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A split panel of the Fourth Circuit held today that BP could enforce a restrictive covenant in a deed against a purchaser who sought to use the purchased property for a gas station selling different gas than agreed to in the sale of the property. Chief Judge Traxler wrote the opinion in BP Products, North America, Inc. v. Stanley, which was joined in by Judge Shedd. Judge Floyd authored a dissenting opinion.

From the majority opinion:

The parties agree that under Virginia law, covenants “restricting the free use of land are not favored and must be strictly construed.” Mid-State Equip. Co. v. Bell, 225 S.E.2d 877, 884 (Va. 1976). They disagree, however, regarding the test by which such covenants should be judged. Defendants argue that the restriction should be judged by the standard discussed in Omniplex World Services Corp. v. U.S. Investigations Services, Inc., 618 S.E.2d 340, 342 (Va. 2005), which applies to noncompete covenants in employment contracts. BP contends that restrictive covenants in deeds are judged by a different standard, namely the one discussed in Merriman v. Cover, Drayton & Leonard, 51 S.E. 817, 819 (Va. 1905), and that the Omniplex and Merriman tests are distinct from one another. We agree with BP.

* * *

BP advances multiple arguments challenging the ruling by the district court that the PR was overbroad as a result of its
application to the sale of these enumerated items. BP first argues that, as a petroleum refiner, it has a legitimate business
interest in prohibiting the sale of any products that would dilute the demand for BP’s petroleum. BP also maintains that
the PR should be read to prohibit the sale of kerosene, benzol, or naphtha only to the extent those products are used for the
sale of fuel for internal combustion engines. Finally, BP argues that it is not seeking to prevent the sale of lubricants and that any prohibition of such sales “is academic and represents far too slender a reed on which to invalidate the entire Petroleum Restriction, and thereby allow Stanley to use the Property to sell non-BP fuel, the very use the parties indisputably intended that the Property could not be put.” Appellant’s brief at 48.

From the dissent:

BP contends that we can enforce the PR regardless of any overbreadth simply by excising the offending language. And, since oral argument, BP purportedly has released Stanley from the overbroad portions of the PR. See Ante at 13 n.3. Nevertheless, I cannot conclude that the PR becomes enforceable through alteration by the court or BP. First, Virginia law disfavors judicial reformation of covenants through bluepenciling. See Strategic Enter. Solutions, Inc. v. Ikuma, No. CL 2008-8153, 2008 WL 8201356, at *4 (Va. Cir. Ct. Oct. 7, 2008) (“The Virginia Supreme Court has not directly ruled on ‘blue-penciling’ overly broad clauses in restrictive covenants[;] however it is clear from the restrictive covenant jurisprudence in Virginia that the Court does not entertain the notion that these disfavored restraints on trade should be reformed by the judiciary . . . .”); Daston Corp. v. MiCore Solutions, Inc., No. CL-2010-9318, 2010 WL 7375597, at *5 (Va. Cir. Ct. July 30, 2010); Better Living Components, Inc. v. Coleman, No. CH04-13,307, 2005 WL 771592, at *5 (Va. Cir. Ct. Apr. 6, 2005). More fundamentally, however, Virginia law supports narrowly drawn covenants that are reasonable, and general public policy encourages parties to draft precise language on which all participants to a contract can  rely. Allowing BP, a multinational, sophisticated corporation, to draft blatantly overbroad restrictions and then, when challenged, simply declare that such restrictions are a mistake and meaningless not only is contrary to basic contract principles, but also is detrimental to the public interest. Accordingly, I find that the PR’s overbreadth spoils its enforceability and dissent from the majority’s contrary conclusion.

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The Fourth Circuit’s unanimous published opinion today in Gentry v. Siegel looks to be important reading for bankruptcy lawyers and class action lawyers with putative class actions against a company that enters into bankruptcy before a class is certified. The decision arises out of notices of claim filed by lawyers who had filed putative wage-and-hour class actions against Circuit City. Judge Niemeyer wrote the opinion, in which Judge Shedd and Judge Davis joined.

I will leave it to subject-matter experts to digest the analysis, which begins with the following statement:

The Named Claimants’ efforts to pursue class actions in this bankruptcy case reveal gaps in the Bankruptcy Rules and raise some difficult procedural issues about the manner in which the Bankruptcy Rules provide for class actions in bankruptcy cases, as authorized by Rules 7023 and 9014.

The intrepid reader who continues onward will encounter some of these important-looking statements:

It is not completely clear that Civil Rule 23 could ever be applied to a contested matter. . . . For purposes of our holding, we assume, without deciding, that the Civil Rule 23 process could be applied to the resolution of a contested matter. [p. 8, n.1, emphasis in original]

* * *

[T]he Trustee’s construction of the Bankruptcy Rules is unduly cramped and unsuited for application by a court in equity seeking, by application of the Bankruptcy Rules, to accomplish the purposes of the Bankruptcy Act. The Bankruptcy Rules are tools, which include Rule 7023 and derivatively Civil Rule 23, by which the bankruptcy court as a court of equity is to accomplish the Act’s purposes. In the absence of some prohibiting rule or principle, the Bankruptcy Rules should be construed to facilitate creditors’ pursuit of legitimate claims and to allow Civil Rule 23 to be applied if doing so would result in a more practical and efficient process for the adjudication of claims. [10]

* * *

Because the Bankruptcy Rules accept the notion that class action rules may, in appropriate circumstances, be employed in a bankruptcy case, we conclude that they therefore necessarily embrace the notion that the proposal to represent a class is tentative pending approval. And with that notion comes the equally necessary propositions that if the proposal is approved, the approval relates back to when it was made, and if it is rejected, the putative class members must be given time after the court’s rejection to file individual proofs of claim. [11]

* * *

For the most part, Civil Rule 23 factors do not become an issue until the bankruptcy court determines that Rule 7023 applies by granting a Rule 9014 motion. The issue on such a motion centers more directly on whether the benefits of applying Rule 7023 (and Civil Rule 23) are superior to the benefits of the standard bankruptcy claims procedures. While some Civil Rule 23 factors could be relevant to resolving a Rule 9014 motion, extensive discovery related to class certification is not necessary.

* * *

In deciding the Rule 9014 motion, the bankruptcy court assumed that a class action could be certified, thus rendering discovery into certification irrelevant, and concluded nonetheless that the process of a certified class action would be more cumbersome and expensive than the bankruptcy process. Accordingly, the court found that in this particular case, class certification discovery was not necessary. It reached its decision on the Rule 9014 motion on the threshold question of whether the specific claims resolution process established in this bankruptcy case was superior to the resolution process in a class action, assuming that the proposed classes were to be certified. We conclude that this approach was not an abuse of discretion.

Distinct from the bankruptcy court’s denial of class action discovery, we cannot conclude that the court’s ruling on the merits of the Rule 9014 motion was an abuse of discretion. The court noted that approximately 15,000 claims had been filed against Circuit City as part of the claims process and that the structural mechanisms that the court had put in place to process claims were “well underway” and had been operating smoothly to date.

* * *

Because the bankruptcy court denied the Rule 9014 motion to apply Rule 7023, there was no requirement that unnamed class members be notified in accordance with the procedures under Civil Rule 23. The bankruptcy court would have to grant the Rule 9014 motion before the requirements of Civil Rule 23 could apply. Thus, the only notice required was that given by Circuit City for giving notice of bankruptcy procedures and the bar date.

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A divided panel of the Fourth Circuit held today in Prudencio v. Holder that the framework used by federal immigration judges to decide whether an individual has previously been convicted of a crime of moral turpitude is unauthorized because in conflict with the relevant provisions of the Immigration and Nationality Act. Judge Keenan wrote the opinion, in which Chief Judge Traxler joined. Judge Shedd penned a vigorous dissent.

The decision defies easy summary, but the dispute is an important one. Here is how Judge Shedd’s dissent begins:

The categorical approach adopted by the majority is a doctrine created by the judicial branch to address issues of concern to the judicial branch—protection of Sixth Amendment rights and efficient use of judicial resources. Although an agency may choose to adopt some version of this approach, there is no  requirement to expand this difficult, almost unworkable, limiting analysis to an agency, especially in the immigration context, and I would not do so.

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The Fourth Circuit’s unanimous opinion today in United States v. Strieper affirms the imposition of two sentencing enhancements on attempted enticement and child pornography charges. Judge Floyd wrote the opinion, in which Chief Judge Traxler and Judge Shedd joined.

Among the issues discussed is whether one can attempt to entice without having identified a particular minor to entice. The panel believed so:

At oral argument, Strieper also suggested that there must be an identifiable victim to constitute an attempt. This argument did not appear in Strieper’s brief, and as such, it is waived. See Edwards v. City of Goldsboro, 178 F.3d 231, 241 n.6 (4th Cir. 1999). In addition, this position lacks merit, as it is well established that attempt requires only the requisite intent to commit the crime and a substantial step toward its commission. United States v. Pratt, 351 F.3d 131, 135 (4th Cir. 2003). So long as these elements are satisfied, no identified victim is necessary. Indeed, as we noted at oral argument, if two individuals intending to rob a bank start out with all accoutrements necessary for a robbery and agree simply to rob the first bank they happen upon rather than identifying a specific bank ahead of time, we could still conclude that the individuals had attempted to commit robbery.

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The Fourth Circuit today issued two published opinions on Monday in argued cases. Both were unanimous affirmances.

In Hennis v. Hemlick, the Fourth Circuit affirmed the district court’s dismissal without prejudice of a writ of habeas corpus challenging the United States Army’s exercise of court-martial jurisdiction. The district court’s decision was based on Councilman abstention, which takes its name from Schlesinger v. Councilman, 420 U.S. 738 (1975). The Supreme Court held in Councilman that federal courts generally should not get involved in matters that are still working their way through the military justice system.

While serving as an enlisted Army soldier in 1986, Hennis was convicted of one count of rape and three counts of murder. The Supreme Court of North Carolina reversed his conviction. Hennis was acquitted in a retrial in April 1989. He was issued a discharge from the Army on June 12, 1989, re-enlisted one day later, and retired from the Army in 2004. A cold case review by North Carolina authorities matched DNA from Hennis to the woman that he had previously been tried for raping and murdering. The Army recalled Hennis to active duty and began court martial proceedings. Hennis petitioned in federal court for a writ of habeas corpus on the ground that the Army lacked jurisdiction to court marital him for conduct that occurred before his re-enlistment on June 13, 1989. The district court abstained under Councilman, and in this decision, the Fourth Circuit affirmed the district court’s decision to abstain. Judge Wynn wrote the opinion, in which Judge King and Judge Gregory concurred.

The second case from yesterday, United States v. Winfield, addressed the authority of a district court to impose a second sentence for violations of supervised release after effectively revoking supervised release and imposing a prison sentence in a prior hearing. The panel opinion, written by Judge Gregory and joined in by Judge Shedd and Judge Davis, affirms the district court’s sentence.

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A panel of the Fourth Circuit issued an unpublished per curiam opinion in Kronberg v. LaRouche affirming an order of dismissal without prejudice for failure to comply with discovery obligations. Appellants sought the harsher penalty of dismissal with prejudice, as well as a decision on a 12(b)(6) motion. But the appellate court concluded that the district court did not abuse its discretion in ordering dismissal without prejudice. The panel consisted of Judge Niemeyer, Judge Shedd, and Judge Davis.

Some key language:

[T]he decision to implement sanctions is left to the discretion of the trial court. In this case, the magistrate judge weighed the facts before it and ultimately concluded that—because Kronberg had been a diligent litigant when she had counsel of choice—it was unfair to dismiss the case with prejudice. This decision is consistent with the “strong policy that cases be decided on the merits, and that dismissal without deciding the merits is the most extreme sanction” that should only be done “with restraint.” United States v. Shaffer Equipment Co., 11 F.3d 450, 462 (4th Cir. 1993).

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In an unpublished disposition in United States v. Glisson, the Fourth Circuit has affirmed convictions and sentences on narcotics and firearms charges for two brothers, while vacating and remanding on one count for one of the brothers based on a Second Amendment as-applied challenge.

The panel that issued the per curiam disposition consisted of Judge Gregory, Judge Shedd, and Judge Davis. Judge Davis wrote an opinion concurring in part and concurring in the judgment.

The puzzling aspect of the decision is its remand for further evidentiary development of an as-applied Second Amendment challenge to 922(g)(9), which the Fourth Circuit upheld against a similar challenge in United States v. Staten, issued last December. In his partial concurrence, Judge Davis notes that the remand “may seem puzzling in some sense in light of United States v. Staten, — F.3d —, 2011 WL 6016976 (4th Cir. Dec. 5, 2011), but given the  disposition of this appeal, it would seem likely that the government will move successfully to dismiss that charge altogether upon remand.”

Judge Davis is right. The remand does seem puzzling. And the puzzle does not go away upon considering that the remand may be pointless. Is there a new principle that the Fourth Circuit will vacate and remand for harmless non-error?

The more prudent course seemingly would have been to affirm in light of Staten. The panel’s failure to do so, even in an unpublished disposition, suggests that the court may countenance insistence on individualized determinations under Second Amendment challenges to convictions under 922(g)(9), notwithstanding that such insistence appears unwarranted under binding circuit case law.

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