author: DONALD S. RUSSELL, Circuit Judge: WIDENER, Circuit Judge,

text:
    SONY CORPORATION OF AMERICA, now known as Sony Electronics, Inc., Plaintiff-Appellee, v. BANK ONE, WEST VIRGINIA, HUNTINGTON NA, formerly known as First Huntington National Bank, N.A., Defendant-Appellant, v. THE STEREO FACTORY, INCORPORATED, Defendant-Appellee. SONY CORPORATION OF AMERICA, now known as Sony Electronics, Inc., Plaintiff-Appellant, v. THE STEREO FACTORY, INCORPORATED; Bank One, West Virginia, Huntington NA, formerly known as First Huntington National Bank, N.A., Defendants-Appellees.
    Nos. 94-2230, 94-2334.
    United States Court of Appeals, Fourth Circuit.
    Argued July 10, 1995.
    Decided May 30, 1996.
    Order Denying Rehearing and Rehearing En Banc July 16, 1996.

      ARGUED: Daniel Joseph Konrad, Huddleston, Bolen, Beatty, Porter & Copen, Huntington, West Virginia, for Appellant. Bonnie Irvin O’Neil, Thompson, Hiñe & Flory, Columbus, Ohio, for Appellees. ON BRIEF: Thomas R. Allen, Thompson, Hine & Flory, Columbus, Ohio; Richard M. Francis, Bowles, Rice, McDavid, Graff & Love, Charleston, West Virginia, for Appellee Sony Corp.
    Before DONALD S. RUSSELL, WIDENER, and HALL, Circuit Judges.
   Affirmed as modified by published opinion. Judge DONALD S. RUSSELL wrote the majority opinion, in which Judge K.K. HALL joined. Judge WIDENER wrote a dissenting opinion.

OPINION

DONALD S. RUSSELL, Circuit Judge:

This case involves a dispute between two secured creditors with competing claims to the proceeds from the sale of inventory. The main issue before this court is whether Sony Corporation of America (“Sony”), the holder of a purchase money secured interest in the inventory, had a first-priority claim in the proceeds even though the seller received payment for the inventory on the day after the delivery of the goods to the buyer. We must decide just how strictly we should read § 9-312 of the Uniform Commercial Code, which gives the holder of a purchase money secured interest in inventory “priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer ....” W.Va.Code § 46-9-312(3) (emphasis added). The district court concluded that Sony had a first priority claim in the proceeds, notwithstanding the fact that payment was received on the day after the delivery of the goods. We agree.

This case also presents a second issue regarding the identifiability of cash proceeds that are deposited in the seller’s checking account and comingled with other funds in that account. We must decide whether the district court could presume that the seller had transferred a portion of the proceeds to a savings account even though the seller had clearly earmarked those funds as having originated from another source. We conclude that the district court correctly determined that the funds transferred to the savings account constituted identifiable proceeds from the sale of the inventory. We therefore affirm the decision of the district court, although we make a slight modification to the judgment regarding the calculation of damages.

I.

Stereo Factory, Inc., one of the defendants, is a West Virginia corporation, primarily located in Huntington, West Virginia. On August 23, 1988, the First Huntington National Bank (the “Bank”), the other defendant, loaned $200,000 to Stereo Factory. The loan was secured by a blanket security agreement granting the Bank a security interest in virtually all of Stereo Factory’s personal property, including its inventory. On July 13, 1989, the Bank made a second loan in the amount of $550,000 and secured by a second security agreement. The Bank perfected its security interests by filing the appropriate financing statements with the proper authorities.

On August 16, 1990, Sony entered into a purchase money security agreement with Stereo Factory. Sony agreed to extend credit to Stereo Factory for the purchase of Sony merchandise. In return, Stereo Factory granted Sony a purchase money security interest in all goods and inventory sold to it by Sony, as well as the proceeds of those goods and inventory. Sony perfected its security interest and notified the holders of conflicting security interests, including the Bank, that Sony held a purchase money security interest in the inventory.

On August 19, 1992, Stereo Factory submitted to Sony a purchase order for 1,150,000 audio cassette tapes at the price of $.55 per tape. Stereo Factory made a down payment of $160,000 on the following day. On August 21, 1992, Sony sent a shipment of 227,860 tapes to Stereo Factory for a total invoice price of $125,323. Upon receiving the shipment, Stereo Factory sent the tapes to H.K. Tronics, one of its customers. H.K. Tronics received the first shipment on August 27, and on that day paid for the shipment by a cashier’s check in the amount of $120,765.80 payable to Stereo Factory. On August 31, Stereo Factory deposited the check into a checking account that it maintained with the Bank.

Also on August 21, 1992, Sony sent a second shipment of 422,140 audio cassette tapes to Stereo Factory for a total invoice price of $232,177. Upon receiving the shipment, Stereo Factory immediately sent the tapes to Delinda Camera & Art Supply (“Delinda Camera”), another one of its customers. Delinda Camera received the shipment on August 24, and issued a cheek that same day for $221,655, payable to Stereo Factory. Delinda Camera gave the check to the driver of the truck that delivered the shipment. Stereo Factory deposited the check into its checking account on August 25.

In this case, we are most concerned with the third and final shipment of tapes. On August 31,1992, Sony shipped the remaining 500,000 audio cassette tapes to Stereo Factory for the total invoice price of $275,000. Upon receiving the shipment, Stereo Factory immediately sent the tapes to Delinda Camera, which received the shipment on September 3. Delinda Camera had agreed to pay $262,500 for the shipment, subject to a $20,-000 discount if it paid for the tapes in cash within three days of receipt. On September 4, Delinda Camera issued a check payable to Stereo Factory for $242,468.50. Delinda Camera either gave the check directly to the truck driver or mailed it to Stereo Factory by overnight mail. The Stereo Factory invoice documenting this transaction confirms a delivery date of September 3 and a payment date of September 4. Stereo Factory deposited the check into its checking account on September 8.

Although Stereo Factory received full payment from its customers for the three shipments of tapes, it did not make any payments to Sony except for the $160,000 down payment. After deducting various credits, Stereo Factory owes Sony a total of $468,720.51 for the three shipments.

While Stereo Factory was not paying its debt to Sony, on September 9, 1992, Stereo Factory sold its Parkersburg operation to T.D.S., Inc. (“T.D.S.”) for $250,000. T.D.S. obtained a loan from the Bank, which issued a cashiers check to T.D.S. The cashiers check, No. 246208, contained the words “Loan proceeds.” Upon receiving the cashiers check from T.D.S., Stereo Factory deposited it into its checking account. Also on September 9, Stereo Factory opened a savings account, which was pledged to the Bank to secure Stereo Factory’s outstanding loans. In opening the savings account, Stereo Factory deposited a check in the amount of $78,266.64 drawn from its checking account. Stereo Factory indicated in two ways that it intended the $78,266.64 amount to come from the $250,000 it had just deposited into the Checking Account. First, the check issued by Stereo Factory contained the words “Loan Proceeds Receipt.” Second, the savings account deposit slip contained the words “Proceed of Cashiers Check 246208.”

Stereo Factory also maintained a sweep account with the Bank. The funds in this account were used to purchase part of the Bank’s investment portfolio. This account was aptly named because Stereo Factory would periodically “sweep” funds from the cheeking account into the sweep account so that Stereo Factory could earn a return on those funds. On September 15, 1992, Stereo Factory transferred the entire balance of the checking account, $221,419.80, into the sweep account. Over the next few days, some of those funds were transferred back to the checking account to pay off various creditors. On September 17, when the Bank took action against Stereo Factory to collect on its outstanding loans, $123,912.94 remained in the sweep account.

Without giving Stereo Factory prior notice, the Bank set off $123,912.94 from the sweep account and $78,266.64 from the savings account, for a total of $202,179.58. The funds were applied toward the principal that Stereo Factory owed to the Bank. The Bank also liquidated additional collateral in order to further reduce Stereo Factory’s indebtedness.

On December 2, 1992, Sony brought this action against Stereo Factory to recover on Stereo Factory’s debt in the amount of $468,-720.51, which represents the unpaid portion of the cost of the three shipments of tapes. On March 5,1993, Sony added the Bank as a defendant and sought from the Bank the recovery of the $202,179.58 set off from Stereo Factory’s bank accounts. Sony claimed that the moneys in Stereo Factory’s bank accounts, which the Bank seized and converts ed, constituted identifiable proceeds of Sony’s purchase money collateral, to which Sony had a first priority claim.

The parties jointly filed stipulations of fact, and no factual dispute having remained, Sony and the Bank filed cross-motions for summary judgment. On August 30, 1994, the district court granted summary judgment in favor of Sony against the Bank in the amount of $202,179.58. The district court also granted summary judgment in favor of Sony against Stereo Factory in the amount of $266,540.93, which constitutes the difference between the amount due to Sony from Stereo Factory and Sony’s judgment from the Bank.

The Bank has appealed the decision of the district court. Sony has also filed a cross-appeal in which it argues that the district court should have entered a judgment against Stereo Factory in the amount of $468,720.51, instead of $266,540.93. For the reasons stated herein, we affirm the district court’s granting of summary judgment in favor of Sony, but we modify the judgment against Stereo Factory as requested in Sony’s cross-appeal.

II.

This Court reviews de novo the district court’s granting or denying of summary judgment. Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia, Inc., 43 F.3d 922, 928 (4th Cir.1995). Summary judgment is appropriate where the record shows that “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(e).

This case turns on the interpretation of § 9-312(3) of the Uniform Commercial Code (“U.C.C.”), which West Virginia has adopted. That section reads as follows:

(3) A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory and also has priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer if:
(a) The purchase money security interest is perfected at the time the debtor receives possession of the inventory; and
(b) The purchase money secured party gives notification in writing to the holder of the conflicting security interest if the holder had filed a financing statement covering the same types of inventory (i) before the date of the filing made by the purchase money secured party, or (ii) before the beginning of the twenty-one day period where the purchase money security interest is temporarily perfected without filing or possession (subsection (5) of section 9-304 [§ 46-9-304(5)]); and
(c) The holder of the conflicting security interest receives the notification within five years before the debtor receives possession of the inventory; and
(d) The notification states that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.

W.Va.Code § 46-9-312(3) (emphasis added).

The issue in this case is whether the proceeds from the third shipment of tapes were delivered “on or before the delivery” of the goods. The parties have stipulated that the shipment was delivered on September 3, 1992, and that Delinda Camera’s cheek in payment for the shipment was dated September 4, 1992. The check was either given directly to the truck driver who delivered the shipment or mailed to Stereo Factory by overnight mail. The Bank argues that payment was not made “on or before the delivery” because Stereo Factory did not receive payment on the day of delivery.

This issue is critical because it determines which party has priority to the proceeds of the third shipment of tapes. If Stereo Factory received payment “on or before the delivery” of the third shipment of tapes, as Sony contends, then Sony has a first priority purchase money security interest in those proceeds under § 46-9-312(3). If Stereo Factory did not receive payment “on or before the delivery” and Sony therefore does not have a priority interest under § 46-9-312(3), then the Bank has a priority interest in the proceeds under § 46-9-312,(5) which provides that the first party to file and perfect its secured interest takes priority.

The “on or before the delivery” language of § 46-9-312(3) was meant to distinguish between cash proceeds and accounts proceeds. Comment 3 to § 46-9-312 reads as follows:

When under these rules the purchase money secured party has priority over another secured party, the question arises whether this priority extends to the proceeds of the original collateral____ In the case of inventory collateral under subsection (3), where it was expected that the goods would be sold and where financing frequently is based on the resulting accounts, chattel paper, or other proceeds, the subsection gives an answer limited to the preservation of the purchase money priority only insofar as the proceeds are cash received on or before the delivery of the inventory to a buyer, that is, without the creation of an intervening account to which conflicting rights might attach.

W.Va.Code § 46-9-312 cmt. 3 (emphasis added). Where the sale of inventory results in an account, the rights of the purchase money secured creditor in the proceeds may conflict with the rights of other creditors who have security interests in the accounts. The drafters of the U.C.C. decided to protect accounts financers over inventory financers, and they limited the priority of purchase money secured creditors to the cash proceeds of inventory collateral. As comment 8 to § 46-9-312 explains:

Many parties financing inventory are quite content to protect their first security interest in the inventory itself, realizing that when inventory is sold, someone else will be financing the accounts and the priority for inventory will not run forward to the accounts. Indeed, the cash supplied by the accounts financer will be used to pay the inventory financing.

W.Va.Code § 46-9-312 cmt. 8. In using the “on or before the delivery” language of § 46-9-312(3), the framers intended to differentiate between transactions in which the buyer paid in cash and transactions in which the buyer set up a credit arrangement and ended up owing the seller for the cost of the goods.

Delinda Camera did not purchase the third shipment of tapes from Stereo Factory on credit. Delinda Camera and Stereo Factory clearly contemplated a cash transaction, and Delinda Camera’s payment for the shipment included a $20,000 discount for payment in cash. Furthermore, the fact that Delinda Camera issued its cheek on the day following the receipt of the third shipment of tapes does not imply that credit was extended to Delinda Camera. Given the realities of modern business, it is reasonable to expect a slight delay between the unloading of goods and the issuance of a check in payment for those goods. In a large company, it may take several hours — or even overnight — for the paperwork to travel from the receiving department, where the goods are unloaded, to the bookkeeping department, where the payment check is issued. Such a delay merely reflects the time it takes an organization to process its work; it does not indicate the extension of credit for that short period of time. Moreover, if a buyer receives a shipment of goods after its business office has closed for the day, it may pay for that shipment on the following morning simply because there was no chance to issue a cheek earlier.

We agree with the district court that, although the check was dated the day after delivery, Delinda Camera’s payment for the third shipment of tapes was reasonably contemporaneous with the delivery of the goods and constituted payment “on delivery.” We therefore reject the Bank’s argument that Delinda Camera could have made payment “on delivery” only if it tendered its check to the truck driver or mailed its check to Stereo Factory on the same day that the shipment was delivered. We find that the Bank’s position would lead to arbitrary results. Assume, for instance, that the truck driver arrived at Delinda Camera’s premises at 9:00 a.m. on September 3, unloaded the third shipment of tapes, and drove off to his next destination. In this situation, it should make little difference whether Delinda Camera wrote and mailed its check at 5:00 p.m. on September 3 or at 9:00 a.m. on September 4; either check would have been written after the truck driver left the premises, but within a reasonable period of time to be considered contemporaneous with delivery under normal business practices. Under the Bank’s rule, however, mailing the check at the close of business on September 3 would be considered payment on delivery, but mailing the check at the opening of business the following morning would be considered payment after delivery. We see no reason why we should adopt such an arbitrary distinction.

We note that Sony’s and the Bank’s dispute over the proceeds in question turns on the payment arrangements of Stereo Factory and Delinda Camera, neither of whom had a particular interest in whether payment was made “on or before the delivery” of the third shipment of tapes. In this situation, Sony could have done more to protect its purchase money secured interest in the inventory. In its contractual arrangement to supply Stereo Factory with tapes, it could have required Stereo Factory, when its sells its inventory, to receive payment in cash on or before delivery of the inventory. Sony did not include such a provision in its contract with Stereo Factory and, thus, conditioned its purchase money security interest in the proceeds on the actions of Stereo Factory and its customer. Although we hold that Delinda Camera’s check dated the day following delivery constituted payment on delivery in this ease, we would not have tolerated a longer delay. As the district court warned, “[ejvery moment of delay between the delivery and the payment should be accounted for and the greater the delay, the more likely the purchase money secured party will be unable to avail itself of the protections of [W.Va.Code § 46-9-312(3)].” Sony Corp. of America v. The Stereo Factory, Inc., Civil Action No. 3:92-1099, am. mem. op. at 12 (S.D.W.Va. Sept. 2, 1994). Purchase money secured creditors would behoove themselves to require by contract that all payments for the sale of the purchase money inventory be received in cash on or before the delivery.

III.

We now turn to the question of whether the funds set off by the Bank from Stereo Factory’s savings account are “identifiable” proceeds of the sale of the third shipment of tapes. See W.Va.Code § 46-9-312(3) (“A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory and also has priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer ....” (emphasis added)). The proceeds from the sale of the third shipment of tapes were placed in Stereo Factory’s checking account on September 8, 1992, when Stereo Factory deposited Delinda Camera’s check in the amount of $242,-468.50. On September 17, 1992, the Bank set off $123,912.94 from Stereo Factory’s checking account and $78,266.64 from its savings account. The Bank argues on appeal that the moneys in the savings account are not identifiable cash proceeds from the sale of the third shipment of tapes.

In tracing and identifying proceeds under Article 9 of the U.C.C., courts have utilized the “lowest intermediate balance rule.” E.g., C & H Farm Serv. Co. of Iowa v. Farmers Savings Bank, 449 N.W.2d 866 (Iowa 1989); General Motors Acceptance Corp. v. Norstar Bank, N.A., 141 Misc.2d 349, 532 N.Y.S.2d 685 (N.Y.Sup.Ct.1988); Ex parte Alabama Mobile Homes, Inc., 468 So.2d 156 (Ala.1985). This rule has been defined as follows:

The rule, which operates on a commonsense view that dollars are fungible and cannot practically be earmarked in an account, provides a presumption that proceeds remain in the account as long as the account balance is equal to or greater than the amount of the proceeds deposited. The proceeds are “identified” by presuming that they remain in the account even if other funds are paid out of the account---- Under the rule, however, if the balance of the account dips below the amount of deposited proceeds, [the prior] security interest in the identifiable proceeds abates accordingly. This lower balance is not increased if, later, other funds of the debtor are deposited in the account____

C.O. Funk & Sons, Inc. v. Sullivan Equipment, Inc., 89 Ill.2d 27, 59 Ill.Dec. 85, 87, 431 N.E.2d 370, 372 (1982). The lowest intermediate balance rule assumes that “the debtor spends his own money out of the account before he spends the funds encumbered by the security interest.” Ex parte Alabama Mobile Homes, Inc., 468 So.2d 156, 160 (Ala.1985). Furthermore, funds that are not spent but transferred to other accounts or used to purchase investments are identifiable as proceeds of the collateral. Central Production Credit Ass’n v. Hans, 189 Ill.App.3d 889, 137 Ill.Dec. 302, 311-12, 545 N.E.2d 1063, 1072-74 (1989) (funds in cheeking account were identifiable proceeds even though the funds had been used to purchase investments, which were then sold and redeposited into the cheeking account). Thus, the rule preserves the proceeds to the greatest extent possible as the account is depleted. C.O. Funk & Sons, 59 Ill.Dec.at 87, 431 N.E.2d at 372.

On September 9, 1992, the day after Stereo Factory deposited the proceeds into the checking account, Stereo Factory transferred $78,266.64 from its checking account to its savings account. Before making this transfer, however, Stereo Factory deposited a check in the amount of $250,000 it had received from the sale of its Parkersburg operation. Stereo Factory indicated in several ways that it intended the $78,266.64 transferred to the savings account to come from the $250,000 it had just deposited into the checking account. First, the check issued by Stereo Factory and deposited into the savings account contained the words “Loan Proceeds Receipt,” which referred to the $250,000 cashiers check. Second, the savings account deposit slip contained the words “Proceed of Cashiers Cheek 246208.” The Bank argues that, because Stereo Factory earmarked the $78,266.64 in the savings account to come from the $250,000 cashiers check, the funds in the savings account cannot be identified as proceeds from the sale of the third shipment.

We disagree. We state again that “dollars are fungible and cannot practically be earmarked in an account....” C.O. Funk & Sons, 59 Ill.Dec.at 87, 431 N.E.2d at 372. Once Stereo Factory deposited the $250,000 in its checking account, those funds were commingled with the other funds in the account and lost their identity as proceeds from the sale of the Parkersburg operation. Stereo Factory no longer had the ability to isolate a portion of that $250,000 and transfer those specific funds to its savings account. The words on the check and deposit slip merely provided useful notes for Stereo Factory’s internal recordkeeping. Those notes, however, did not earmark the transferred funds and do not override the operation'of the lowest intermediate balance rule.

Stereo Factory transferred $78,266.64 from its checking account to its savings account. The lowest intermediate balance rule allows a court to presume that those funds were identifiable cash proceeds from the sale of the third shipment of tapes.

IV.

Finally, we turn to Sony’s cross-appeal. Sony contends that the district court erred in granting a judgment against Stereo Factory in the amount of only $266,540.93. In determining this amount, the district court reduced the full amount that Stereo Factory owed to Sony ($468,720.51) by the amount of Sony’s judgment against the Bank ($202,179.58). The Bank reasoned that a judgment of $468,720.51 against Stereo Factory and $202,179.58 against the Bank would create a windfall for Sony. Sony argues in its cross-appeal that the district court should have awarded Sony a judgment against Stereo Factory in the full amount owed, $468,-720.51. We agree.

Sony has a judgment against the Bank in the amount of $202,179.58 because the Bank set off from Stereo Factory’s accounts funds to which Sony had first priority. Despite the Bank’s set-off and Sony’s judgment against the Bank, the fact remains that Stereo Factory owes Sony $468,720.51. Sony is entitled to a judgment against Stereo Factory in that amount. Of course, the judgment against Stereo Factory should be reduced by the amount of any funds collected from the Bank. But, in the case that the Bank cannot pay its judgment in full, Sony has the right to seek from Stereo Factory the balance of its debt.

In all likelihood, the Bank will pay its judgment in full, and the judgment against Stereo Factory will be reduced to $266,-540.93, the amount awarded by the district court. The Bank, after all, is the only defendant with the funds to pay its judgment, and Sony asserted its priority to the $202,179.58 set off by the Bank precisely because it knew that Stereo Factory does not have the funds to pay its judgment.

Nonetheless, correcting the judgment serves a purpose. It makes clear that Stereo Factory is ultimately liable for the full amount of its unpaid debt to Sony, and that any amounts paid by the Bank to Sony reduces the debt that Stereo Factory owes to Sony. Thus, the Bank has a right to indemnification from Stereo Factory for any amount it must pay to Sony because that money reduces Stereo Factory’s debt to Sony. The district court, by reducing the judgment against Stereo Factory to $266,-540.93, perhaps indicated that Stereo Factory was no longer obligated to pay the remaining $202,179.58 and that the Bank would not be entitled to indemnification for that amount. We want there to be no confusion that the Bank can look to Stereo Factory for indemnification for any money that it must pay to Sony.

We conclude that the district court erred in awarding a judgment against Stereo Factory in the amount of $266,540.93. It should have awarded Sony a judgment against Stereo Factory in the amount of $468,720.51, subject to be reduced by any amounts collected from the Bank.

V.

For the foregoing reasons, we affirm the district court’s granting of summary judgment in favor of Sony, and we modify the order to reflect a judgment against Stereo Factory in the amount of $468,720.51, subject to be reduced by any amounts collected from the Bank.

AFFIRMED AS MODIFIED.

WIDENER, Circuit Judge,

dissenting:

I respectfully dissent for two reasons, neither of which is more important than the other.

First, this case involves a question of state law that has not been answered by the West Virginia courts or in any other reported decision. As a matter of procedure and prudent deferment to the state courts, I believe this court should let West Virginia courts decide this novel question of state law. Second, having reached the merits of this case, I suggest that the majority misconstrues the facts of the case as well as the language of the applicable statute to achieve what can only be termed an incorrect result.

I.

This is a case of first impression, not only in the federal courts, but also in the courts of the fifty states. It is purely a question of state law. Especially for those reasons, I think the refusal of the majority to refer the question decided to the Supreme Court of West Virginia is an abuse of discretion if it is possible to impose that standard in the situation presented here. Declining to accept the open invitation of the courts of a State to decide such a question of law, uniquely state, may even be said without undue exaggeration to border on a return to Swift v. Tyson, 16 Pet. (41 U.S.) 1, 10 L.Ed. 865 (1842); forgetting, along the way, the teaching of Erie that “whether the law of the State shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern. There is no federal general common law.” Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938).

II.

This case is on appeal from an order on summary judgment. We review summary judgment orders de novo. Donmar Enters., Inc. v. Southern Nat’l Bank of North Carolina, 64 F.3d 944, 948 (4th Cir.1995).

III.

Both the district court and the majority erred, I submit, in the principal premise of each of those decisions when each found that Delinda Camera did not purchase the third shipment of tapes on credit. The district court found:

It[, Delinda Camera,] did not purchase the tapes in the Third Shipment on credit.

Mem. Op. & Order, at 10, Sept. 2, 1994. JA 144. The majority found:

Delinda Camera did not purchase the third shipment of tapes from Stereo Factory on credit.

Slip. op. at 137. This mistaken statement of fact goes to the heart of the majority’s opinion and I think it is plainly wrong. To understand the true nature of the transaction between Stereo Factory and Delinda Camera, we must look to the shipment invoice.

Stereo Factory’s invoice for the last shipment of tapes to Delinda Camera clearly shows that this was a charge transaction. See Stipulations of Fact, Ex. P, Sept. 22, 1993. JA 97. The transaction could have been C.O.D., cash, or charge, and it was charge. Under the section of the invoice titled “TERMS”, the box next to “CHARGE” contained an X while the boxes next to “C.O.D.” and “CASH” were not marked.

The invoice shows on its face that the tapes were delivered to Delinda Electronics on September 3,1992.

“9-3-92, Delivered RC [apparently initials] 60 short 499,940 total”

The invoice also shows on its face payment on September 4,1992.

“Paid CK 38752 9-4-92”

The invoice also provides “Mr Ritz to send check within 3 days of receipt of goods for $20,000 cash discount.”

Neither the opinion of the district court nor the opinion of the majority refers to the stated terms of the sale as shown by the invoice, much less explain them. The obvious, and only, explanation from the invoice is that the transaction was a credit transaction. That the invoice is that of the transaction at hand is agreed to by Stipulation of Fact, Exhibit P. “There would be no reason in having a stipulation of facts if parties were at liberty to ignore it....” Judge Parker in Westinghouse Elec. Corp. v. Bulldog Electric Prod. Co., 179 F.2d 139, 141 (4th Cir.1950). So the facts relied upon by the district court and the majority, by ignoring the invoice, are shown to be in error.

IV.

The district court and the majority rely on comment 3 to § 46-9-312, which recognizes the distinction between payment on delivery of inventory and payment after delivery, and distinguishes cash proceeds from accounts proceeds. And that comment, indeed, provides that § 312(3)

gives an answer limited to the preservation of the purchase money priority only insofar as the proceeds are cash received on or before the delivery of the inventory to a buyer, that is, without the creation of an intervening account to which conflicting rights might attach. W.Va.Code § 46-9-312 cmt. 3.

Even the majority opinion itself provides that “[w]here the sale of inventory results in an account, the rights of the purchase money secured creditor in the proceeds may conflict with the rights of other creditors who have security interests in the accounts.” Slip op. at 137. The majority specifically recognizes that the Code treats cash transactions and credit transactions differently:

In using the “on or before the delivery” language of § 46-9-312(3), the framers intended to differentiate between transactions in which the buyer paid in cash and transactions in which the buyer set up a credit arrangement and ended up owing the seller for the cost of the goods.

Slip op. at 136. Thus, while the majority acknowledges that a different result obtains if an account is created, it fails to acknowledge that an account is created when payment is received after delivery. The Code defines an account as “any right to payment for goods sold ... which is not evidenced by an instrument or chattel paper.” W.Va.Code § 46-9-106. If the seller receives payment on or before delivery, then the parties have not created an account, I submit. But, if the seller does not receive payment on or before delivery, then the parties have created an intervening account to which conflicting rights might attach.

In this case, the invoice and stipulations of fact show the creation of an intervening account. The failure to recognize this fact is the principal error in the majority opinion, which goes out of its way to attempt to justify its conclusion that this was a cash transaction.

But the factual underpinning of the justification fails.

, The majority opinion provides that “Delinda Camera and Stereo Factory clearly contemplated a cash transaction.” Slip op. at 137. The invoice, however, provides that the transaction was “CHARGE.” Indeed the boxes on the invoice for “C.O.D.” and “CASH” are left blank. J.A 97.

The majority opinion provides that “... payment for the shipment included a $20,000 discount for payment in cash.” Slip op. at 137. The invoice, however, provides “Mr Ritz to send check within 3 days of receipt of goods for $20,000 cash discount.” So the discount was not for cash only, as the majority opinion implies, but also for payment “within 3 days of receipt of goods,” hardly the same. J.A. 97. The majority opinion provides that “... the fact that Delinda Camera issued its cheek on the day following the receipt of the third shipment of tapes does not imply that credit was extended to Delinda Camera.” Slip op. at 137. The stipulations of fact, however, provide that “[o]n Sept. 3, 1992, Delinda received the Third Shipment. The next day, on September 4, 1992, Delinda issued a check payable to Stereo Factory____” Stipulation 18, J.A. 49-50.

Thus, the check of Delinda Camera was not even issued until the day after delivery. During the period of time between the delivery of the goods and at least the issuance of the cheek, there is no other explanation but that credit was extended to Delinda Camera, and this is even verified by the invoice that it was a “CHARGE” transaction.

The majority opinion relies on what it calls “the realities of modern business,” to wit:

Given the realities of modem business it is reasonable to expect a slight delay between the unloading of goods and the issuance of a check in payment for those goods. In a large company, it may take several hours — or even overnight — for the paperwork to travel from the receiving department, where the goods are unloaded, to the bookkeeping department, where the payment check is issued.

Slip op. at 137.

This statement is subject to the same difficulty as are the critical parts of the factual foundation of the majority opinion I have mentioned above.

There is nothing in the record about the “realities of modem business.”

There is nothing in the record about a “slight delay between the unloading of goods and the issuance of the cheek in payment of those goods.”

There is nothing in the record about whether or not Delinda Camera is “a large company.”

There is nothing in the record about whether, at Delinda Camera, it may take “several hours or even overnight for the paperwork to travel from the receiving department to the bookkeeping department.”

There is nothing in the record about whether or not Delinda Camera has a receiving department.

There is nothing in the record about where the goods were unloaded, much less whether at a receiving department.

There is nothing in the record about whether or not Delinda Camera has a bookkeeping department.

There is nothing in the record about where the payment check was issued, at any bookkeeping department or elsewhere.

Shortcutting, such as that which the majority engages in here, is quite contrary to proof of custom of the trade, for I must assume that is what the majority seeks to rely upon in the above recitation of facts.

Custom or Usage in Trade and Commerce. In evidencing a custom or usage ... by a specific instance, the same general principle as before is applicable; that is, the instances offered (a) should be sufficiently numerous to indicate a fairly regular course of business and (b) should occur under conditions substantially similar to that in question. 2 Wigmore on Evidence § 379 (Chadbourne Revision 1979).

There is nothing in the record to show any regular course of business, or similar condition, or specific instance of any of the facts just relied upon. Even if the majority has relied upon judicial notice for the facts just recited, which it has also not stated, that should not, and indeed cannot, be legitimately accomplished under Fed.R.Evid. 201, which provides, among other things, that for a court to take judicial notice of a fact it “must be one not subject to reasonable dispute” and either “generally known within the territorial jurisdiction of the trial court” or “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b).

In the case before us, the facts recited by the majority fail on all three grounds. The facts may be disputed, they are not shown to be generally known within the territorial jurisdietion of the trial court, and they are not shown to be capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned.

Thus, the critical factual underpinnings of the majority opinion, I submit, have been shown to be without sufficient foundation.

V.

The cardinal principle of certainty has been the same in commercial law for more than 200 years. By any account, and common consent, Lord Mansfield, was principally, even if not wholly, responsible for the transposition of the law merchant into the common law from whence grew our commercial statutes and the Uniform Commercial Code, with which we are concerned here. He expressed the principle this way:

In all mercantile transactions the greater objective should be certainty: and, therefore, it is of more consequence that a rule should be certain than whether the rule be established one way or the other. Vallejo v. Wheeler, 98 Eng.Rep. 1012, 1017 (K.B.1774).

Mansfield repeated that statement in almost the same words in Buller v. Harrison, 98 Eng.Rep. 1243, 1244 (K.B.1777). That the principle has not changed is shown by the very Code with which we deal. The purpose of Article 9 of the UCC entitled SECURED TRANSACTIONS: SALES OF ACCOUNTS AND CHATTEL PAPERS is found in the official comment thereto, which provides that “[t]he aim of this Article is to provide a simple and unified structure within which the immense variety of present-day secured financing transactions can go forward with less cost and greater certainty.” Official Comment to West Virginia Code, Ch. 46, Article 9, Vol. 13, p. 507 (1993).

In the face of such authority, early and late, the majority decides that payment which must have been made “on or before the delivery of the inventory to a buyer” under § 46-9-312(3) is made “on delivery” if it was made “reasonably contemporaneous with the delivery of the goods,” op. at 137. And the opinion then holds that “Delinda Camera’s check dated the day following delivery constituted payment on delivery in this ease____” Op. at 138.

Thus, I submit that the majority has not only failed to follow the statute involved in this case, as well as the facts, but, by defining “on or before the delivery” to mean “reasonably contemporaneous” it has substituted the uncertain words “reasonably contemporaneous” for the certain words “on or before,” which have not been given other than a literal meaning so far as I have been able to ascertain.

In sum, I would reverse.

ORDER

July 16, 1996

Appellant Bank One, West Virginia, Huntington, NA filed a petition for rehearing with suggestion for rehearing en bane, and Appellee Sony Corporation filed an answer to the petition and suggestion.

A member of the Court requested a poll on the suggestion for rehearing en bane, and a majority of the judges voted to deny rehearing en banc. Judge Widener, Judge Murnaghan, Judge Niemeyer, Judge Michael, and Judge Motz voted to rehear the case en banc. Chief Judge Wilkinson, Judge Russell, Judge Hall, Judge Ervin, Judge Wilkins, Judge Luttig, and Judge Williams voted against rehearing en banc.

The Court denies the petition for rehearing with suggestion for rehearing en banc.

Entered at the direction of Judge Russell. Judge Widener dissents. Judge Motz dissents from the denial of rehearing en banc.

      . The First Huntington National Bank is now known as Bank One, West Virginia, Huntington NA.

      . The record does not explain why Stereo Factory was selling shipments of tapes at a loss. Cf. Joseph Heller, Catch-22 229 (New Laurel ed., Dell Publishing 1990) (1955) (chapter 22) (Milo Minderbinder explains how he can make a profit buying eggs at seven cents apiece and selling them for five cents).

      .Delinda Camera deducted $31.50 from the price because the shipment was short by 60 tapes.

      . The parties had difficulty establishing the exact events that transpired because they could not locate the truck driver who delivered the shipment.

      . The district court found that Sony met the four enumerated requirements of § 46-9-312(3). The Bank does not challenge this finding on appeal.

      . Section 46-9-312(5) reads as follows:
      (5) In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special priorities set forth in subsections (3) and (4) of this section), priority between conflicting security interests in the same collateral shall be determined according to the following rules:
      (a) Conflicting security interests rank according to priority in time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.
      (b) So long as conflicting security interests are unperfected, the first to attach has priority.

      . The cashiers check in the amount of $250,000 constituted the proceeds of a loan from the Bank to T.D.S., which T.D.S. then used to purchase Stereo Factory’s Parkersburg operation. The cashiers check itself contained the words "Loan Proceeds.”

      . The record does not contain a copy of the Purchase Order, if one even exists. The invoice is the sole written documentation we have of the transaction.

      . E.g. Sheerer v. Manhattan Life Ins. Co., 20 F. 886, 888 (C.C.Ky.1884) (on or before means at the instant of expiration or at any time in advance of that instant); Edward Knapp & Co. v. Tidewater Coal Co., 85 Conn. 147, 81 A. 1063, 1066 (1912) (on or before excludes after); Council 81, Am. Fed'n of State, County, and Mun. Employees v. Delaware, 293 A.2d 567, 570 (Del.1972) (on or before means not later than); Rhoads v. Myers, 245 N.W. 707, 710-11 (Iowa 1932) (on or before means at any time in advance of, to the exclusion of any time after); O.A. Talbott & Co. v. Byler, 217 S.W. 852, 853 (Mo.Ct. App.1920) (on or before a certain date in a contract limits time of performance to that date); McCrory Stores Corp. v. Goldberg, 1 N.J. Misc. 446, 95 N.J. Eq. 152, 122 A. 113, 113 (1923) (letter postmarked 7:30 p.m. October 31 does not satisfy requirement of notice on or before October 31 because not received on that date); Kauscher v. National Builders & Realtors, Inc., 87 Ohio App. 403, 92 N.E.2d 702, 703 (1949) (on or before gives option of earlier delivery without obligation to do so); Edlund v. Bounds, 842 S.W.2d 719, 726 (Tex.Ct.App.1992) (on or before means immediately at or at any time in advance of the named period); Novosad v. Svrcek, 129 Tex. 34, 102 S.W.2d 393, 395 (Tex.1937) (on or before in a contract or note means the maker has the option to pay before a fixed time and the paper does not mature until the expiration of that time); Lovenberg v. Henry, 104 Tex. 550, 140 S.W. 1079, 1080 (1911) (on or before means immediately at or at any time in advance of).


source: Caselaw Access Project

author: CLARKE, Senior District Judge:

license: Public Domain

text:
    Stacey CLARK, Plaintiff-Appellant, v. Archibald ALEXANDER, Acting Executive Director, Alexandria Redevelopment and Housing Authority, Defendant-Appellee.
    No. 95-1280.
    United States Court of Appeals, Fourth Circuit.
    Argued March 4, 1996.
    Decided May 30, 1996.

      ARGUED: Michael Gerhart Allen, Legal Services of Northern Virginia, Alexandria, Virginia, for Appellant. Michael Jay Weiser, Alexandria, Virginia, for Appellee. ON BRIEF: Sylvia M. Brennan, Legal Services of Northern Virginia, Alexandria, Virginia, for Appellant.
    Before LUTTIG, Circuit Judge, CHAPMAN, Senior Circuit Judge, and CLARKE, Senior District Judge for the Eastern District of Virginia, sitting by designation.
   Affirmed by published opinion. Senior Judge CLARKE wrote the opinion, in which Judge LUTTIG and Senior Judge CHAPMAN joined.

OPINION

CLARKE, Senior District Judge:

This appeal concerns the standard of review applicable in federal civil rights cases challenging the decisions of local housing authorities implementing the federal low-income housing assistance program. See 42 U.S.C. §§ 1401-40. In Ritter v. Cecil County Office of Hous. & Community Dev., this Court held that interpretive rules adopted by local housing authorities should be afforded deference by federal courts “only to the extent the agency’s rules are not contrary to the statute or regulation.” 33 F.3d 323, 328 (4th Cir.1994). In this ease, the Court is asked to determine the standard of review applicable to housing authority adjudicative factfinding and decisions. The District Court, in keeping with the Ritter decision, - gave substantial deference to the Alexandria Redevelopment and Housing Authority (ARHA) and the reviewing hearing officer in granting ARHA’s motion for summary judgment. Clark v. Alexander, 894 F.Supp. 261, 263 (E.D.Va.1995). For the reasons set out below, this Court agrees with the decision of the district court and, upon de novo review, affirms.

I.

Stacey Clark was a participant in the federal government’s rent subsidy program as administered by ARHA. The rent subsidy program is overseen by the Department of Housing and Urban Development and implemented in accord with Section 8 of the United States Housing Act as amended. 42 U.S.C. § 1437f. In administering the rental voucher system, HUD is authorized to “prescribe other terms and conditions which are necessary for the purpose of carrying out the provisions of this paragraph and which are consistent with the purposes of this paragraph.” 42 U.S.C. § 1437f(o)(ll)(F). Relevant to this case, HUD has promulgated regulations concerning the drug-related criminal activity by recipients of rent subsidies and their families. Specifically, it is the obligation of the family receiving federal rent subsidies to not “[ejngage in drug-related criminal activity, ... including criminal activity by any Family member.” 24 C.F.R. § 882.118(b)(4) (1994). “Drug-related criminal activity” means (1) “the felonious manufacture, sale, or distribution, or the possession with intent to manufacture, sell, or distribute, a controlled substance,” or (2) “the felonious use or possession (other than with intent to manufacture, sell, or distribute) of a controlled substance,” where the use or possession occurs within one year of a public housing authority’s decision to deny admission or terminate assistance under the program. 24 C.F.R. § 882.118(b)(4)(i)(A), (B) (1994). “Family” is defined in the regulations to include but is not limited to:

(a) An Elderly Family or Single Person as defined in this part,
(b) The remaining member of a tenant family, and
(e) A Displaced Person.

24 C.F.R. § 812.2 (1994); see also 42 U.S.C. § 1437a(b)(3) (same).

The public housing authority may terminate a participant’s rent subsidy “[i]f the participant has violated any Family obligation” as set out in section 882.118. 24 C.F.R. § 882.210(d)(2) (1994). A termination based on participation in drug-related criminal activity must be based on a “preponderance of the evidence indicating] that a Family member has engaged in such activity, regardless of whether the Family member has been arrested or convicted.” 24 C.F.R. § 882.216(c)(1) (1994). The procedure for termination consists of a written notice from the housing authority stating the reasons for the termination. 24 C.F.R. § 882.216(b)(3)(i) (1994). The participant in the program must be given the opportunity for an “informal hearing.” 24 C.F.R. § 882.216(b)(1)(ii) (1994); cf. 42 U.S.C. § 14S7d(k) (mandating the creation of an “administrative grievance procedure” for tenants at each public housing authority receiving funds under Section 8). The informal hearing is set before a neutral hearing officer, is adversarial in nature, and is decided using a preponderance of the evidence standard. 24 C.F.R. § 882.216(b)(6) (1994).

On March 19, 1994, Alexandria police executed a search warrant for Ms. Clark’s address and for a black male at that address. Probable cause for the search was provided by a confidential informant’s tip that cocaine was being sold by a black male at that residence. Ms. Clark was not home at the time the warrant was executed. However, police detectives did find Ms. Clark’s father and her estranged husband, David Clark, at the residence. During the search, the detectives seized quantities of heroin and associated drug paraphernalia from a dresser in the master bedroom. Detectives also uncovered two address books in the dresser and a two-foot long sword hidden between the bed and box spring. In the basement of the house, detectives confiscated a quantity of cocaine. At the time of the search, David Clark admitted to the detectives that the heroin and related drug paraphernalia found in the master bedroom were his. He also admitted ownership of the sword and the address books. Mr. Clark gave his address as that residence. Mr. Clark subsequently pled guilty to possession of heroin and possession of drug paraphernalia related to the March 19,1994 incident.

On May 9,1994, ARHA, through its executive director Archibald Alexander, informed Ms. Clark of its decision to terminate her housing assistance. The ARHA notice stated that the Alexandria police had received information that illegal drugs had been sold from her residence and that a resulting police search at her residence had led to the confiscation of drugs and drug paraphernalia. From this evidence, ARHA had concluded that family members had engaged in drug-related activity in her residence and that termination of assistance was authorized under federal regulations.

Ms. Clark exercised her right to an informal hearing, which took place on July 27, 1994, before Steven Zimmerman, a local attorney. At the hearing, Mr. Zimmerman heard testimony from Alexandria police detective Hassan Aden, who had been present during the execution of the search warrant, David Clark, and Stacey Clark. Detective Aden testified that he believed Mr. Clark to be a resident at Ms. Clark’s apartment based on Mr. Clark’s familiarity with the premises; statements of ownership of the drugs, drug paraphernalia, and personal items (address books and the silver sword) found at the residence; and statement that he did in fact live at the residence. David Clark admitted to ownership of the heroin and related paraphernalia but denied any knowledge of the cocaine in the basement. He also stated that he never admitted to Detective Aden that he lived at the residence, nor had he admitted that he owned the silver sword. Ms. Clark testified that David Clark did not live at her household and that she had no knowledge of the use or possession of drugs in her household prior to the execution of the search warrant. Mr. Zimmerman upheld AEtHA’s decision to terminate, relying heavily on the testimony of Detective Aden and concluding that a “family member” at Ms. Clark’s residence had been involved in drug-related criminal activity, warranting termination of benefits under 24 C.F.R. § 882.210.

Ms. Clark brought suit under 42 U.S.C. § 1988, alleging various procedural errors in the informal hearing and alleging that ARHA exceeded its authority in terminating her Section 8 benefits where no “family member” was involved in drug-related criminal activity. On plaintiff’s motion for partial summary judgment and defendant’s motion for summary judgment, the district court found in favor of defendant. The district court applied the standard articulated in Ritter. Clark v. Alexander, 894 F.Supp. 261, 263 (E.D.Va.1995). The court found that the housing authority’s basis for termination was not inconsistent with the applicable HUD regulations. Id. at 264. Following Ritter, the court afforded the decision to terminate “reasonable deference,” and granted the housing authority’s motion for summary judgment. Id. at 264-65. Plaintiff appeals on the sole issue of whether the district court erred in deferring to ARELA and the hearing officer’s conclusion that David Clark was a “family member” for the purposes of the Section 8 regulations.

II.

A.

We review the district court’s granting of summary judgment de novo. Ritter, 33 F.3d at 327; Haavistola v. Community Fire Co., 6 F.3d 211, 214 (4th Cir.1993). Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is appropriate only when the Court, viewing the record as a whole and in the light most favorable to the nonmoving party, determines that there exists no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

The outcome on a motion for summary judgment is dependent not only on the standard of review, but also on the scope of review. That is, the focus of the court’s inquiry is as important as the rigor of that inquiry. This action is brought under section 1983, which provides a cause of action for the deprivation of rights created by federal law. 42 U.S.C. § 1983. The Supreme Court has held that violations of federal housing laws by state agencies implementing these laws are actionable under section 1983 by Section 8 participants. Wright v. Roanoke Redev. & Hous. Auth., 479 U.S. 418, 429, 107 S.Ct. 766, 773, 93 L.Ed.2d 781 (1987); see Ritter, 33 F.3d at 327 n. 3 (“we proceed on the assumption that [plaintiff] is entitled to sue for improper termination of Section 8 assistance when the termination is in conflict with federal regulation”); Holly v. Housing Auth. of New Orleans, 684 F.Supp. 1363, 1366 (E.D.La.1988). The civil rights cause of action against a state agency implementing a federal program compels federal courts to uphold the letter of federal law while allowing agencies the discretion to perform their function of reasonably administering the federal program.

B.

The Court first reviews the deference the District Court gave to the factfinding of the hearing officer. Plaintiff contends that the factfinding of the hearing officer is to be afforded no deference in a section 1983 action and that the District Court was obligated to make its own findings of fact.

Plaintiffs argument misconstrues the nature of the informal hearing which is intended to provide pretermination review of housing authority decisions to terminate housing assistance benefits. See 55 Fed.Reg. 28541 (1990). This review is designed to comport with the due process requirements for public-welfare program termination prescribed in Goldberg v. Kelly, 397 U.S. 254, 266-71, 90 S.Ct. 1011, 1019-22, 25 L.Ed.2d 287 (1970). See 55 Fed.Reg. 28541 (1990) (“PHAs must adopt written informal pretermination hearing procedures for participants, which fully meet the requirements of Goldberg v. Kelly ”). The administrative review, while not in the form of a “trial,” nevertheless serves “to produce an initial determination of the validity of the [housing authority’s] grounds for discontinuance of payments in order to protect a recipient against an erroneous termination of benefits.” Goldberg, 397 U.S. at 266-67, 90 S.Ct. at 1020. Goldberg places five requirements on the termination process employed by a housing authority: (1) timely notice from the housing authority stating the basis for the proposed termination, (2) an opportunity by the tenant to confront and cross-examine each witness relied on by the housing authority, (3) the right of the tenant to be represented by counsel, (4) a decision, based solely on evidence adduced at the hearing, in which the reasons for the decision are set forth, and (5) an impartial decision maker. Goldberg, 397 U.S. at 266-71, 90 S.Ct. at 1019-22; see also Caulder v. Durham Housing Authority, 433 F.2d 998, 1003-04 (4th Cir.1970), cert. denied, 401 U.S. 1003, 91 S.Ct. 1228, 28 L.Ed.2d 539 (1971) (Goldberg applies to Section 8 terminations). Federal regulations set out the basic procedural requirements of informal hearings in almost literal compliance with Goldberg. 24 C.F.R. § 882.216(b)(6). Plaintiff has not challenged these regulations on due process grounds, and there is no allegation in this appeal of violation of these regulations.

The sole issue before the Court regarding the factfinding is the issue preclusive impact or degree of deference it may be afforded by courts in subsequent litigation, including eases brought under section 1983. The Administrative Procedure Act’s regulation of the scope of court review, found at 5 U.S.C. § 706, is not applicable to housing authorities. Ritter, 33 F.3d at 327. However, the Supreme Court has held that in actions under section 1983, “federal courts must give [an] agency’s factfinding the same preclusive effects to which it would be entitled in the State’s courts.” University of Tennessee v. Elliott, 478 U.S. 788, 799, 106 S.Ct. 3220, 3226, 92 L.Ed.2d 635 (1986); see also United States v. Utah Construction & Mining Co., 384 U.S. 394, 421-22, 86 S.Ct. 1545, 1559-60, 16 L.Ed.2d 642 (1966) (deference given to factfindings of federal agency acting in judicial capacity where parties had an adequate opportunity to litigate). In addition to having the agency’s decision recognized in state court, the agency must be “acting in a judicial capacity” and the parties must have had “an adequate opportunity to litigate.” Id.; Layne v. Campbell County Dept. of Social Services, 939 F.2d 217, 219 (4th Cir.1991). ARHA’s informal hearing is clearly judicial in nature in that it entails the presentation of evidence and a decision based thereon under specific legal standards. In this case, the hearing also complied with the Goldberg requirements including the opportunity to confront witnesses, the opportunity to be represented by counsel, and a hearing in front of an impartial decision maker. It is therefore appropriate to conclude that plaintiff had an “adequate opportunity to litigate.” The difficulty however lies with the preclusive effect in state court. A review of Virginia state court decisions and federal court decisions applying Virginia law finds no review of housing authority factfindings. Virginia has its own Administrative Process Act, Va.Code § 9-6.14:1 et seq., that, like the federal Administrative Procedures Act, governs the standard of review of state agency decisions. However, the Virginia act specifically excludes local or regional authorities, “including those with federal authorities.” Va.Code § 9-6.14:4.1. State case law confirms that local housing authorities are not considered state agencies. See VEPCO v. Hampton Redevelopment & Hous. Auth., 217 Va. 30, 225 S.E.2d 364 (1976).

Nevertheless, this Court concludes that deference must be shown to the factfinding of local housing authorities. Plaintiff has received a termination hearing that comports with the requirements of due process as set out in Goldberg. ARHA’s original decision to terminate was therefore validated by an administrative adjudicative process. That established, it follows that due process does not require an opportunity to relitigate the issues previously settled. See Detweiler v. Commonwealth of Va. Dep’t of Rehabilitative Servs., 705 F.2d 557, 561 (4th Cir.1983) (“The Supreme Court has not ruled that judicial review of the substantive decision of the hearing officials is required by the due process clause. On the contrary, its decisions imply that an administrative hearing is sufficient.”). Deference to the findings of an impartial hearing officer in Section 8 program termination hearings results in no constitutional deprivation and advances the sound policy articulated in University of Tennessee and Utah Construction. See University of Tennessee, 478 U.S. at 798, 106 S.Ct. at 3226 (“the parties’ interest in avoiding the cost and vexation of repetitive litigation and the public’s interest in conserving judicial resources is equally implicated whether the factfinding is done by a federal or state agency”) (citing Utah Construction, 384 U.S. at 422, 86 S.Ct. at 1560).

The level of deference shown to the factfindings of a hearing officer is not absolute but it is significant. The regulations governing hearings state that factual findings must be “based on a preponderance of the evidence presented at the hearing.” 24 C.F.R. § 882.216(6)(v); see also 55 Fed.Reg. 28541 (“Factual determinations relating to the individual circumstances of the participant must be based on the evidence presented at the hearing.”); accord Goldberg, 397 U.S. at 271, 90 S.Ct. at 1022 (“the decision-maker’s conclusions must rest solely on the legal rules and evidence adduced at the hearing”). Accordingly, to insure compliance with federal law, the reviewing court must be satisfied that the hearing officer’s conclusions are supported by substantial evidence. Cf. 5 U.S.C. § 706(2)(E) (factfindings in agency hearings reviewed in court under a “substantial evidence” standard).

In this case, the District Court did not explicitly review the hearing officer’s factfindings under a substantial evidence standard. Nevertheless, it is evident that the court set its level of deference to insure compliance with the federal regulations. The court stated:

This Court finds that the AHRA [sic] and the hearing officer had ample evidence before them to conclude that David Clark was a member of Ms. Clark’s family. Such information was contained in the initial letter from the AHRA [sic] and in the decision of the hearing officer. In fact, the hearing officer specifically states that he considered the totality of the evidence in coming to the conclusion that the AHRA [sic] had shown by a preponderance of the evidence that drug-related criminal activity occurred in the plaintiffs residence and that such residence was under her control.

Clark, 894 F.Supp. at 264. This Court concludes that the District Court did, in fact, apply the correct standard of review to the hearing officer’s factfindings. The Court now reviews the District Court’s conclusions de novo. Haavistola v. Community Fire Co., 6 F.3d 211, 214 (4th Cir.1993).

The hearing officer heard testimony from Detective Aden, who executed the search warrant, and from David and Stacey Clark. The testimony of the detective conflicted with that offered by David Clark, in that Mr. Clark denied telling the detective that he lived at the residence and denied having claimed ownership of personal property at the residence. The hearing officer was also aware that the Alexandria police department’s search was instigated by information that a black male was selling drugs from that residence. The hearing officer chose to believe the testimony of Detective Aden and concluded that David Clark: (1) was found at Stacey Clark’s residence in possession of heroin and related drug paraphernalia; (2) had ready access to the residence; (3) was intimately familiar with the layout of the residence; and (4) had personal belongings, including a sword hidden underneath a mattress, at Stacey Clark’s residence. This Court agrees with the District Court that the testimony of Detective Aden accompanied by the details of the search warrant and the police report constitute substantial evidence supporting the factfinding of the hearing officer. That factfinding will not be disturbed.

C.

The Court next addresses the deference to be afforded ARHA’s interpretation of the federal regulations in terminating Stacey Clark’s Section 8 benefits. In Ritter v. Cecil County Office of Hous. & Community Dev., this Court recognized that “it is appropriate for us to show some deference to a state agency interpreting regulations under the authority of a federally created program.” 33 F.3d at 327-28 (citing General Electric Co. v. Gilbert, 429 U.S. 125, 141, 97 S.Ct. 401, 410-11, 50 L.Ed.2d 343 (1976)). Ritter created a two-step analysis for reviewing state agency interpretations of federal laws. First, the court should determine whether the state agency action is inconsistent with the federal housing provisions. Id. at 328. If there is no inconsistency, the court should afford the state agency’s action reasonable deference, meaning that the action should be upheld unless it is found to be arbitrary or capricious. Id. at 328 (citing Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984)).

While Ritter dealt with a promulgated, interpretive rule by a housing agency, there is no reason to limit the Ritter analysis to such a setting. Whether an interpretation is promulgated or not may touch on the reasonableness of the state agency’s interpretation. However, for the purposes of this case, the fact that an interpretation is not in the form of a promulgated rule will not prevent that interpretation from being afforded deference by courts if it is consistent with the federal provisions and is reasonable.

This Court now applies the standard of review established in Ritter to determine whether David Clark could be considered a member of Stacey Clark’s family under the federal housing regulations. As set out above, there is no specific definition of “family” in the federal housing statutes or regulations. See 42 U.S.C. § 1437a(b)(3) (definitions); 24 C.F.R. § 812.2 (1994) (same). In HUD’s preamble to the regulations authorizing assistance termination for family involvement in drug-related criminal activity, HUD explained that “‘family’ in these programs includes only individuals who are occupying the same unit.” 55 Fed.Reg. 28543 (1990). The hearing officer concluded that David Clark: (1) was found at Stacey Clark’s residence in possession of heroin and related drug paraphernalia; (2) had ready access to the residence; (3) was intimately familiar with the layout of the residence; and (4) had personal belongings, including a sword hidden underneath a mattress, at Stacey Clark’s residence. Based on these findings, which were supported by substantial evidence, the hearing officer concluded that David Clark was a “family member” for the purposes of 24 C.F.R. § 882.118. The Court holds that the findings of the hearing officer support the conclusion that David Clark “occupied the same unit” as Stacey Clark. Therefore, the hearing officer’s conclusion, which was subsequently relied on by ARHA, is reasonable and not inconsistent with the federal regulations. Accordingly, ARHA’s decision to terminate Stacey Clark’s Section 8 benefits must be afforded deference.

III.

Plaintiffs conception of the standard and scope of review in this case would place federal courts and juries in the position of second-guessing every decision made by local housing authorities. The actual role of the federal courts is far more limited, even in actions brought under section 1983. In this ease, the local housing authority drew reasonable conclusions from the evidence presented regarding David Clark’s status as a member of Stacey Clark’s family. These conclusions were not inconsistent with the federal regulations. As a matter of law, Stacey Clark’s rights as created by the federal housing regulations were not infringed, and summary judgment for the defendant was warranted.

The judgment of the district court is affirmed.

AFFIRMED.


author: MURNAGHAN, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. James Cedric HAYDEN, a/k/a Reginald James Wilder, Defendants-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Tomel K. LUCAS, a/k/a Angelo Berlin, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Reginald Eugene HAYDEN, a/k/a Bubba, Defendant-Appellant.
    Nos. 94-5861, 94-5871 and 94-5877.
    United States Court of Appeals, Fourth Circuit.
    Argued Feb. 2, 1996.
    Decided May 31, 1996.

      ARGUED: Terry N. Grimes, King, Fulghum, Snead, Nixon & Grimes, P.C., Roanoke, Virginia, for Appellant Reginald Hayden; Deborah S. Caldwell-Bono, Roanoke, Virginia, for Appellant James Hayden; Paul S. Brenner, New York City, for Appellant Lucas. Ray B. Fitzgerald, Jr., Assistant United States Attorney, Charlottesville, Virginia, for Appellee. ON BRIEF: Robert P. Crouch, Jr., United States Attorney, Cynthia R. Micklem, Law Intern, T.C. Williams School of Law, Charlottesville, Virginia, for Appellee.
    Before WILKINSON, Chief Judge, and RUSSELL and MURNAGHAN, Circuit Judges.
   Affirmed in part and reversed in part by published opinion. Judge MURNAGHAN wrote the opinion, in which Chief Judge WILKINSON and Judge RUSSELL joined.

OPINION

MURNAGHAN, Circuit Judge:

A jury convicted Reginald Hayden, James Hayden, and Tomel Lucas (collectively “the defendants”) of conspiracy to possess with the intent to distribute crack cocaine, among other drug-related offenses. The defendants appeal their convictions and sentences on various grounds. We affirm all convictions and sentences, with the exception of James Hayden’s conviction and sentence under 18 U.S.C. § 924(c) for using or carrying a gun during and in relation to drug trafficking on June 11, 1994. On that conviction, we reverse.

I.

The defendants were all members of a drug conspiracy trafficking cocaine from New York City to Roanoke, Virginia. The leader, James Hayden (“James”), would arrange to obtain cocaine in New York and then to transport it to Roanoke. Once the drugs arrived in Roanoke, James and Tomel Lucas (“Lucas”) would cook and package the powder cocaine into “crack cocaine.” Reginald Hayden (“Reginald”) purchased crack cocaine from James and then distributed the crack cocaine to various individuals. James and Lucas would also distribute the crack cocaine to various buyers including a confidential informant, Christopher Powell (“Powell”).

A jury convicted all defendants of conspiracy to possess crack cocaine with the intent to distribute. Additionally, the jury convicted James of two counts of distribution of crack cocaine, two counts of possession with intent to distribute crack cocaine, and two counts of using or carrying a firearm during and in relation to a drug trafficking crime. They also convicted Lucas of one count of possession with intent to distribute crack cocaine.

The sentencing judge found that Reginald was a career offender pursuant to U.S.S.G. § 4B1.1 and sentenced him to 360 months. James received 592 months and Lucas 168 months.

II.

The defendants raise numerous grounds for appeal. We address each in turn.

A Removal of Juror

The defendants (collectively) contend that the district court erred when it refused to grant their motion for a mistrial following the removal of the only African-American juror from the panel during the presentation of evidence. During the voir dire, the judge asked the potential jurors if they knew any of the witnesses. The only African-American, James Williams (“Williams”), answered that he did not. It then developed, however, that Williams knew Powell, a government informant and witness. However, Williams knew Powell only by his street name “Champ” and thus had not recognized the name Powell. Despite recognizing Powell when he testified the first day of trial, Williams did not speak up. Powell, however, told a prosecutor that he knew Williams. On the third day of trial, the district judge called Williams to the stand and out of the presence of the jury asked him if he knew Powell. Williams admitted that he knew Powell. Williams, a hair dresser, stated that he had cut Powell’s hair. The judge therefore dismissed Williams as a juror and replaced him with an alternate.

The defendants moved for a mistrial, which the district judge denied. We review a district court’s refusal to grant a mistrial for abuse of discretion. United States v. West, 877 F.2d 281, 287-88 (4th Cir.1989), cert. denied, 493 U.S. 869, 110 S.Ct. 195, 107 L.Ed.2d 149 (1989), and cert. denied, 493 U.S. 959, 110 S.Ct. 377, 107 L.Ed.2d 362 (1989), and cert. denied, 493 U.S. 1070, 110 S.Ct. 1113, 107 L.Ed.2d 1020 (1990). In order to demonstrate an abuse of discretion, the defendants must show prejudice. Id. at 288.

The defendants argue that the presence of a juror who knew a witness prejudiced them even though the juror was dismissed before deliberations began. In exercising its discretion to grant a mistrial, the district court should consider whether there are less drastic alternatives to a mistrial that will eliminate any prejudice. United States v. Smith, 44 F.3d 1259, 1268 (4th Cir.), cert. denied, — U.S. -, 115 S.Ct. 1970, 131 L.Ed.2d 859 (1995). In the instance of a biased juror, that juror “can be dismissed and replaced with an alternate juror.” United States v. Thompson, 744 F.2d 1065, 1068 (4th Cir.1984); Fed.R.Crim.P. 24(e). Here, the judge did just that — he removed the juror and replaced him with an alternate juror, a measure which eliminated the prejudice of the juror knowing a witness, but did not necessitate the expense and delay of a mistrial. We therefore find no prejudice.

The defendants also argue that dismissal of the only African-American on the jury could have led the remaining jurors to conclude that the dismissed juror was untrustworthy and, by implication, that the defendants, who were also African-American, were also untrustworthy. We disagree. Dismissal of a juror does not necessarily mean that the juror is untrustworthy. The district judge explained the dismissal of Williams to the jury. Furthermore, Williams’s dismissal was necessary to avoid the prejudice created by a biased juror. We therefore do not find that the district court abused its discretion in dismissing Williams and refusing to grant a mistrial.

B. Motion for Acquittal

The defendants (collectively) argue that the government failed to meet its burden to prove beyond a reasonable doubt each element of the offense as required by In re Winship, 397 U.S. 358, 90 S.Ct. 1068, 25 L.Ed.2d 368 (1970). A reviewing court must uphold a conviction if “after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979) (emphasis in original). Based on a review of the record, we find that there was sufficient evidence to convict the defendants on each count for which the jury found them guilty.

C. Sentencing Disparity Between Crack Cocaine and Powder Cocaine

The defendants (collectively) also argue that their sentences should be reversed because Congress’s decision to punish convicted crack cocaine dealers more severely than powder cocaine dealers lacks any rational basis and, therefore, is unconstitutional. The Fourth Circuit has reviewed that precise issue in the past and found that “Congress could rationally have concluded that distribution of cocaine base [crack] is a greater menace to society than distribution of cocaine powder and warranted greater penalties because it is less expensive and, therefore, more accessible, because it is considered more addictive than cocaine powder and because it is specifically targeted toward youth.” United States v. Thomas, 900 F.2d 37, 39-40. (4th Cir.1990). Many other circuits have also upheld the sentencing disparity between crack cocaine and powder cocaine. See, e.g., United States v. Singleterry, 29 F.3d 733, 740 (1st Cir.), cert. denied, — U.S. -, 115 S.Ct. 647, 130 L.Ed.2d 552 (1994); United States v. Stevens, 19 F.3d 93, 97 (2d Cir.1994); United States v. Reece, 994 F.2d 277, 278-79 (6th Cir.1993) (per curiam); United States v. Williams, 982 F.2d 1209, 1213 (8th Cir.1992); United States v. Frazier, 981 F.2d 92, 95 (3d Cir.1992) (per curiam), cert. denied, 507 U.S. 1010, 113 S.Ct. 1661, 123 L.Ed.2d 279 (1993); United States v. Lawrence, 951 F.2d 751, 754-55 (7th Cir.1991); United States v. Galloway, 951 F.2d 64, 65-66 (5th Cir.1992) (per curiam).

The defendants argue that a recent report by the United States Sentencing Commission which concludes that the disparity is not rational should change the court’s decision on the matter. A Sentencing Commission report does not change our earlier holdings. Furthermore, Congress rejected the Sentencing Commission’s report and recommendation and refused to change the disparity in crack cocaine versus powder cocaine sentences. Thus, we find the defendants’ arguments as to the sentencing disparity without merit.

D. Reginald Hayden’s Request for a Mistrial

The defendants — individually—also raise a number of grounds for appeal. Reginald contends that the district court erred by failing to declare a mistrial after a government witness mentioned his prior imprisonment. Monique Taylor, Reginald’s daughter, mentioned during her testimony that Reginald had been in prison. The defense immediately objected and the district judge instructed the jury to disregard Taylor’s testimony. Reginald’s counsel moved for a mistrial which the district judge denied.

As stated earlier, we review a district court’s refusal to grant a mistrial for abuse of discretion. West, 877 F.2d at 287-88. In order to demonstrate an abuse of discretion, the defendants must show prejudice. Id. at 288.

In similar cases, where a passing and brief remark was made referencing a prior criminal record, but then a curative instruction was issued, the Fourth Circuit has held that “no prejudice exists ... if the jury could make [an] individual guilt determination by following the court’s cautionary instructions.” United States v. Dorsey, 45 F.3d 809, 816 (4th Cir.), cert. denied, — U.S. -, 115 S.Ct. 2631, 132 L.Ed.2d 871 (1995). Indeed, the court has recognized that:

[w]hile we have reversed convictions in cases where evidence of other crimes had been improperly presented, in those eases the inadmissible evidence was not only prejudicial, but had been purposely introduced by the prosecution ... Absent such misconduct on the part of the Government counsel, the courts generally have discerned no reversible error where the trial court has acted promptly in sustaining an objection and advising the jury to disregard the testimony.

Id. at 817 (citation omitted).

The remark was brief, not repeated, and the trial court immediately sustained an objection and advised the jury to discount the testimony. The defendants, however, allege that the remark came out in response to a leading question by the prosecutor. We do not find that the remark was made in response to a leading question; nor do we find that Reginald suffered any prejudice in light of the cautionary instructions.

E. Rule 101(b) Material Against James Hayden

James argues that the court erred when it admitted evidence that he had written a threatening letter to a witness. Additionally, he objects to evidence that he telephoned Powell to threaten Powell and his family if Powell testified. James argues that the letter and telephone conversation constituted impermissible evidence under Rules 404(b) and 403 of the Federal Rules of Evidence and, therefore, that the judge erred by allowing them in as evidence. The admission of evidence by the district court under Rule 404(b) may be overturned only for an abuse of discretion. United States v. Mark, 943 F.2d 444, 447 (4th Cir.1991).

Rule 404(b) prohibits evidence of other crimes or bad acts to show bad character and propensity to violate the law. However, evidence of other bad acts is admissible for certain purposes unrelated to a defendant’s bad character, such as “proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident.” Fed.R.Evid. 404(b). Evidence of witness intimidation is admissible to prove consciousness of guilt and criminal intent under Rule 404(b), if the evidence (1) is related to the offense charged and (2) is reliable. See United States v. Billups, 692 F.2d 320, 330 (4th Cir.1982), cert. denied, 464 U.S. 820, 104 S.Ct. 84, 78 L.Ed.2d 93 (1983).

James argues that the evidence was unreliable as to the letter. He contends that there was no proof that he, James Hayden, had actually written the letter. There was no handwriting analysis, nor were there any fingerprints, and the letter was not signed — it was sent anonymously. The letter’s content, however, pointed to James as its author. The letter referred to the recipient as owing the writer money for drugs unpaid for. The recipient of the letter testified that James Hayden was the only person to whom he had ever owed drug money and about whom he was planning to testify. Thus, the recipient established the identity of the writer of the letter to a fairly reliable degree. As for the telephone conversation, Powell was able to identify the voice as James.

James also argues that even if the letter and the telephone conversation were admissible under 404(b), they were inadmissible under Rule 403. Rule 403 prohibits evidence where its probative value is substantially outweighed by its prejudicial effect.

James argues that the prejudicial effect of the telephone conversation and the foul language of the letter far outweighed any probative value. The probative value of James’s threats, however, were not minimal as he contends. The threats went directly to establish criminal intent and guilty consciousness. Thus, the probative value outweighed the prejudicial effect of the statements.

F. Amount of Drugs Attributed to James Hayden

James argues that the district court incorrectly attributed too many drugs to him. We have reviewed the record and find that the district court did not err in its calculation of the drugs attributable to James Hayden.

G. Two-level Enhancement of James Hayden’s Offense Level for Obstruction of Justice

The district court enhanced James’s sentence by two levels for obstruction of justice based on the threatening letter and the telephone conversation where he attempted to discourage witnesses from testifying. As for the letter, James argues that the letter was anonymous and that there is no proof that he was the one who sent it. As previously explained, based on the letter recipient’s testimony and the content of the letter, a trier of fact could reasonably infer that James wrote the letter.

As for the phone call, James argues that it is not obstruction of justice for an individual to caution a potential witness against perjury. As evidence of his innocence, James points out that he prefaced his threat with “you know that is not my voice on the tape [referring to one of the tapes of a drug deal].” James’s argument is absurd. He threatened Powell and his family if Powell testified. That is not the action of an innocent man warning against perjury, but of someone obstructing justice by threatening a witness.

H. Tomel Lucas’s Motion for Severance

Lucas argues that the court committed reversible error in his case by denying his motion for a severance. Lucas contends that he suffered irreparable prejudice because the evidence against him was minimal when compared to his co-defendants and because the majority of prejudicial testimony did not apply to him, especially the evidence regarding James’s threats to witnesses. In particular, he relies on the fact that the judge failed to give any curative instructions on the Rule 404(b) evidence admitted against James regarding the threats James made to witnesses.

Rule 8(b) of the Federal Rules of Criminal Procedure provides that “[t]wo or more defendants may be charged in the same indictment or information if they are alleged to have participated in the same act or transaction.” In such cases the federal system prefers joint trials because they promote efficiency and “serve the interests of justice by avoiding the scandal and inequity of inconsistent verdicts.” Zafiro v. United States, 506 U.S. 534, 537, 113 S.Ct. 933, 937, 122 L.Ed.2d 317 (1993) (quoting Richardson v. Marsh, 481 U.S. 200, 210, 107 S.Ct. 1702, 1709, 95 L.Ed.2d 176 (1987)). Rule 14 of the Federal Rules of Criminal Procedure, however, provides that joinder, even when appropriate under 8(b), may be so prejudicial that the defendants should be tried separately. Id.

The mere showing of prejudice is not enough to require severance. Zafiro, 506 U.S. at 538-40, 113 S.Ct. at 938. Rather, tailoring of relief, if any, for any potential prejudice resulting from a joint trial is left to the district court’s sound discretion. Id. Thus, the court reviews a district court’s refusal to grant a severance for abuse of discretion. West, 877 F.2d at 287-88. That discretion is abused “only if there[wa]s a serious risk that a joint trial would [have] eompromis[ed] a specific trial right of one of the defendants, or prevented] the jury from making a reliable judgment about guilt or innocence.” Zafiro, 506 U.S. at 539, 113 S.Ct. at 938.

Often, less drastic measures, such as limiting instructions, act to cure any risk of prejudice. Id. Indeed, the government recognized the curative effect of limiting instructions when arguing against a severance based on 404(b) materials. Counsel stated “if that [404(b) ] evidence is admitted, it’s going to be extremely brief and extremely precise, and the Court could give a limiting instruction pointing out that Mr. Lucas has not allegedly threatened anybody or tried to alter anyone’s testimony.” Following that argument, the court denied the motion for a severance by concluding that there were no grounds for severing.

Ultimately, however, the court gave no limiting instructions; but, none were requested by Lucas’s counsel. While we do not approve of the failure to give limiting instructions in a joint trial, the failure to give them does not per se constitute reversible error as to the district judge’s refusal to sever the trial. Rather, our ultimate inquiry is whether the trial “eompromise[d] a specific trial right of ... the defendant ], or prevented] the jury from making a reliable judgment about guilt or innocence.” Zafiro,506 U.S. at 539, 113 S.Ct. at 938. Under that inquiry, we find no error in the refusal to grant a motion for severance.

The evidence against Lucas was fairly strong. Powell testified that Lucas weighed the crack cocaine as James cooked it. Lucas also, according to Powell, helped distribute the crack cocaine and made a trip to New York to purchase cocaine. Other evidence corroborates Powell’s testimony as to Lucas’s trip to New York: on an audio tape, Lucas admitted to traveling to New York to pick up cocaine; one witness testified that a person with an alias Lucas was known to use had purchased an airplane ticket to New York and made the trip; and Monique Taylor testified that she saw Lucas in New York during the time the alleged trip occurred. Another witness testified that he purchased cocaine from Lucas. Additionally, the case was not so complex that the jury could not separate the evidence as to each defendant. For those reasons, we find that a jury could have made an individual determination as to Lucas’s guilt and that any “spill-over” effect from the 404(b) evidence admitted against James did not prejudice Lucas.

I. 18 U.S.C. § 921(c) Convictions

James Hayden was convicted of two counts of using and carrying a firearm during or in relation to a drug trafficking crime in violation of 18 U.S.C. § 924(c). At oral argument, counsel argued that under the standard set forth by the Supreme Court in Bailey v. U.S., — U.S. -, 116 S.Ct. 501, 133 L.Ed.2d 472 (1995), there was insufficient evidence to find James guilty of carrying or using a firearm on May 14,1994 and on June 11,1994.

As to the May 14 count, the evidence consisted of: Powell’s testimony that he had seen James with a nine millimeter automatic pistol which James picked up, placed in his pants, and carried with him when he went to get cocaine. As to the June 11 count, the evidence consisted of: (1) two weapons that were found in an apartment, one of which was seized from the bedroom; (2) the fact that James was in that apartment on June 11 cooking powder cocaine into crack cocaine and selling crack from the apartment; (3) taped conversations from the apartment involving James, Lucas, and Powell discussing trading cocaine for guns (they were not actually conducting the trade—just discussing doing so); and (4) evidence that James had carried a similar gun to the one found in the bedroom during other drug transactions.

In the recent opinion of Bailey v. United States, — U.S. -, 116 S.Ct. 501, 133 L.Ed.2d 472 (1995), the Supreme Court clarified what is necessary to convict a defendant under § 924(e)(1) of using a firearm during drug trafficking. In order to demonstrate use, the government must demonstrate more than mere possession, proximity, and accessibility. “[T]he Government must show active employment of the firearm” by the defendant. Bailey, — U.S. at -, 116 S.Ct. at 506. Thus, “use” requires actual “use”—“action and implementation” such as “brandishing, displaying, bartering, striking with, and most obviously, firing or attempting to fire, a firearm”—not mere possession or intended use. Id. at -, -, 116 S.Ct. at 506, 508.

As to the June 11 count, the evidence presented by the prosecution does not meet the Bailey standard for “use.” The evidence indicates only that the gun was stored in a location accessible to James. There is simply no evidence of active use. See United States v. Garcia, 77 F.3d 274, 276-77 (9th Cir.1996) (reversing conviction under 18 U.S.C. § 924(c) because the defendant was not actively using a firearm where a machinegun was found in an upstairs bedroom in house where the defendant was arrested); United States v. Wilson, 77 F.3d 105, 110 (5th Cir.1996) (same where weapons were seized from a house owned by the defendant and where drug money was counted and stored); United States v. Abdul, 75 F.3d 327, 329-30 (7th Cir.1996) (vacating conviction and sentence under 18 U.S.C. § 924(c) because the weapon was merely under a bed in the same room as the defendant and not actively used by him); United States v. Jones, 74 F.3d 275, 276 (11th Cir.1996) (reversing 18 U.S.C. § 924(c) conviction and sentence because weapon was merely being stored).

James was charged, however, with both using and “carrying” a firearm, so we must also evaluate whether the evidence was sufficient to convict him for carrying a firearm. In Bailey the Supreme Court noted that the “carry” prong of § 924(c)(1) would bring some offenders under the reach of the statute who would not satisfy the “use” prong. — U.S. at -, 116 S.Ct. at 509. While the Court did not directly address what was needed to establish that a defendant “carried” a weapon in relation to a drug trafficking crime, the Court clearly explained that “use” and “carry” were distinct and different from mere “possession.” “[T]he inert presence of a firearm, without more, is not enough to trigger § 924(e)(1).” Id. at -, 116 S.Ct. at 508. The Court further explained that “[a] defendant cannot be charged under § 924(c)(1) merely for storing a weapon near drugs or drug proceeds.” Id.; see also United States v. Riascos-Suarez, 73 F.3d 616, 622-23 (6th Cir.1996) (finding that in order to be convicted of carrying a gun under § 924(c)(1), the firearm must be immediately available for use — on the defendant or within his or her reach).

The evidence is insufficient to convict James of carrying a firearm on June 11. The bulk of the evidence consists of testimony that James possessed the pistol and that it was stored somewhere in a bedroom where he was on a day he was cooking and distributing crack cocaine. Additionally, there is evidence that he carried a similar pistol in a prior drug transaction. That evidence does not support a finding that the weapon was on James or within his reach available for immediate use. It merely indicates that James stored a weapon near his drug-dealing activities. Thus, we reverse James’s conviction and sentence for using and carrying a gun on June 11,1994.

As to the May 14 conviction, however, the evidence clearly is sufficient to convict James of carrying a pistol. A witness testified that James picked up a nine millimeter automatic pistol, placed it in his pants, and carried it with him. In Bailey the Supreme Court explained in distinguishing “use” from “carry” that “when an offender keeps a gun hidden in his clothing throughout a drug transaction” that would constitute carrying a gun for purposes of § 924(c)(1). Id. at -, 116 S.Ct. at 507. Thus we affirm the May 14 conviction.

In reviewing the § 924(c) convictions, we considered the United States’ Reply Brief on that matter. Thus, we also grant the motion by the United States, filed January 22, 1996, to reply to the appellants’ supplemental authority.

Accordingly, we

AFFIRM IN PART AND REVERSE IN PART.

      . In order to distinguish James Hayden from Reginald Hayden, we refer to the two men by their first names "James” and "Reginald.”

      . The precise colloquy proceeded as follows:
      Q. Did Mr. James Hayden come and stay with you with your permission—
      A. Yeah.
      Q. —for a few days early in the spring?
      A. Yeah.
      Q. When was that?
      A. I think it was around March 5th. It was after my birthday, two days after my birthday.
      Q. And his reason for being in town was what?
      A. He had came because my father had just got out of prison. He came to, you know, see how—

      . The district judge cautioned:
      All right. Ladies and gentlemen, disregard the statement of why Mr. James was down to see Reginald Taylor or Reginald Hayden. That should not have come out in the evidence and I just ask you to disregard it.

      .The letter read as follows:
      That's right. It's me mother fucker. If I get close to you just one time, I am going to pull your neck off of your fucking shoulders and shit down your punk ass neck. Yeah you took my dope and didn’t pay me. So you better be worried about a conspiracy charge. You have fucked so many people around in this jail and in this town. So you better watch your back because you don’t know when it comes. But you can be sure that it's coming. And when it does the blood is going to flow. So get ready to join your nasty stinking dead ass wife. You Sony mother fucker. Boo. I know you hear me coming.

      . In the telephone conversation, the caller stated:
      I don't care if this telephone is wired, and I don't care if your buddy, Tom, is listenin. If I get any time out of this ... I'm gonna get you, your family and your baby.

      . Additionally, Monique Taylor testified that Reginald called her and asked her not to say that he had been in New York.

      . The government does not contest that no limiting instructions were given.

      . James has not appealed the district court’s failure to give limiting instructions.

      . James also argues that the evidence was insufficient to sustain his convictions for using and carrying a gun during drug trafficking because there was no credible evidence before the juiy that the drugs introduced to demonstrate drug trafficking were seized from the defendants. We find that argument meritless.