Commercial Litigation and Arbitration

Second Circuit Panel Unable to Agree as to whether Magistrate Judges May Impose Rule 11 Sanctions — Circuit Split

From Kiobel v. Millson, 2010 U.S. App. LEXIS 378 (2d Cir. Jan. 8, 2010):

Opinion of Court

In this appeal we consider a challenge to the imposition of sanctions under Rule 11 of the Federal Rules of Civil Procedure. Appellants are defense counsel in an action brought pursuant to the Alien Tort Statute ("ATS"), 28 U.S.C. § 1350, for alleged violations of customary international law in Nigeria. They seek review of an order of the United States District Court for the Southern District of New York (Kimba M. Wood, Chief Judge), affirming the order of a magistrate judge, that sanctioned them for making factual representations that allegedly lacked evidentiary support. Appellants challenge the order of the District Court on two grounds. First, they contend that a magistrate judge is not authorized to issue an order imposing Rule 11 sanctions, and the District Judge should have therefore construed the Magistrate Judge's "Opinion and Order" as a report and recommendation under 28 U.S.C. § 636(b)(1)(B) subject to de novo review. Second, they argue that the imposition of Rule 11 sanctions based on the statements identified by plaintiffs cannot be sustained as a matter of law in light of the record evidence that supported those statements.

The panel is evenly divided on the first ground raised in this appeal, with one member of the panel concluding that magistrate judges have authority to impose Rule 11 sanctions, another judge concluding that they do not, and the third declining to endorse either view in light of the statute's ambiguity.... Fortunately, we need not decide whether the District Judge applied the correct standard of review to the Magistrate Judge's determination that Rule 11 sanctions were warranted in this case, because we agree with appellants' second basis for challenging the order of the District Court. ***

Opinion of Judge Cabranes — No Power

***Pursuant to 28 U.S.C. § 636(b)(1)(A), magistrate judges are authorized to resolve "pretrial matter[s]" by order subject to review by district judges for clear error. Excluded from this grant of authority are dispositive motions, such as motions "for injunctive relief, for judgment on the pleadings, for summary judgment, to dismiss or quash an indictment or information . . . , to suppress evidence in a criminal case, to dismiss or to permit maintenance of a class action, to dismiss for failure to state a claim . . . , and [*18] to involuntarily dismiss an action." 28 U.S.C. § 636(b)(1)(A); see Williams v. Beemiller, Inc., 527 F.3d 259, 265 (2d Cir. 2008) (concluding that the list of motions set forth in this subsection is "non-exhaustive"). Dispositive motions, and certain other matters, may be submitted to a magistrate judge for a report and recommendation, which the district court then reviews de novo. See 28 U.S.C. § 636(b)(1)(B). The Supreme Court has construed this statutory grant of authority to mean that "'nondispositive' pretrial matter[s] [are] governed by § 636(b)(1)(A)" and "'dispositive' matter[s] [are] covered by § 636(b)(1)(B)." Gomez v. United States, 490 U.S. 858, 873-74, 109 S. Ct. 2237, 104 L. Ed. 2d 923 (1989); see also Fed. R. Civ. P. 72(a) ("When a pretrial matter not dispositive of a party's claim or defense is referred to a magistrate judge to hear and decide, the magistrate judge must promptly conduct the required proceedings and, when appropriate, issue a written order stating the decision." (emphasis added)).

Although this Court has not determined whether an order granting Rule 11 sanctions is "dispositive" or "nondispositive" of a claim, other courts have. The Sixth and Seventh Circuits have held that decisions on Rule 11 motions are dispositive of a claim and are therefore not properly resolved by order of a magistrate judge. In Bennett v. General Caster Service of N. Gordon Co., the Sixth Circuit reasoned that "[n]othing in the [Federal Magistrates] Act expressly vests magistrate judges with jurisdiction to enter orders imposing Rule 11 sanctions" and "Rule 72(a) authorizes a magistrate judge to enter an order only as to a 'pretrial matter . . .' that is not dispositive of a 'claim or defense of a party.'" 976 F.2d 995, 998 (6th Cir. 1992). Observing that the "magistrate judge's purported order entered pursuant to appellees' Rule 11 motion resulted in an award of money damages," the Sixth Circuit concluded that "[n]othing remained but to execute the judgment; therefore, this purported order was dispositive of the Rule 11 matter and, consequently, dispositive of a 'claim.'" ... As such, that court concluded, a Rule 11 motion cannot be resolved by an order of a magistrate judge; rather, "[a] magistrate judge should . . . issue a report and recommendation for de novo review by the district court." ... In further support of this conclusion, the Sixth Circuit noted that "Congress specifically withheld from magistrate judges jurisdiction over contempt proceedings . . . [which] are closely analogous to Rule 11 sanctions." ***

Similarly, the Seventh Circuit held in Alpern v. Lieb that, upon the referral of a Rule 11 motion for sanctions, a "magistrate judge lacked authority to do anything other than make a recommendation." 38 F.3d 933, 936 (7th Cir. 1994) (Easterbrook, J.). Recognizing that "an award under Rule 11 is conceptually distinct from a decision on the merits," that court found them similar insofar as an award under Rule 11 "requires one party to pay money to another" and "the denial of a request for sanctions has an effect similar to the denial of a request for damages." ... It also found support for its analogy in the fact that "[a]wards of sanctions . . . are treated as separate claims for purposes of appellate jurisdiction." ... On that basis, the Seventh Circuit concluded that "[t]he power to award sanctions, like the power to award damages, belongs in the hands of the district judge." Id.; see also Retired Chicago Police Ass'n v. City of Chicago, 76 F.3d 856, 869 (7th Cir. 1996) ("The fact that an attorney was the subject of a sanctions request does not change the fact that resolution of a sanctions request is a dispositive matter capable of being referred to a magistrate judge only under § 636(b)(1)(B) or § 636(b)(3), where the district judge must review the magistrate judge's report and recommendations de novo.").

Plaintiffs rely on the Ninth Circuit's decision in Maisonville v. F2 America, Inc. to support their position that magistrate judges can issue orders imposing Rule 11 sanctions. 902 F.2d 746, 748 (9th Cir. 1990). In Maisonville, a panel of the Ninth Circuit reasoned that Rule 11 sanctions were "non-dispositive," and therefore, magistrate judges did have the general authority to impose sanctions under Rule 11. I am not persuaded by this logic, however, because subsequent events have altered the relevant legal context in which the Ninth Circuit panel ruled. In Maisonville, the magistrate judge sanctioned the plaintiff's attorney under Rule 11 for filing a frivolous motion to reconsider the magistrate judge's denial of Rule 37 sanctions against defendants for discovery abuses. As the Ninth Circuit in Maisonville noted, the "motion for reconsideration [at issue] was a discovery motion" and "[d]iscovery motions fall within [*22] the ambit of Rule 11." In 1993, after the ruling in Maisonville, Rule 11 was amended to exclude sanctions arising from discovery disputes. See Fed. R. Civ. P. 11(d) ("This rule does not apply to disclosures and discovery requests, responses, objections and motions under Rules 26 through 37."). In light of this change in the scope of Rule 11, I am skeptical that the Ninth Circuit's ruling remains sound. As I describe in greater detail below, discovery disputes are within the core statutory authority of magistrate judges, and it is not surprising that Congress and the courts would grant magistrate judges broader power over the regulation of discovery. Accordingly, I believe that the significance of Maisonville has been diminished by subsequent changes in the relevant law, and that decision, a product of the legal context in which it was written, does not provide a sound counterargument to the position of the Sixth and Seventh Circuits.

I am persuaded by the reasoning of the Sixth and Seventh Circuits holding that a magistrate judge is not authorized to issue an order imposing Rule 11 sanctions. I reach this conclusion because a Rule 11 motion for sanctions, though it arises in the context of an underlying action, is the functional equivalent of an independent claim. *** On this point, the Supreme Court has compared a motion for Rule 11 sanctions to a criminal contempt charge insofar as each is "a separate and independent proceeding at law that is not part of the original action." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 396, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990) (internal quotation marks omitted). Relying in part on this authority, our Court has previously recognized that "the imposition of sanctions is an issue collateral to and independent from the underlying case" and for that reason, "even when a district court lacks subject matter jurisdiction over an underlying action, it still possesses jurisdiction to impose sanctions arising from the underlying case." Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 333 (2d Cir. 1999).

That a motion for Rule 11 sanctions gives rise to proceedings that are separate and distinct from the underlying action is apparent from the fact that, in the majority of cases, Rule 11 proceedings do not involve the same parties as the underlying action. It has been previously recognized that Rule 11 is primarily concerned with the conduct of lawyers. ***

Opinion of Judge Leval — Yes, Power

The question we face is whether, in enacting the Federal Magistrate Judge Act, 28 U.S.C. § 631 et seq., Congress authorized magistrate judges to impose sanctions for violations of the Federal Rules of Civil Procedure. The Act does not provide a direct answer. Accordingly, it is necessary to search its provisions to determine what, if anything, they reveal about Congress's intentions. The task is complicated by the fact that Congress amended the Act over time, most significantly in 2000, to implement an important Congressional reappraisal of the stature and powers of Magistrate Judges. See Federal Courts Improvement Act of 2000, Pub. L. 106-518, § 202, 114 Stat. 2410, 2412-13 (2000) (addressing "Magistrate Judge Contempt Authority").

The section of the Act specifying the powers of magistrate judges is § 636. Section 636(b)(1)(A) broadly empowers magistrate judges to "hear and determine" any pretrial matter designated to them by the district court, with the exception of a specified list of matters. As for the matters falling within this excepted list, the extent of the magistrate judge's powers is to take evidence and submit recommendations to the district court. See 28 U.S.C. § 636(b)(1)(B). The matters explicitly excluded by the Act from the magistrate judges' power to hear and determine are motions seeking judgment on the pleadings, summary judgment, dismissal of criminal charges, authority to maintain an action on behalf of a class, dismissal for failure to state a claim, and involuntary dismissal of an action (all of these being motions that would dispose of a litigant's claims), as well as motions for injunctive relief and to suppress evidence in a criminal case. Id. § 636(b)(1)(A). Section 636(b)(3) then adds a catchall provision that magistrate judges may be assigned "such additional duties as are not inconsistent with the Constitution and laws of the United States."

The list of matters excluded from magistrate judges' broadly stated power to hear and determine does not mention the imposition of sanctions. Nor is the imposition of sanctions prohibited to magistrate judges by any other provision of law. A literal reading of the Act would thus compel the conclusion that magistrate judges are empowered to impose sanctions.

Courts, however, have not read the list of exclusions literally. Where the exercise of an unmentioned judicial power would be so similar in character to the powers statutorily withheld from magistrate judges that it would be difficult to understand why Congress would have drawn a distinction, courts have generally ruled that Congress intended also to withhold the unmentioned power. See Williams v. Beemiller, Inc., 527 F.3d 259, 265 (2d Cir. 2008) (noting that the list of exclusions in § 636(b)(1)(A) is "non-exhaustive"). Because many of the powers withheld from magistrate judges by § 636(b)(1)(A) involve the determination of the suit or of a claim or of a party's right to maintain the claim in the action, courts have generally concluded that other rulings which would have the same effect of disposing of a party's claim (or of a defense) were also intended by Congress to be excluded from the powers of magistrate judges. Courts sometimes therefore employ an imprecise shorthand, referring to the rulings over which magistrate judges are granted authority as "nondispositive" of a party's claims, and to rulings in the class withheld as "dispositive" of a party's claims. See Gomez v. United States, 490 U.S. 858, 868, 873-74, 109 S. Ct. 2237, 104 L. Ed. 2d 923 (1989); Williams, 527 F.3d at 264-65.

[Footnote 3] This shorthand is reflected in Rule 72 of the Federal Rules of Civil Procedure. Rule 72 does not undertake to specify which powers magistrate judges possess and which they do not. As the commentary to the Rule recognizes, that function is fulfilled by § 636. The function served by Rule 72 is to regulate the procedures to be followed in proceedings before magistrate judges, both for matters within the magistrate judge's power to hear and determine (which the Rule refers to as matters "not dispositive of a party's claim or defense") and for matters withheld by § 636(b)(1)(A) (which the rule refers to as "dispositive motions"). See Fed. R. Civ. P. 72 & advisory committee's note. It is clear this terminology is not to be taken literally. The procedures prescribed by the rule are tailored to whether the magistrate judge has authority to rule on the matter, or has authority only to recommend to the district court. As some of the powers withheld by § 636(b)(1)(A), and by interpretation of courts, do not involve disposition of a party's claim or defense, while at the same time many rulings within a magistrate judge's powers determine something that a party is claiming, the only way to make sense of Rule 72's terminology is to construe the terms "nondispositive" and "dispositive" as distinguishing between matters upon which the magistrate judge is empowered to rule, and matters as to which the magistrate judge has the power only to recommend.

Within this framework, courts have decided that, in addition to the powers explicitly withheld from magistrate judges by § 636(b)(1)(A), the power of magistrate judges to "determine" does not extend to rulings that remand a case to state court, *** that enter default judgment, * **that deny a motion to certify a district court order for interlocutory appeal, *** that deny enforcement of an agency subpoena, *** and that deny a motion to proceed in forma pauperis. ***

In Gomez v. United States, 490 U.S. 858, 109 S. Ct. 2237, 104 L. Ed. 2d 923 (1989), the Supreme Court, departing still further from a literal reading of the statute, ruled that the selection of the jury in a criminal case, which is not listed among the functions a magistrate judge is not authorized to perform, and which is not "dispositive" of a party's claim, is nonetheless not within a magistrate judge's powers. *** The Court approached the question by tracing the history of Congress's incremental increases in the powers of these officers through a series of statutory amendments (while gradually upgrading their titular designation from Commissioner, to Magistrate, to Magistrate Judge). *** The Court noted Congress's gradually increasing confidence in magistrate judges, and it then asked whether these indicia of Congress's confidence were sufficient to support the conclusion that Congress intended its general grant of authority to include jury selection in a criminal case. *** Noting that Congress continued to require consent of the parties as a prerequisite to a magistrate judge's authorization to try jury cases,*** and that jury selection was enormously important for the conduct of a fair criminal trial, *** the Court concluded that § 636 should not be construed to authorize magistrate judges to select juries in criminal trials, at least absent the consent of the defendant***>

According to this approach, it becomes pertinent to inspect Congress's amendments to the Act over time to see what light they shed on changes in Congress's confidence in magistrate judges as reflected in increasing duties and powers entrusted to them by the Act. The provisions most likely to reveal Congress's intentions with respect to the sanctioning power are those portions of the Act that define the powers of magistrate judges to impose other disciplinary and coercive remedies for misbehavior. The most relevant provision is subsection (e), 28 U.S.C. § 636(e), dealing with the contempt power. Prior to 2000, § 636(e) expressly withheld from magistrate judges the power to impose contempts. Upon the occurrence of contumacious conduct, the statute provided that magistrate judges were to certify the facts to a district judge, who would then hear the evidence and determine whether to punish the contemnor.

In 2000, however, in a new enactment captioned, "Magistrate Judge Contempt Authority," Congress repealed the old subsection (e), replacing it with a new subsection (e), which grants magistrate judges considerable independent authority over contempt adjudications, both criminal and civil.***

In ... passing the 2000 amendments, Congress expressed a very much enhanced trust in magistrate judges, granting them considerable punitive powers, which had previously been absolutely withheld. To be sure, the contempt power conferred on them is not the full power possessed by a district judge appointed under Article III. Subparagraph (5) of the new § 636(e) imposes limits on the extent of punishment a magistrate judge may impose for contempt, and the magistrate judge's contempt power extends to contempts committed outside the presence of the magistrate judge only in cases where the parties to the litigation have consented to disposition of the case by the magistrate judge. Nonetheless, under the new enactment, magistrate judges were for the first time entrusted with the power to impose criminal convictions for contempt and to punish contempts by a term of imprisonment -- a power considerably more awesome than the power to impose a noncriminal sanction for violation of the Federal Rules -- as well as the power in some circumstances to coerce compliance with a judicial order by a civil contempt order.

Prior to Congress's 2000 amendments, there were reasonable arguments on both sides of the question. A strong argument against finding sanctioning power in the statute would have been that, notwithstanding the literal terms of the statute, Congress staked out a strong stance against the exercise of similar powers by magistrate judges. Congress categorically refused to allow magistrate judges to exercise contempt powers. Even though a sanction is far less consequential punishment than a holding in contempt, which can involve a criminal conviction and imprisonment (either punitive or coercive), the similarities between the two forms of order are great. The Supreme Court has, in fact, expressly noted the similarities. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 396, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990). Both sanctions and criminal contempts are judicial orders, collateral to the adjudication of the claims and defenses of the parties, which are intended to punish misconduct committed in defiance of the court's authority by a person who is subject to the court's ruling; both can also be employed to compensate the victim of the misconduct for expense and loss suffered by reason of it. Sanctions also have much in common with civil contempt orders, as the sanction can be imposed to compel compliance with judicial commands after intransigent refusal to comply. The similarities between orders of sanction and of contempt are so substantial that a sanction imposed under the Federal Rules of Civil Procedure can be viewed as a lighter, less consequential form of the same general species as a holding in contempt. The approach taken by numerous courts, reasoning by analogy, to find that certain powers were withheld by Congress from magistrate judges when they had enough in common with explicitly withheld powers, might well have suggested that the pre-2000 version of the Act implicitly denied sanctioning power. Thus, the Sixth Circuit, when it considered the question in 1992, concluded that magistrate judges are not empowered to impose sanctions, and gave as one of its reasons that "Congress specifically withheld from magistrate judges jurisdiction over contempt proceedings." Bennett v. Gen. Caster Serv. of N. Gordon Co., 976 F.2d 995, 998 n.7 (6th Cir. 1992).

Seven circuits passed on the question whether magistrate judges were empowered to impose sanctions prior to the 2000 amendments. Five of the seven, including our own, concluded that magistrate judges were authorized to impose sanctions (so long as the particular form of sanction, such as a sanction of dismissal of a claim, did not effectively dispose of a party's claim or defense). Two circuits concluded they were not so authorized.

[Footnote 6] [Magistrate Judge Has Power to Impose Non-Dispositive Sanctions (pre-2000 decisions).] Phinney v. Wentworth Douglas Hosp., 199 F.3d 1, 6 (1st Cir. 1999) ("Motions for sanctions premised on alleged discovery violations are not specifically excepted under 28 U.S.C. § 636(b)(1)(A) and, in general, they are not of the same genre as the enumerated motions. We hold, therefore, that such motions ordinarily should be classified as nondispositive."); Hoar, 900 F.2d at 525 (2d Cir.) ("Monetary sanctions pursuant to Rule 37 for noncompliance with discovery orders usually are committed to the discretion of the magistrate, reviewable by the district court under the 'clearly erroneous or contrary to law' standard."); Merritt v. Int'l Bhd. of Boilermakers, 649 F.2d 1013, 1016-17 (5th Cir. 1981) ("[T]he magistrate possessed the authority under 28 U.S.C. § 636(b)(1)(A) to enter non-dispositive discovery orders[, in this case, fees and costs in connection with a motion to compel discovery]."); Grimes v. San Francisco, 951 F.2d 236, 240 (9th Cir. 1991) ("The authority of magistrates to impose discovery sanctions is established by 28 U.S.C. § 636 and recognized by our decisions."); Maisonville v. F2 America, Inc., 902 F.2d 746, 748 (9th Cir. 1990) ("[W]e find that the Rule 11 sanctions imposed in this case are non-dispositive. Accordingly, the magistrate had jurisdiction to order Rule 11 sanctions and the district court properly reviewed the magistrate's order for clear error."); Ocelot Oil Co. v. Sparrow Indus., 847 F.2d 1458, 1462 (10th Cir. 1988) ("Discovery is clearly a pretrial matter, and magistrates thus have general authority to order discovery sanctions. They may not do so, however, if those sanctions fall within the eight dispositive motions excepted in subsection (A).").

[Footnote 7] [Magistrate Judge Lacks Power to Impose Non-Dispositive Sanctions (pre-2000 decisions).] Bennett, 976 F.2d at 998 (6th Cir.) ("[T]his purported order was dispositive of the Rule 11 matter and, consequently, dispositive of a 'claim' of a party. Because this was a dispositive matter, under Fed. R. Civ. P. 72(b), the magistrate judge should have issued a report and recommendation for de novo review by the district court." (footnote omitted)); Alpern v. Lieb, 38 F.3d 933, 935 (7th Cir. 1994) ("A district judge may refer a dispute about sanctions to a magistrate judge for a recommendation under § 636(b)(1)(B) or § 636(b)(3), but the magistrate judge may not make a decision with independent effect.").

In any event, regardless of how the pre-2000 Act should have been construed, after Congress amended the statute to expressly confer on magistrate judges a range of contempt powers, little or nothing remained of the argument that the amended statute should be construed by implication to withhold the power to impose a monetary sanction. A literal reading of the statute, with its broad authorizations, limited by explicit exclusions, communicates no suggestion of denial of the power to sanction under the Federal Rules. And reasoning by analogy, in the mode employed in Gomez, now tends strongly to confirm the power. Just as, prior to the 2000 amendments, Congress's express withholding of the contempt powers from magistrate judges could support a strong argument that Congress intended also to withhold the power to sanction, the grant of contempt powers to magistrate judges in 2000 now powerfully supports the conclusion that Congress intended to confer sanctioning power. It is an a fortiori case. The power to impose a criminal conviction and a sentence of imprisonment is very substantially more awesome than the power to impose a noncriminal sanction. If Congress conferred on magistrate judges the power to impose criminal convictions for contempt, and to put contemnors in jail, why would we interpret Congress's silence on the issue of noncriminal sanctions as an implicit denial of that power?

Nor is it correct to describe Congress's present stance on the question as "silence." While Congress did not explicitly grant or withhold the power, it did speak on the subject. And its statement that the express grant of civil contempt authority in consent cases "shall not be construed to limit the authority of a magistrate judge to order sanctions" communicates an understanding on the part of Congress that magistrate judges do possess that authority.

Finally, the question of the authority of magistrate judges to impose sanctions under the Federal Rules of Civil Procedure scarcely seems open in this circuit. As noted above, we held in Hoar that imposition of a monetary sanction -- that is, a sanction that does not dispose of a party's claim or defense -- is a "nondispositive" matter and is therefore "committed to the discretion of the magistrate [judge], reviewable by the district court under the 'clearly erroneous or contrary to law' standard." ***

It is of course true that the sanction imposed in Hoar was by reason of discovery abuse and was done under Rule 37, rather than Rule 11, but that is a distinction without a difference. The crucial question is whether the imposition of a sanction that does not dispose of a party's claim or defense (such as a monetary sanction) should be considered more nearly analogous to the "dispositive" orders Congress expressly withheld from magistrate judges or to the punitive and coercive power Congress expressly granted to magistrate judges in the new § 636(e). A monetary sanction -- i.e., one that does not dispose of a party's claim or defense -- is no more and no less similar to the dispositive rulings withheld by § 636(b)(1)(A) from magistrate judges whether it was imposed by reason of an abuse of a discovery obligation or an abuse of an obligation imposed by Rule 11. I do not see how we in the Second Circuit could justify ruling today that a monetary sanction for abuse of Rule 11 is dispositive, and therefore beyond the authority of magistrate judges, without disavowing our prior holding in Hoar that magistrate judges are empowered to impose a monetary sanction.

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