Zeus Enterprises, Inc. v. Alphin Aircraft, Inc. ( 1999 )

Filed: September 2, 1999
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Nos. 97-2488(L)
(CA-97-294-A)
Zeus Enterprises, Incorporated,
Plaintiff - Appellee,
versus
Alphin Aircraft, Incorporated,
Defendant - Appellant.
O R D E R
The court amends its opinion filed August 17, 1999, as
follows:
On page 8, footnote *, line 1 -- the name “Alphin” is cor-
rected to read “Zeus.”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ZEUS ENTERPRISES, INCORPORATED,
Plaintiff-Appellee,
v.
ALPHIN AIRCRAFT, INCORPORATED,
No. 97-2488
Defendant-Appellant,
and
THURMAN S. ALPHIN,
Defendant.
ZEUS ENTERPRISES, INCORPORATED,
Plaintiff-Appellant,
v.
ALPHIN AIRCRAFT, INCORPORATED,
No. 97-2493
Defendant-Appellee,
and
THURMAN S. ALPHIN,
Defendant.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-97-294-A)
Argued: April 6, 1999
Decided: August 17, 1999
Before ERVIN, MICHAEL, and KING,
Circuit Judges.
Affirmed by published opinion. Judge Michael wrote the opinion, in
which Judge Ervin and Judge King joined.
_________________________________________________________________
COUNSEL
ARGUED: Robert Matthew Beckman, BODE & BECKMAN,
L.L.P., Washington, D.C., for Appellant. Robert Eric Greenberg,
FRIEDLANDER, MISLER, FRIEDLANDER, SLOAN & HERZ,
P.L.L.C., Washington, D.C., for Appellee. ON BRIEF: Sheri M.
Lyons, BODE & BECKMAN, L.L.P., Washington, D.C., for Appel-
lant. Glenn W.D. Golding, FRIEDLANDER, MISLER, FRIED-
LANDER, SLOAN & HERZ, P.L.L.C., Washington, D.C., for
Appellee.
_________________________________________________________________
OPINION
MICHAEL, Circuit Judge:
Zeus Enterprises, Inc. (Zeus) sued Alphin Aircraft, Inc. (Alphin)
for breach of a contract that required Alphin to restore an airplane
owned by Zeus to an airworthy condition. At trial Zeus introduced the
decision of an administrative law judge of the National Transportation
Safety Board (NTSB). This decision found that the repaired airplane
was not airworthy. Zeus also introduced an order of the NTSB dis-
missing Alphin's attempt to appeal the ALJ's decision. The jury
found that Alphin breached its contract to repair the plane and
awarded damages of $125,000 to Zeus. Alphin appeals, contending
that the ALJ's decision and the NTSB order were inadmissible hear-
say. Zeus cross-appeals, contending that the district court improperly
struck its damages request for the attorneys' fees Zeus paid to the law
firm that represented it in the NTSB proceeding. We affirm the judg-
ment.
I.
Zeus owned a Beechcraft Baron E-55 airplane that was heavily
damaged in a crash landing. Under a repair agreement dated
2
August 9, 1993, Zeus engaged Alphin to restore the plane "to a fully
airworthy condition." Alphin completed the repair work and returned
the airplane to Zeus in May 1994. In February 1995 the Federal Avia-
tion Administration (FAA) issued an Emergency Order of Suspension
of the airplane's certificate of airworthiness, grounding the plane.
Zeus appealed this emergency suspension order to the NTSB. At the
NTSB the case was assigned to an ALJ, who conducted an evidenti-
ary hearing that lasted twelve days. The hearing involved a detailed
examination of information regarding the airworthiness of the plane,
including the results of scientific tests. Alphin was permitted to inter-
vene in this proceeding for the purpose of explaining and defending
the technical aspects of its repair work. During the course of the hear-
ing, Alphin introduced evidence and cross-examined witnesses. After
the hearing the ALJ issued his Initial Decision affirming the FAA's
emergency suspension order. He made detailed factual findings about
the condition of the airplane and determined that it was not airworthy.
Alphin appealed the ALJ's decision to the NTSB, which dismissed
the appeal for lack of standing because Alphin was not a party to the
proceeding.
Thereafter, Zeus sued Alphin for breach of contract for failure to
restore the airplane to an airworthy condition. During trial the district
court admitted the ALJ's Initial Decision and the NTSB's order dis-
missing Alphin's appeal, after denying Alphin's motion in limine. At
the end of the trial, the court instructed the jury that the ALJ's deci-
sion was not conclusive but was to be considered "along with all the
other evidence." The jury found in favor of Zeus and awarded dam-
ages of $125,000. Alphin appeals from the judgment, raising one
issue: whether the district court committed reversible error when it
refused to exclude the ALJ's decision and the NTSB's order as inad-
missible hearsay.
Zeus is also dissatisfied with one ruling by the district court. The
court struck the portion of Zeus's damages request that sought recov-
ery for the attorneys' fees it paid to a law firm for representing it in
the NTSB proceeding. The court concluded that Zeus prevented
Alphin from inquiring into the reasonableness of those fees by assert-
ing the attorney-client privilege, without offering any justification for
doing so. Zeus cross-appeals on this point.
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II.
The district court admitted the ALJ's Initial Decision and the
NTSB's Order Dismissing Appeal under the public records exception
to the hearsay rule. This exception, found in Federal Rules of Evi-
dence 803(8), applies to:
Records, reports, statements, or data compilations, in any
form, of public offices or agencies, setting forth .. . (C) in
civil actions and proceedings . . . factual findings resulting
from an investigation made pursuant to authority granted by
law, unless the sources of information or other circum-
stances indicate lack of trustworthiness.
Fed. R. Evid. 803(8).
Rule 803(8) is grounded on the assumption "that a public official
will perform his duty properly and the unlikelihood that he will
remember details independently of the record." Fed. R. Evid. 803(8)
advisory committee's note, quoted with approval in Ellis v. Interna-
tional Playtex, Inc., 745 F.2d 292, 300 (4th Cir. 1984). The admissi-
bility of a public record specified in the rule is assumed as a matter
of course, see id., unless there are sufficient negative factors to indi-
cate a lack of trustworthiness, in which case it should not be admitted,
id. The party opposing admission has the burden to establish unreli-
ability. Id. at 301. Rule 803(8) "is not a rule of exclusion, but rather
is a rule of admissibility" as long as the public record meets the
requirements of the rule. Fred Warren Bennett, Federal Rule of Evi-
dence 803(8): The Use of Public Records in Civil and Criminal Cases,
21 Am. J. Trial Advoc. 229, 232 (1997). See also Beech Aircraft
Corp. v. Rainey, 488 U.S. 153, 169 (1988) (taking "[a] broad
approach to admissibility under Rule 803(8)(C)").
We turn first to Alphin's argument that the ALJ's decision is inad-
missible. Alphin argues that the decision is not the result of "factual
findings resulting from an investigation," as required by Rule
803(8)(C). Rather, Alphin says, the decision is the result of "an appel-
late quasi-judicial proceeding," in which the ALJ's "role was that of
a judge." Appellant's Br. at 12. Understanding the ALJ's role is basic,
but once his role is understood, it becomes apparent that the admis-
4
sion of his decision is consistent with Rule 803(8)(C) and the case
law.
To examine the ALJ's function, we start with the root of this con-
troversy, the FAA's Emergency Order of Suspension, which sus-
pended the airworthiness certificate on Zeus's airplane. Zeus appealed
the order of suspension to the NTSB. See 49 U.S.C. § 44709(d) ("A
person adversely affected by an order of the [FAA] under this section
may appeal the order to the National Transportation Safety Board.")
Zeus's appeal to the NTSB started a new proceeding, in which the
FAA's suspension order simply served as the complaint. See 49
C.F.R. § 821.31 (1998). An ALJ was assigned to preside over this
new proceeding. See 49 C.F.R. § 821.35(a) (1998). At the ensuing
hearing each party had the opportunity to present its evidence and to
cross-examine witnesses. See 49 C.F.R. § 821.38 (1998). Although
Alphin was not a party, the ALJ allowed it to intervene, with its par-
ticipation confined to issues concerning the technical aspects of its
repair work on the airplane. During the twelve days of hearings the
ALJ conducted an extensive factual inquiry into the airworthiness of
Zeus's airplane. The ALJ heard and considered testimony from FAA
inspectors, the president of Alphin, one of the owners of Zeus, and
several scientific and engineering experts. The ALJ also examined the
airplane's maintenance records and reviewed the results of metallurgi-
cal and engineering tests on the plane. After the hearing the ALJ
issued his decision that included detailed factual findings and deter-
mined that the airplane was not airworthy. The ALJ based his findings
on "a preponderance of reliable, probative, and substantial evidence."
49 C.F.R. § 821.49(a)(1) (1998).
With this background, we return to Alphin's argument that the ALJ
acted as a judge and presided over a quasi-judicial proceeding. As a
result, according to Alphin, the ALJ's factual findings are not the
result of an "investigation" as Rule 803(8)(C) requires. Alphin relies
on Nipper v. Snipes, 7 F.3d 415, 417 (4th Cir. 1993), where we held
that factual findings of a court are not admissible under Rule
803(8)(C)'s hearsay exception. In Nipper we emphasized that a
court's findings "present a rare case where, by virtue of their having
been made by a judge, they would likely be given undue weight by
the jury, thus creating a serious danger of unfair prejudice." Id. at 418
(quoting Zenith Radio Corp. v. Matsushita Elec. Indus. Co., 505
5
F. Supp. 1125, 1186 (E.D. Pa. 1980)). We explained that at common
law a judgment from another case was inadmissible, id. at 417 (citing
5 John H. Wigmore, Wigmore on Evidence § 1671a (James H. Chad-
bourn rev. 1974)), and that when the Federal Rules of Evidence allow
for the admission of court judgments, they do so explicitly, id. (citing
Fed. R. Evid. 803(22) (judgment of previous conviction), 803(23)
(judgment as to personal, family, or general history, or boundaries)).
We thus concluded that there was no authority for the admission of
the factual findings of a court.
We did say in Nipper that "[a] judge in a civil trial is not an investi-
gator, rather a judge." Id. We were careful, however, to distinguish
between the findings made by a judge in the judicial branch from
those made by "agencies and offices of the executive branch." Id. As
Nipper recognizes, see id., this distinction between judicial and
agency findings is supported by the advisory committee note to Rule
803(8). The advisory note focuses on the admissibility of findings of
officials and agencies within the executive branch, but makes no men-
tion whatsoever of findings by a court. See Fed. R. Evid. 803(8) advi-
sory committee's note; see also Nipper, 7 F.3d at 417; Zenith Radio
Corp., 505 F. Supp. at 1185. Because Nipper is limited to excluding
the findings of judges in the judicial branch, it does not require us to
exclude the decision of an ALJ who is an officer in the executive
branch.
Two circuits have held that an executive department ALJ's deci-
sion that encompasses findings of fact (made after an evidentiary
hearing) is admissible under Rule 803(8)(C). See Henry v. Daytop
Village, Inc., 42 F.3d 89, 96 (2d Cir. 1994) (findings of state depart-
ment of labor ALJ in unemployment benefits hearing); In re Paducah
Towing Co., 692 F.2d 412, 421 (6th Cir. 1982) (findings of ALJ in
Coast Guard proceeding to revoke license of ship's captain). In addi-
tion, the Supreme Court has said that the "[p]rior administrative find-
ings," made by a Veteran's Administration complaints examiner in a
hearing on an employment discrimination claim, "may . . . be admit-
ted as evidence at a federal-sector trial de novo." Chandler v.
Roudebush, 425 U.S. 840, 863 n.39 (1976) (citing Fed. R. Evid.
803(8)(C)). See also Lloyd v. American Export Lines, Inc., 580 F.2d
1179, 1182-83 (3d Cir. 1978) (findings of hearing examiner in Coast
Guard proceeding to determine whether merchant mariner's docu-
6
ment should be suspended or revoked were admissible under Rule
803(8)(C)). The determination of these courts that the findings of an
agency's ALJ or hearing examiner are admissible under Rule
803(8)(C) necessarily means that the underlying hearing qualified as
an "investigation" under the rule. Otherwise, the findings could not
have been admitted. The ALJ here acted in a manner similar to the
ALJs and hearing examiners in Henry v. Daytop Village, Inc., In re
Paducah Towing, Chandler v. Roudebush, and Lloyd v. American
Export Lines, Inc. Because the proceedings in those cases were neces-
sarily (although implicitly) considered to be investigations, we
believe the proceeding before the ALJ here also qualifies as an inves-
tigation under Rule 803(8)(C). In all events, the ALJ's systematic and
detailed inquiry into the airworthiness of Zeus's airplane was more
than sufficient to satisfy the "investigation" requirement of the rule.
Alphin also argues that because the proceeding before the ALJ was
an appeal from the FAA order, the ALJ was presiding over an appeal,
not an investigation. As our prior discussion of the ALJ's role indi-
cates, he performed the routine functions of an ALJ: he heard evi-
dence and made his findings based on a preponderance of reliable,
probative, and substantial evidence. See Zeus Enterprises, Inc., No.
SE-13974, at 20 (N.T.S.B. Nov. 27, 1996). Even though Zeus's notice
of appeal from the FAA order triggered the proceeding before the
ALJ, the ALJ conducted that proceeding as an "investigation" as that
term is understood under Rule 803(8)(C). Because the ALJ's factual
findings resulted from this investigation, his decision was admissible
under the rule.
Alphin next argues that even if the ALJ's decision was admissible
under Rule 803(8)(C), it should have been excluded under Rule 403
because "its probative value [was] substantially outweighed by the
danger of unfair prejudice." Fed. R. Evid. 403. Alphin claims the fol-
lowing prejudice: "Because the ALJ is a ``judge,' the jury undoubtedly
regarded his opinion as dispositive on the airworthiness issue."
Appellant's Br. at 14. The probative value of the ALJ's decision is
real and beyond dispute. His findings were based on an analysis of
twelve days of evidence on whether the plane was airworthy, the issue
central to the breach of contract claim in this case. We do not believe
the admission of the decision caused unfair prejudice that outweighed
its probative value. At trial Alphin introduced evidence to contradict
7
the ALJ's findings, directed the jury to this evidence in closing, and
argued forcefully to the jury that the ALJ's decision should be given
"little weight." Finally, the district court instructed the jury that the
ALJ's decision "is not conclusive on the issue you have before you.
But it should be considered along with all the other evidence in the
case." In these circumstances, even though the ALJ had the word
"judge" in his title, we are satisfied that it did not lead the jury to con-
clude that his decision was dispositive of the issue before it.
We turn finally to the admissibility of the NTSB Order Dismissing
Appeal. We conclude that the district court's decision to admit that
order into evidence under Rule 803(8)(C) was erroneous. The NTSB
order merely held that Alphin lacked standing to appeal the ALJ's
decision. The NTSB order involved no factual determinations and
was strictly a legal ruling. As such, the NTSB order was not admissi-
ble under Rule 803(8)(C).* However, the district court's decision to
admit the order was harmless error because that document did not
bear on a material issue or alter the ALJ's decision, which we con-
clude was properly admitted. See Kotteakos v. United States, 328 U.S.
750, 765 (1946) (holding that error is harmless if we can say "with
fair assurance, after pondering all that happened without stripping the
erroneous action from the whole, that the judgment was not substan-
tially swayed by the error").
III.
Zeus argues on cross-appeal that the district court erred when it
struck Zeus's request to recover (as part of its damages) the attorneys'
fees it paid to Shaw, Pittman, Potts & Trowbridge (Shaw Pittman),
the firm that represented it in the NTSB proceeding. Zeus claimed
that it incurred these fees because Alphin failed, in breach of the con-
tract, to restore the airplane to a condition of airworthiness. Zeus
sought to prove this item of damages by reading to the jury the evi-
_________________________________________________________________
* Zeus does not argue that the NTSB order was admissible under the
other provisions of Rule 803(8), and it is plain that they do not apply.
These provisions govern public records setting forth "the activities of the
office or agency," Fed. R. Evid. 803(8)(A), and "matters observed pursu-
ant to duty imposed by law as to which matters there was a duty to
report," Fed. R. Evid. 803(8)(B).
8
dentiary deposition of a Shaw Pittman lawyer who worked on the
NTSB case. The deposition transcript reveals that when Alphin's law-
yer asked the Shaw Pittman lawyer questions on cross-examination
about what factual investigation and legal research her firm did for
Zeus, Zeus asserted the attorney-client privilege and refused to allow
any answers on those topics. The district court, after concluding that
Zeus had prevented any inquiry into whether Shaw Pittman's bills
were reasonable, excluded the fee expenditure from any recoverable
damages.
We do not understand why Zeus could not have allowed its law
firm to disclose some information about the nature and extent of its
work, without entrenching upon the attorney-client privilege. In any
event, the burden of establishing the applicability of the attorney-
client privilege rests on the proponent of the privilege. Hawkins v.
Stables, 148 F.3d 379, 383 (4th Cir. 1998). The privilege does not
protect all aspects of the attorney-client relationship; it only protects
confidential communications between lawyer and client. Id. at 383-
84. The proponent of the privilege must establish not only that an
attorney-client relationship existed, but also that the specific commu-
nications at issue are privileged and that the privilege was not waived.
United States v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982). Here,
Zeus made a blanket assertion of privilege to Alphin's questions to
Shaw Pittman about the scope of that firm's work for Zeus in connec-
tion with the NTSB proceeding. Zeus offered nothing to satisfy its
burden to establish that the information sought by Alphin was pro-
tected by the attorney-client privilege. Accordingly, the district court
did not err in striking Zeus's request to recover attorneys' fees paid
to Shaw Pittman for its work in the administrative proceeding.
IV.
In summary, the Initial Decision of the ALJ was properly admitted
into evidence, the admission of the NTSB Order Dismissing Appeal
was harmless error, and Zeus's request to recover attorneys' fees paid
to Shaw Pittman for the NTSB proceeding was properly stricken.
Accordingly, the judgment of the district court is
AFFIRMED.
9