Split Noted: Effect of Failing to Object to a Magistrate's Report

Per Dupree v. Warden (11th Cir. May 7, 2013)

The CA11 requires a district judge to rule on all grounds raised in a habeas petition.  Here, the magistrate overlooked one claim.  The petitioner did not object, and the district court accepted the magistrate's report.

This CA11 panel does the right thing, and abides by panel precedent requiring a finding of reversible error.  (p. 8-9.)  In so doing, however, the panel notes that the CA11 is an outlier in a three-way circuit split regarding the effect of failing to object to a magistrate's report, and recommends an en banc to shift position.  (p. 14-19.)

Most Lenient:  The CA11 rule, which is the same as the CA8 and CA9, holds that failure to object has no effect on the de novo review of legal issues.  For factual issues, the CA11 and CA8 employ plain error review (see middle paragraph below), while the CA9 deems such objections waived (see strictest paragraph).

Middle:  The CA3 and CA5 always employ plain error review for both factual and legal issues.  They permit reversal if the appellant can show (1) plain (2) error that both (3) affects substantial rights and (4) undermines the fairness or integrity of judicial proceedings.

Strictest:  The CAs 2, 4, 6, 7, and 10 apply a firm waiver rule.  Failure to object waives appellate review of both factual and legal issues.  Such waiver may be waived by the court in the interests of justice, and does not apply if the magistrate does not warn of the effects of failing to object.

Here the panel recommends adopting the strictest approach.  I agree.  A number of considerations support this approach.

First, judicial economy, as the Supreme Court stated in Thomas v. Arn, 474 U.S. 140 (1985)--a decision affirming, but not requiring, the CA6's strict approach.

Second, if--as required--a magistrate warns of the effect of failing to object, then the failure to object is indeed the intentional relinquishment of a known right.  United States v. Olano, 507 U.S. 725 (1993).  And even if only done by counsel, counsel is an agent for the party, and the party is responsible for the failings of his counsel.  Link v. Wabash R.R. Co., 370 U.S. 626 (1962).  Such waiver argues against the middle-ground approach of the CA3 and CA5.

Third, imposing a waiver rule is not jurisdictional, so appellate courts still retain authority to correct manifest injustices.  Hormel v. Helvering, 312 U.S. 522 (1941).

Fourth, adopting a waiver rule would bring Civil Rule 72 in line with Criminal Rule 59, adopted in 2005.

In sum, all indications point to adopting the strictest rule.  And while the CA11 may go en banc to adopt that approach, the rulemaking committee should make the waiver rule explicit in civil rule 72, as it did in criminal rule 59.  That would spare the resources necessary for the CA8 and CA9 to also go en banc to adopt this appropriate rule.

Split Created: Is Claim-Splitting Permitted By The Contract Disputes Act?

Per Phillips/May Corp. v. United States, 2008 WL 1808548, *5-*9 (Fed. Cir. Apr. 23, 2008)

Now I have truly covered every circuit. Phillips/May was awarded a contract to design and construct a Religious Ministry Facility at a military base. It completed the project over a year and a half late, after various contract modifications were made. A month after completing work, Phillips/May submitted ten claims to the Contracting Officer. The officer failed to act on any of these claims, and this inaction constituted an appealable rejection after sixty days. Phillips appealed nine of the ten claims the Armed Services Board of Contract Appeals Ultimately, the parties entered into a global settlement agreement with respect to the nine claims, and the Board entered judgment to that effect.

Six months later, Phillips/May appealed the denial of the tenth claim to the Court of Federal Claims. After the suit was filed, the Contracting Officer offered a determination that Phillips/May was collaterally estopped from raising this claim separate from the other nine claims which arose out of the same set of transactional facts. The question in this appeal is whether the unique procedures of the Court of Federal Claims and public contract disputes permit claim-splitting without raising issues of res judicata, contrary to the general procedure of civil actions.

41 U.S.C. § 609(d) suggests that claim-splitting is permitted in contract actions: “If two or more suits arising from one contract are filed in the United States Court of Federal Claims and one or more agency boards,” the Court of Federal Claims may consolidate them in the interests of justice. This provision does envision separate suits arising from the same contract, and would seemingly resolve this case.

Judge Dyk, on behalf of a unanimous panel, however, notes that this provision does not clearly state that the splitting of all claims, as opposed to transactionally unrelated claims, is permissible. Relying on this ambiguity, this panel of the Federal Circuit then turns to the drafting and legislative history of the Contracts Dispute Act. Congress specifically included, considered, and finally eliminated statutory language which would have expressly permitted claims-splitting between fora. The panel concludes that this rejection implies that Congress intended for claim preclusion to apply with its normal force. The panel does recognize, in a footnote, that it is creating a circuit split from the CA 6.

I think that the Federal Circuit in this case gets Congress’s intent 100% right, and the language of the statute 100% wrong. The manufactured ambiguity just isn’t there. The statutory section permits separate suits “arising from one contract,” meaning separate suits that arise from similar facts. It will be interesting to see what happens if Phillips/May pursues certiorari – an issue of statutory interpretation on which the circuits are split and that governs the jurisdiction of courts when reviewing public contracts seems important enough... Then again, the split is largely irrelevant because almost all these cases go to the Federal Circuit.

Split Noted: Can Events After the Filing of a Class Action Suit Affect Its Removal?

Per Springman v. AIG Marketing, Inc., 2008 WL 1722153, *3 (7th Cir. Apr. 15, 2008)

In July 2003, Plaintiff Springman filed a class action suit in an Illinois state court against AIG Claim Services, Inc, alleging fraudulent claims processing. AIG Claim Services responded to an interrogatory in December 2003 by stating that it had not handled Sprigman’s claims. Almost a year later, Springman finally asked who handled his claim and was informed that the processor was AIG Marketing, Inc. Finally, Springman amended his complaint to aid AIG Marketing and drop AIG Claim Services almost three years after discovering that AIG Marketing was responsible for the allegedly fraudulent claims processing.

In between the suits initial filing and the amended complaint, however, Congress passed the Class Action Fairness Act, which allows removal of some class actions to federal court despite the lack of complete diversity. This act applies to any suit commenced on or after the Act’s effective date. The question is whether the substitution of the parties constitutes a ‘commencement’ of a suit against AIG Marketing within the meaning of the CAFA.

Judge Posner, on behalf of a unanimous panel, notes that the circuits are split on this issue. The majority (the CAs 5,6,7,8,10) hold that actions after the filing of a suit can affect removal, whereas the CA 9 only looks to the suit as initially filed. The majority school does apply the ‘relation-back’ doctrine to determine if the substitution of parties (or other changes) so relates back to the initial suit as not to commence a new suit. That doctrine does not apply here because of Plaintiff Springman’s inexplicable delay in amending his complaint. Therefore, the substitution of the parties commenced a new suit, which can be removed under the CAFA.

Split Noted: Can Class Certification Be Limited to Certain Issues That Are Amenable to Class-Wide Resolution?

Per Grovatt v. St. Jude Med., Inc., 2008 WL 942274, *9 (8th Cir. Apr. 9, 2008)

The underlying facts of this case are truly irrelevant to the circuit split that the opinion notes. Federal Rule of Civil Procedure 23(c)(4) permits class actions to be certified “with respect to particular issues.” Nonetheless, the circuits are split over whether such classes may be properly certified. The CAs 2,9 hold that they may; the CA 5 that they may not unless the whole cause of action can be so certified.

Judge Colloton cites a helpful law review article (not an oxymoron, I swear) on the direct issue. The article shows the rise and fall of the practice of issue certification; a majority of circuits do not reach the issue because they find (as the panel does here) that even those issues which have been certified have a predominance of individual concerns and thus should not have been certified.

Split Widened: Is There Appellate Jurisdiction to Review a Denial of a Motion to Stay Pending Arbitration in the Absence of an Arbitration Agreement?

Per Carlisle v. Curtis, Mallet-Prevost, Colt & Mosle, LLP, 2008 WL 942035, *3-*5 (6th Cir. Apr. 9, 2008)

After selling a construction business, plaintiff Carlisle sought advice on how to minimize his tax liability from Arthur Anderson, LP (accountants); Bricolage Capital LLC (‘financial boutique’); and Curtis, Mallet-Prevost, Colt & Mosle, LLP (law firm). These three institutions recommended a leveraged option strategy. Following this advice, Carlisle formed an LLC and entered into a management agreement with Bricolage, an agreement which called for arbitration of any controversy relating to the agreement. He additionally paid a retainer to the law firm, but did not enter into any agreement.

The IRS determined the leveraged option strategy to be an abusive tax shelter, but offered amnesty, subject to certain conditions, to taxpayers who had invested in them. Curtis Mallet failed to inform Carlisle of these rulings, and Carlisle was eventually required to pay more than $8 million in taxes, penalties and interest. Carlisle filed suit against the three institutions. Bricolage Capital moved to stay the proceedings pending arbitration. While that motion was pending, it filed for bankruptcy, resulting in an automatic stay. The other two institutions – Arthur Anderson and Curtis Mallet – argued that equitable estoppel should prevent the plaintiff from avoiding arbitration with regards to the claims against them as well. The District Court rejected the motion to stay, and the institutions appealed.

Section 16 of the Federal Arbitration Act creates a limited exception to the final judgment rule, allowing for interlocutory appeals of motions to stay pending arbitration. Section 3 of the Act, however, requires that such motions be based on “an agreement in writing. The question this panel of the Sixth Circuit considers is whether there is appellate jurisdiction over an interlocutory appeal of a denial of a motion to stay pending arbitration in the absence of a written arbitration agreement between the parties before the court.

Judge Daughtrey, on behalf of a unanimous panel, holds that the courts lack such jurisdiction. She notes that the circuits have split on this issue; the CAs 10,DC find such jurisdiction lacking as well, whereas the CAs 2 has held that it does have such jurisdiction. Finally, she notes that the Sixth Circuit is not deciding whether the district court should have applied equitable estoppel, quoting the CA 10 to show that the issue is whether the court has the jurisdiction to hear the case, not whether the district court got it right.

Split Noted: Does Informal Notice Suffice to Meet the Service Required for a Sanctions Motion?

Per Cadle Co. v. Pratt (In re Pratt), 2008 WL 933633, *7-*11 (5th Cir. Apr. 8, 2008)

This appeal is the third to reach the Fifth Circuit in a long-running dispute between the Cadle Company and Jack Pratt. Mr. Pratt, represented by Schiro, voluntarily filed for Chapter 7 relief. The Cadle Company, a creditor of Mr. Pratt, later moved to have the discharge set aside because Pratt had not revealed that he was entitled to payments from his mother’s estate. At trial, Schiro presented testimony that Pratt was not entitled to any distributions form the estate because he owed money for loans made to him. After trial, it became known that Pratt had, in fact, received money from his mother’s estate after her death. Cadle filed a motion for Rule 9011 sanctions against Schiro.

Rule 9011 of the Federal Rules of Bankruptcy Procedure requires a motion for sanctions to be served 21 days prior to its filing, so that the recipient has an opportunity to withdraw or correct the offending contention. This provision is substantially the same as the notice requirement of Rule 11 of the Federal Rules of Civil Procedure, and the two have been interpreted similarly.

Cadle did not serve Schiro with an advance copy of the motion for sanctions, but sent two different warning letters more than 21 days before he filed his motion for sanctions. The bankruptcy court held such informal notice insufficient to satisfy the notice requirement and denied sanctions. Judge Wiener, on behalf of a unanimous panel, notes that the circuits have split on this question. The CAs 2,4,5,8,9,10 all require formal service of the motion for sanctions, whereas the CA 7 permits informal notice that substantially complies with Rule 11. The CA 6 has conflicting panel opinions. Although the CA 1 has not decided the issue, the D.R.I. has held that informal notice does suffice. In light of the plain language of the rule and previous Fifth Circuit precedent, the panel affirms the denial of sanctions for failure to formally serve the motion.