponderance of the evidence is the appropriate standard of proof for establishing the requisite intent for the terrorism enhancement.” In this case that standard was satisfied. Secondly, the Court found that the District Court’s factual findings were not clearly erroneous, explaining that the facts in dispute lent themselves to more than one possible finding and “[w]here there are two permissible views of the evidence, the [court’s] choice between them cannot be clearly erroneous.” Furthermore, the Court found that the factual findings were sufficient to establish the intent necessary to apply the terrorism enhancement. Finally, the Court found that there were no procedural errors committed by the lower court. Specifically, the District Court did accord Chandia and his attorney the opportunity to speak on Chandia’s behalf, and did sufficiently consider the mitigating circumstances, Chandia’s various objections to its factual findings, and the relevant sentencing factors under 18 U.S.C. § 3553(a) in fashioning Chandia’s sentence.

Full Opinion

-Kassie Moore

On appeal, the Fourth Circuit vacated the district court’s decision and held that a Maryland law, requiring creditors to fulfill certain notice requirements before repossessing a debtor’s tangible personal property upon the debtor’s default of a loan, was not preempted by the National Bank Act (“NBA”) or related regulations issued by the Office of the Comptroller of the Currency (“OCC”).

In 2007, Donna Epps purchased a used vehicle from Thompson Toyota Scion (“Thompson”), an automobile dealer in Maryland.  Epps financed her purchase through a retail sales installment contract (“RIC”) with Thompson, and Thompson later assigned the RIC to JP Morgan Chase Bank, N.A. (“Chase”).  By the end of 2009, Epps had fallen behind and ceased all payments to Chase pursuant to the RIC.  Upon Epps’s default, Chase repossessed her vehicle financed through the RIC but failed to comply with notice requirements set forth in the Maryland Credit Grantor Closed End Credit Provisions (“CLEC”) or the RIC, which expressly provided that the contract would be subject to the CLEC.  Epps subsequently filed this action in Maryland state court, claiming that Chase violated the CLEC and breached the RIC.  Chase removed the action to the U.S. District Court of Maryland which ruled in favor of Chase and dismissed Epps’ complaint in its entirety after finding that the CLEC post-repossession notice requirements were preempted by federal OCC regulations and dismissing Epps’s breach of contract claim, despite the fact that the RIC specified that the CLEC applied.

On appeal, the Fourth Circuit considered Epps’ two main arguments: (1) that the district court erred in finding that the NBA and OCC regulations preempt the CLEC and (2) that the district court erred in rejecting her breach of contract claim.  On the first issue, the court dismissed Epps’s request that it apply a presumption against preemption, finding that “the CLEC regulates an area with authorized federal presence,” and affirming its decision in Nat’l City Bank of Ind. v. Turnbaugh, 463 F.3d 325, 330 (4th Cir. 2006), that “an assumption against preemption ‘is not triggered when a State regulates an area where there has been a history of significant federal presence.’”  Next, the court looked at Congress’s intent and found that while the NBA does not expressly preempt state law, the OCC regulations do contain express preemption provisions.  However, the court found that the repossession provisions at issue were not expressly preempted by these regulations.  The court further concluded that “field preemption” did not apply because “the NBA and OCC regulations do not ‘occupy the field.’”  Finally, the court dismissed several of Chase’s claims after distinguishing debt collection from the extension of credit, finding that the OCC regulations do not preempt state law on debt collection, and concluding that “[t]he Supreme Court has long recognized that national banks are subject to state law regarding collection of debts.”  The court also affirmed the Ninth Circuit’s conclusion that “debt collection, and specifically the right to repossess property that is the subject of a secured transaction, has deep roots in common law and remains a fixture of state, not federal law,” Aguayo v. U.S. Bank, 653 F.3d 912, 923 (9th Cir. 2011), and found that because the CLEC “does not discriminate against national banks,” it is “preserve[d] from any preemptive effect of the NBA or OCC regulations.” 

Addressing Epps’s second claim that the district court erred in dismissing her breach of contract claim, the court rejected Chase’s argument that because it did not negotiate the terms of the RIC, it could not be bound by the contract’s election of the CLEC.  The court concluded that Chase, as Thompson’s successor-in-interest, is bound by Thompson’s voluntary decision to have the RIC governed by the CLEC and held that the district court erred in dismissing Epps’s breach of contract claim. 

Full Opinion

-Allison Hite

The Fourth Circuit held that where, as a matter of settled state law and practice, solicitation under the Driver’s Privacy Protection Act is an accepted and expected element of, and is inextricably intertwined with, conduct satisfying the litigation exception under the DPPA, such solicitation is not actionable by persons to whom the personal information pertains.

This appeal arose from the dismissal of all claims alleged in a putative class action complaint filed pursuant to the Driver's Privacy Protection Act, which regulates the disclosure of personal information contained in the records of state motor vehicle departments. Appellees (Lawyers) were South Carolina attorneys who in 2006 and 2007 instituted several "group action" lawsuits in South Carolina state court against numerous car dealerships under the South Carolina Regulation of Manufacturers, Distributors, and Dealers Act (Dealers Act).  Appellants (Buyers) were car buyers who received mailings from Lawyers regarding the Dealers Act litigation. Buyers sued Lawyers in this action alleging that Lawyers violated the DPPA when they obtained and used Buyers' personal information without their consent to send out solicitations to identify plaintiffs in connection with the Dealers Act litigation.

The District Court dismissed the suit on the grounds that the Lawyers did not engage in solicitation and thus the Buyers’ case must fail as a matter of law.  The Fourth Circuit affirmed the grant of summary judgment on different grounds, finding that the district court erred in its determination that the conduct of Lawyers did not constitute solicitation within the contemplation of the applicable DPPA prohibition.  Nevertheless, the district court correctly ruled that Lawyers' conduct in respect to Buyers' personal information was undertaken "in connection with [litigation]," including "investigation in anticipation of litigation,” a use permitted by the DPPA at 18 U.S.C. §2721(b)(4).

Full Opinion

-Nora Bennani

Over the course of more than three decades, Thomas Creighton Shrader harassed and intimidated D.S. and later her husband R.S. causing them to fear for their safety and that of their children.

Shrader was charged with two counts of stalking via a facility of interstate commerce in violation of 18 USC § 2261A(2); one count alleged that he targeted D.S. and the other count alleged that he targeted R.S.  He was also charged with one count of being a felon in possession of a firearm in violation 18 USC § 922G(1).  The counts were severed and two separate trials were held, first on the firearm charge and subsequently on the two stalking counts.  Shrader was convicted on all counts and the District Court sentenced Shrader as an armed career criminal to 235 months in prison followed by five years of supervised release.  Shrader appealed raising multiple issues including the vagueness of the stalking statute and the length of his sentence.

The Fourth Circuit affirmed the convictions after addressing all of the issues raised by Shrader.  The court held that Shrader’s motion to suppress evidence of the firearms found in the house where he lived with his aunt was properly denied as Shrader’s aunt’s consent provided adequate permission for the police to search the house.  The court gave effect to the US Supreme Court’s clearly drawn rule in Georgia v. Randolph, 547 U.S. 103 (2006) that the defendant must be physically present to dispute his cotenant’s consent.  The court further held that a jury instruction given by the District Court on constructive possession of a firearm was proper.

The court then addressed the constitutionality of the stalking statute, 18 USC § 2261A(2).  The court reviewed the actions of Shrader, the language of the statute as well as decisions related to the same and rejected Shrader’s contention that his stalking convictions should be overturned on vagueness grounds.  The court further found that the stalking statute unambiguously made the victim, rather than the course of conduct, the unit of prosecution so that the two stalking counts were not multiplicitous.  Finally, the court referenced the lengthy and detailed sentencing hearing conducted by the District Court and the finding of facts that resulted therefrom and found that the length of the sentence imposed was proper.

Full Opinion

-John C. Bruton, III