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Hunter v. Town of Mocksville

United States Court of Appeals, Fourth Circuit

July 26, 2018

KENNETH L. HUNTER; RICK A. DONATHAN; JERRY D. MEDLIN, Plaintiffs - Appellants,
v.
TOWN OF MOCKSVILLE, NORTH CAROLINA; ROBERT W. COOK, in his official capacity as Administrative Chief of Police of the Mocksville Police Department and in his individual capacity; CHRISTINE W. BRALLEY, in her official capacity as Town Manager of the Town of Mocksville and in her individual capacity, Defendants - Appellees, and INTERLOCAL RISK FINANCING FUND OF NC, Intervenor - Appellee. NORTH CAROLINA ADVOCATES FOR JUSTICE; NATIONAL ASSOCIATION OF POLICE ORGANIZATIONS, INC., Amici Supporting Appellants.

          Argued: March 22, 2018

          Appeal from the United States District Court for the Middle District of North Carolina, at Greensboro. Thomas D. Schroeder, Chief District Judge. (1:12-cv-00333-TDS-JEP)

         ARGUED:

          Reynolds Michael Elliot, Robert Mauldin Elliot, ELLIOT MORGAN PARSONAGE, Winston-Salem, North Carolina, for Appellants.

          Cathryn MacDonald Little, LITTLE & LITTLE, PLLC, Raleigh, North Carolina, for Appellee Interlocal Risk Financing Fund of North Carolina. Patrick Houghton Flanagan, CRANFILL, SUMNER & HARTZOG, LLP, Charlotte, North Carolina, for Appellee Town of Mocksville, North Carolina.

         ON BRIEF:

          Albert M. Benshoff, BROUGH LAW FIRM, PLLC, Chapel Hill, North Carolina; Philip M. Van Hoy, Stephen J. Dunn, VAN HOY REUTLINGER ADAMS & DUNN, Charlotte, North Carolina, for Appellee Town of Mocksville, North Carolina.

          Narendra K. Ghosh, Paul E. Smith, PATTERSON HARKAVY LLP, Chapel Hill, North Carolina, for Amicus North Carolina Advocates for Justice.

          J. Michael McGuinness, THE MCGUINNESS LAW FIRM, Elizabethtown, North Carolina; William J. Johnson, NATIONAL ASSOCIATION OF POLICE ORGANIZATIONS, Alexandria, Virginia, for Amicus National Association of Police Organizations, Inc.

          Before NIEMEYER, WYNN, and DIAZ, Circuit Judges.

          WYNN, Circuit Judge

         Plaintiffs-three former police officers with the Town of Mocksville Police Department ("Mocksville PD")-sued Mocksville Administrative Chief of Police Robert W. Cook ("Cook"), Mocksville Town Manager Christine W. Bralley ("Bralley"), and the Town of Mocksville ("the Town," and collectively with Cook and Bralley, "Defendants"), alleging several claims related to Defendants' termination of Plaintiffs' employment. At the conclusion of trial, a jury found Defendants liable to Plaintiffs under both state and federal law, awarded Plaintiffs approximately $1.4 million in compensatory damages, and recommended that the district court further award Plaintiffs approximately $2.6 million in front pay.

         In a series of post-trial rulings, the district court awarded Plaintiffs substantially less front pay than the jury had recommended and held that governmental immunity limited the Town's aggregate liability for damages. Plaintiffs appeal both rulings, as well as the district court's pre-trial dismissal of Plaintiffs' First Amendment claims against the Town.

         For the reasons that follow, we reverse the district court's conclusion that the Town's insurance policy covered only $1 million of the aggregate damages awarded to Plaintiffs. We also reverse the district court's dismissal of Plaintiffs' First Amendment claims against the Town. But we conclude that the district court properly disposed of Plaintiffs' remaining claims. Accordingly, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

         I.

         Plaintiffs Kenneth L. Hunter, Rick A. Donathan, and Jerry D. Medlin worked at Mocksville PD for several years.[1] Throughout their tenure with Mocksville PD, Plaintiffs received numerous awards and commendations. After Cook became Mocksville PD's Administrative Chief of Police, Plaintiffs developed concerns about his personal conduct and management of Mocksville PD. Plaintiffs initially voiced their concerns to Bralley; however, they noticed no marked improvement in Cook's behavior thereafter.

         On December 14, 2011, Plaintiffs used a disposable cell phone to contact the North Carolina Office of the Governor (the "Governor's Office") and report what they viewed as corruption and misconduct within Mocksville PD. The Governor's Office relayed Plaintiffs' concerns to the State Bureau of Investigation ("SBI") for further inquiry. A week later, Plaintiffs noticed a local SBI Agent at Mocksville PD and subsequently received a call from that agent on the disposable phone. Plaintiffs did not return the call and, out of fear of retaliation, disposed of the phone.

         Despite Plaintiffs' efforts to remain anonymous, Cook and Bralley eventually identified Plaintiffs as the anonymous callers. Thereafter, Cook and Bralley consulted with the Town's attorney to determine whether they could lawfully terminate Plaintiffs. After being advised that they could do so lawfully, Cook and Bralley terminated Plaintiffs from Mocksville PD on December 29, 2011. Plaintiffs' termination letters stated that they were fired for myriad misdeeds, including "[i]nsubordinat[ion]," "[a]ttitude," and "conduct unbecoming a[n] [o]fficer." See J.A. 2381, 2415, 2420. However, prior to Plaintiffs' terminations, none had received any performance-related discipline, and "[t]heir written service records were essentially unblemished." Hunter v. Town of Mocksville, 201 F.Supp.3d 750, 754 (M.D. N.C. 2016). Additionally, this "was the first time that then-Chief Cook had ever terminated an officer," notwithstanding the fact that other officers previously had engaged in misconduct. Id. at 753.

         In April 2012, Plaintiffs filed a complaint in the U.S. District Court for the Middle District of North Carolina against the Town, Cook, and Bralley. In their complaint, Plaintiffs alleged that they were (1) terminated in retaliation for exercising their free speech rights under the First Amendment of the United States Constitution, in violation of 42 U.S.C. § 1983; (2) denied their rights to free speech, guaranteed by Sections 1 and 14 of Article 1 of the North Carolina Constitution; and (3) wrongfully discharged against public policy, in violation of North Carolina state law.

         In September 2013, the district court granted partial summary judgment to Defendants on all of Plaintiffs' First Amendment claims. In a memorandum opinion explaining its decision, the district court first concluded that qualified immunity shielded Cook and Bralley from suit. The district court further concluded that Plaintiffs' terminations could not fairly be attributed to the Town for purposes of municipal liability under Section 1983 because Plaintiffs failed to demonstrate that either Cook or Bralley possessed "final policymaking authority" to set employment policy for the Town. Hunter v. Town of Mocksville, No. 1:12-cv-333, 2013 WL 5726316, at *9-10 (M.D. N.C. Oct. 21, 2013), vacated in part, 2014 WL 881136 (M.D. N.C. Jan. 22, 2014). And the district court reserved judgment on the question of whether Plaintiffs could properly pursue their free speech claims under the North Carolina Constitution. Id. at *11.

         In January 2014, the district court reversed its grant of summary judgment to Cook and Bralley on Plaintiffs' First Amendment claims, instead concluding that neither defendant was entitled to qualified immunity. Hunter v. Town of Mocksville, No. 1:12-cv-333, 2014 WL 881136, at *2 (M.D. N.C. Jan. 22, 2014). In so doing, the district court relied on Durham v. Jones, 737 F.3d 291 (4th Cir. 2013), then a newly issued opinion, in which this Court held that "it was clearly established in the law of this Circuit . . . that an employee's speech about serious governmental misconduct, and certainly not least of all serious misconduct in a law enforcement agency, is protected," id. at 303-04 (citation omitted). This Court affirmed the district court's holding that neither Cook nor Bralley was entitled to qualified immunity, but concluded that we lacked subject matter jurisdiction to consider the propriety of the district court's interlocutory order dismissing Plaintiffs' First Amendment claims against the Town. Hunter v. Town of Mocksville, 789 F.3d 389, 400-03 (4th Cir. 2015).

         Following a nine-day trial, a jury returned a verdict for Plaintiffs on their First Amendment claims against Cook and Bralley, as well as a verdict for Plaintiffs on their state-law wrongful-discharge claims against the Town. The jury found all Defendants liable to Plaintiffs for approximately $1.4 million in compensatory damages, and awarded Plaintiffs an aggregate total of $60, 000 in punitive damages to be paid specifically by Cook and Bralley. The jury also returned an advisory verdict recommending that Defendants pay Plaintiffs approximately $2.6 million in front pay. Soon thereafter, Plaintiffs moved for the entry of judgment and equitable relief in the form of reinstatement or, alternatively, the jury-recommended front-pay awards.

         On August 12, 2016, the district court entered judgment on the verdicts, granting Plaintiffs the compensatory and punitive damages awarded by the jury. Hunter, 201 F.Supp.3d at 767. The district court also partially granted Plaintiffs' requests for equitable relief. In particular, the district court denied Plaintiffs' requests for reinstatement but granted Plaintiffs front pay in lieu of reinstatement. However, the district court's front-pay award amounted to an aggregate total of approximately $600, 000-roughly one-fourth of the amount recommended by the jury.[2] Consequently, two plaintiffs- Donathan and Medlin-moved for the district court to reconsider its grant of equitable relief in the form of front pay and instead award them reinstatement.

         On February 21, 2017, the district court issued several dispositive rulings. First, the district court addressed Donathan and Medlin's motion to reconsider its decision to award front pay in lieu of reinstatement. Upon reconsideration, the district court upheld its initial decision to deny reinstatement to Medlin, but granted Donathan's request for reinstatement to a lieutenant position at Mocksville PD upon the next available opening. Hunter v. Town of Mocksville, 237 F.Supp.3d 349, 354-56 (M.D. N.C. 2017).

         Second, the district court concluded that the Town enjoyed state-law governmental immunity from tort claims, like the claims asserted by Plaintiffs, arising from the actions of the Town's officers and employees while performing a governmental function. Id. at 356-57 (citing Clayton v. Branson, 570 S.E.2d 253, 256-57 ( N.C. Ct. App. 2002)). The district court further observed that "[u]nder North Carolina law, the Town waives its immunity to the extent it has purchased insurance." Id. at 357 (citing, inter alia, N.C. Gen. Stat. § 160A-485)). Consequently, because all parties agreed that the Town maintained some amount of liability insurance, the district court sought to determine the extent of the Town's insurance coverage. To that end, the district court allowed the Town's insurer-Interlocal Risk Financing Fund of North Carolina ("Interlocal")-to intervene in the proceedings. Id. at 358. Interlocal argued that the Town policy's per-claim limit of $1 million limited Plaintiffs' aggregate recovery against the Town to $1 million. By contrast, Plaintiffs argued that the policy provided up to $1 million per plaintiff and, therefore, $3 million in the aggregate. Id. at 358-359.

         The district court agreed with Interlocal. Specifically, the district court analyzed the Town's insurance policy and concluded that, per the policy's terms, all three Plaintiffs' claims together constituted one single claim under the policy-not three separate claims. Therefore, given the policy's per-claim limit of $1 million, the district court concluded that the Town had waived its governmental immunity in the amount of $1 million only. Id. at 361-66.

         Because the Town's governmental immunity precluded Plaintiffs from recovering approximately half of their damages from the Town, Plaintiffs argued that they lacked an "adequate state remedy" against the Town and thus could seek to recover against the Town under the North Carolina Constitution. Id. at 366-67. The district court disagreed, concluding that Plaintiffs' ability to recover $1 million in insurance proceeds from the Town constituted an adequate state remedy. Id. at 367-68. Accordingly, the district court dismissed Plaintiffs' state constitutional claims. Id.

         On March 3, 2017, the district court entered final judgment against Defendants. Specifically, the district court held Defendants jointly and severally liable to Plaintiffs for a total of $1, 990, 544 in compensatory damages and front pay. The Court also ordered Cook and Bralley each to pay each Plaintiff $10, 000 in punitive damages. And, notwithstanding its conclusion that Defendants were jointly and severally liable for the nearly $2 million in compensatory damages and front pay, the district court held that "pursuant to N.C. Gen. Stat. §160-485(c), the maximum liability of the Town of Mocksville for damages under this Judgment shall not exceed One Million dollars ($1, 000, 000)." J.A. 2854 (emphasis added). Thus, although the Town was jointly and severally liable for the approximately $2 million in damages owed to Plaintiffs, the Town's governmental immunity shielded it from having to pay more than $1 million.

         Plaintiffs noted a timely appeal.

         II.

         We begin with the district court's interpretation of the coverage limit in the Town's employment-practices liability insurance policy-a question of law we review de novo. See Cont'l Cas. Co. v. Amerisure Ins. Co., 886 F.3d 366, 370 (4th Cir. 2018). As mentioned above, North Carolina municipalities enjoy governmental immunity from common-law tort claims arising out of their performance of governmental functions. Evans v. Hous. Auth. of Raleigh, 602 S.E.2d 668, 670 ( N.C. 2004).[3] However, a municipality, like the Town, waives such immunity if and to the extent it has purchased liability insurance covering tortious acts. See N.C. Gen. Stat. § 160A-485;[4] Clayton, 570 S.E.2d at 257.

         Here, it is undisputed that the Town has purchased such insurance. The critical inquiry, therefore, is the extent to which the Town has waived its governmental immunity by virtue of its purchase of insurance. Plaintiffs argue that the district court erred when it construed the Town's insurance policy to cover only $1 million, in aggregate, of Plaintiffs' damages and front-pay awards. In their view, the Town's policy covers up to $1 million for each Plaintiff's claim-for a combined limit of $3 million. The parties agree that North Carolina law governs the interpretation of the Town's insurance policy. Accordingly, we start by reciting the North Carolina law applicable to the interpretation of insurance contracts.

         A.

         Under North Carolina law, "the object of construing an insurance policy 'is to arrive at the insurance coverage intended by the parties when the policy was issued.'" Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, LLC, 692 S.E.2d 605, 612 ( N.C. 2010) (quoting Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co, 172 S.E.2d 518, 522 ( N.C. 1970)). With this principle in mind, when the language contained in a policy is unambiguous, courts must "enforce the contract as the parties have made it and may not, under the guise of interpreting an ambiguous provision, remake the contract and impose liability upon the company which it did not assume and for which the policyholder did not pay." Wachovia, 172 S.E.2d at 522. "If the parties have defined a term in the agreement, then we must ascribe to the term the meaning the parties intended." Harleysville, 692 S.E.2d at 612. Any undefined, "nontechnical" words in the policy are given a "meaning consistent with the sense in which they are used in ordinary speech, unless the context clearly requires otherwise." Wachovia, 172 S.E.2d at 522.

         When the language of the policy is ambiguous, courts must resolve the ambiguity in favor of coverage. Id. "We do so because the insurance company is the party that selected the words used." Harleysville, 692 S.E.2d at 612. "An ambiguity exists in a contract when either the meaning of words or the effect of provisions is uncertain or capable of several reasonable interpretations." Register v. White, 599 S.E.2d 549, 553 ( N.C. 2004). And "[a]n ambiguity can exist when, even though the words themselves appear clear, the specific facts of the case create more than one reasonable interpretation of the contractual provisions." Id. Consequently, "[i]n interpreting the language of an insurance policy, courts must examine the policy from the point of view of a reasonable insured." Id. If a word in the policy "has more than one meaning in its ordinary usage and if the context does not indicate clearly the one intended, it is to be given the meaning most favorable to the policyholder, or beneficiary." Wachovia, 172 S.E.2d at 522. Additionally, any provisions excluding or limiting coverage are construed strictly against the insurance company. Harleysville, 692 S.E.2d at 612.

         B.

         The Town policy's Declarations Page provides the following limits of insurance:

Each Claim Limit $1, 000, 000
Annual Aggregate Limit for all Claims $3, 000, 000
Deductible (Each Claim) $5, 000

Id. at 2683. Section I of the policy, titled "Employment Practices Liability Coverage," provides: "We will pay those sums that the insured becomes legally obligated to pay as damages resulting from 'claims' to which this insurance applies, against the insured by reasons of 'employment wrongful act(s).'" Id. at 2704. Section VI defines a "claim":

"Claim" means a demand received by the insured for money damages, . . . filing and or service of suit papers or arbitration proceedings filed against the insured arising out of "employment wrongful act(s)" to which this insurance applies.

Id. at 2713. And Section VI defines "employment wrongful act(s)" as, among other things, "actions involving . . . termination of employment, . . . retaliatory action, . . . or other employment-related practices, policies, acts or omissions." Id. The policy further provides that "[t]he amount we will pay for damages is limited as described in ...


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