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4th Cir.: Substitute judge erred in granting reconsideration

After the initial trial judge’s retirement, the re-assignment judge erred in reconsidering and effectively reversing a highly fact-dependent decision to recognize the defendants’ immunity from suit. The reconsideration exceeded the bounds of Rule 54.


Defendants Jason Carpenter, Christopher Small, Big South Wholesale LLC, and Big South Wholesale of Virginia LLC appeal the district judge’s order granting a motion to reconsider a previous district judge’s order. Small and Carpenter have worked in the tobacco distribution business for many years.

This lawsuit arises from actions undertaken by Small and Carpenter while operating as confidential informants for the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives in its investigation of tobacco-trafficking and its connection to organized crime.

During the Bureau’s investigation, proceeds from 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. Management accounts were used to hold funds that were generated from sales to non-targets. The Plaintiffs allege that Carpenter and Small took advantage of their status as confidential informants to breach a contract they formed with the Plaintiffs and to commit various related torts against them.

District Judge Fox, who was initially assigned to the case, granted the Defendants’ motion to substitute the United States as the party defendant for purposes of the Plaintiffs’ state-law tort claims. Substitution was granted pursuant to the Westfall Act, which provides federal employees absolute immunity from common-law tort claims arising out of acts they undertake in the course of their official duties.

Judge Fox subsequently retired, and the case was re-assigned to Judge Boyle. The Plaintiffs moved for reconsideration under Federal Rule of Civil Procedure 54(b), based on “newly discovered evidence”: a Bureau memorandum setting forth guidance applicable to churning investigations. Boyle granted the motion to reconsider and ultimately denied the Defendants’ motion for substitution. The Defendants appeal.

Status of informants

Nothing in the language of the Westfall Act categorically precludes confidential informants from being designated federal employees if the facts bear out that they were “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,” and not as an independent contractor, when they engaged in their undercover activities. Accordingly, the question whether an informant was acting as an employee is necessarily fact-specific.

No error causing manifest injustice

Judge Boyle did not properly exercise his discretion to overturn Judge Fox’s decision based upon the “clear error causing manifest injustice” reasoning permitted by Rule 54(b).

Judge Boyle didn’t conclude that Judge Fox’s decision inflicted clear error causing manifest injustice at all. Rather, he appears to have instead credited the testimony and sworn statements of different witnesses to reach different factual findings from those of Judge Fox, who actually saw and heard the witnesses. This was error.

Judge Fox reviewed the entirety of the evidence, held an evidentiary hearing, and credited the testimony of Carpenter, Small, and three other witnesses to find that Carpenter and Small were government agents acting within the scope of their employment. Collectively, these witnesses’ testimony supported the findings that Carpenter and Small were sufficiently controlled by, and subject to the control of, the Bureau, and that their alleged tortious activities were authorized by and within the scope of their duties as undercover agents, so as to be found to be federal employees acting in an official capacity on behalf of the United States for purposes of the Westfall Act.

Judge Boyle, in contrast, emphasized a different federal agent’s declarations and testimony. In doing so, he found that (1) Carpenter and Small were not supervised and directed by their Bureau handlers sufficiently to be deemed federal employees, and (2) Carpenter’s and Small’s cigarette sales to non-targets were outside the scope of their employment. Even if these findings are supported by other evidence in the record, Judge Boyle was not at liberty to reach them within the limits of Rule 54(b). Such a blanket de novo review is not appropriate for a motion to reconsider, especially as to a Westfall Act substitution order issued by a different district judge.

Even assuming that Judge Boyle implicitly concluded that Judge Fox’s decision amounted to clear error causing manifest injustice, it was an abuse of discretion to grant the Plaintiffs’ renewed motion to reconsider on this basis. A prior decision does not qualify by being “just maybe or probably” wrong; it must strike the court as wrong with the force of a five-week-old, unrefrigerated dead fish. Judge Fox’s order did no such thing.

While the record contains conflicting views on the extent of day-to-day supervision and direction provided to Carpenter and Small, it was Judge Fox’s province to review that record and make the requisite factual findings, and it was the duty of Judge Boyle to cabin his review to the Rule 54(b) bases for overturning the prior decision.

This court is more than satisfied that Judge Fox’s factual findings regarding the Bureau’s power and authority to supervise and direct Carpenter and Small in their undercover activities — which depended critically on the district court’s assessment of the relative credibility of the witnesses — were not clearly erroneous; nor did his order of substitution inflict a manifest injustice upon the Plaintiffs or the government.

No substantially different evidence

The Bureau’s churning memo was not a sufficient basis on which to affirm Judge Boyle’s order. Again, Judge Boyle did not ground his decision in this reasoning, and for good reason. The memo falls far short of the “substantially different evidence” that would warrant overturning Judge Fox’s prior decision under Rule 54(b).

When Judge Fox issued his order, Carpenter’s and Small’s use of the management accounts to hold “non-target” funds after execution of the underlying contract was already the subject of extensive testimony and official agency declarations. Judge Fox specifically considered this evidence, credited the testimony of Carpenter, Small, and the Bureau agents that supervised and worked alongside them, and found that the Defendants’ use of the management accounts was at the direction of the Bureau and within the scope of their employment.

Thus, the churning memo adds little to the evidence already considered and certainly did not require a contrary determination as to “scope of employment” under North Carolina law. The Defendants’ use of the management accounts was with the knowledge, direction, and supervision of the Bureau and their primary Bureau handler. Even if the Defendants violated the policies set forth in the churning memo, Carpenter and Small did not cease to act within the scope of their employment when they did so.

Accordingly, the district court abused its discretion in granting the Plaintiffs’ motion for reconsideration of the Westfall substitution order. The prior order granting the Defendants’ petition to substitute should be reinstated.

Vacated and remanded.

U.S. Tobacco Coop. Inc. v. Big S. Wholesale of Va. LLC, Case No. 17-2070, Aug. 3, 2018. 4th Cir. (Traxler), from EDNC at Raleigh (Boyle). Gary S. Parsons for Appellants; Patrick George Nemeroff & Richard P. Bress for Appellees. VLW No. 018-2-165, 39 pp.