U.S. Tobacco Cooperative Inc. v. Big South Wholesale of VA Inc
899 F.3d 236
| 4th Cir. | 2018Background
- Plaintiffs (USTC, USFC, BSD) bought assets of wholesalers BSW/BSV; Carpenter and Small sold assets but continued undercover work for ATF and operated as confidential informants under the d/b/a Big Sky while also working for BSD.
- Carpenter had a written Informant Agreement with ATF; Small cooperated as a witness; both voluntarily assisted ATF for years, supporting numerous investigations and handling funds through "churning" and "management" accounts used to fund undercover/backstopping operations.
- Plaintiffs sued Carpenter, Small, BSW, and BSV for state-law torts (fraud, conspiracy, North Carolina RICO, unfair trade practices), alleging misuse of informant status to overvalue assets, violate non-competes, and conceal payments to insiders.
- Judge Fox held an evidentiary hearing and found Carpenter and Small were de facto federal employees acting within the scope of employment, granted substitution of the United States under the Westfall Act, and thus replaced defendants with the Government for state-law tort claims.
- After reassignment, Judge Boyle granted Plaintiffs’ motion to reconsider under Rule 54(b), concluded Defendants were "run-of-the-mill" informants not subject to government control and that some post-APA conduct fell outside scope, and denied substitution.
- The Fourth Circuit reviewed Judge Boyle’s decision for abuse of discretion and vacated the reconsideration order, instructing reinstatement of Judge Fox’s substitution order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Carpenter and Small were "employees of the government" under Westfall Act | They were ordinary informants/independent contractors not subject to government control | They were de facto federal agents: long-term, closely supervised undercover operatives | Court: Judge Fox’s factual finding that they were de facto federal employees was not clearly erroneous; substitution appropriate |
| Whether alleged torts occurred within scope of government employment (North Carolina law) | Post-APA sales and payments to insiders were independent, non-governmental business acts outside scope | These acts were methods of accomplishing ATF-directed undercover objectives (inventory valuation, sales, payments) | Court: Judge Fox reasonably found the challenged conduct was within scope; scope-of-employment covered these acts |
| Whether Rule 54(b) reconsideration by a second judge was proper based on new evidence (ATF churning memorandum) | Memorandum showed ATF policy violations and undermined scope/control findings | Memorandum did not present substantially different evidence; Fox had considered related evidence | Court: Reconsideration abused discretion; memo was not substantially different and did not show clear error causing manifest injustice |
| Standard and limits for revisiting interlocutory Westfall substitution orders | Reconsideration justified because prior order possibly erroneous | Rule 54(b) is cabined by law-of-the-case; to overturn requires substantially different evidence, change in law, or clear error causing manifest injustice | Court: Rule 54(b) discretion is limited; second judge overstepped by reevaluating credibility/facts de novo and abused discretion |
Key Cases Cited
- Osborn v. Haley, 549 U.S. 225 (2007) (Westfall Act grants absolute immunity and substitution procedure)
- Logue v. United States, 412 U.S. 521 (1973) (test for distinguishing government "employee" from independent contractor focuses on government control)
- Maron v. United States, 126 F.3d 317 (4th Cir. 1997) (look at alleged tort in context; scope-of-employment analysis)
- Borneman v. United States, 213 F.3d 819 (4th Cir. 2000) (Westfall Act process and district court factfinding role)
- Carlson v. Boston Sci. Corp., 856 F.3d 320 (4th Cir. 2017) (Rule 54(b) limits and standards for revisiting interlocutory orders)