Commercial Litigation and Arbitration

Inherent Power Sanctions against Third Party Entered after End of Case on Merits Is Dispositive and Requires De Novo Review of Magistrate Judge’s Decision

Reddick v. White, 2011 U.S. App. LEXIS 23937 (4th Cir. Dec. 1, 2011):

A magistrate judge's power is derived from 28 U.S.C. § 636, which provides two general types of referrals by a district court. Section 636(b)(1)(A) provides that a district court may "designate a magistrate judge to hear and determine any pretrial matter pending before the court," except for a non-exhaustive list of motions detailed in the statute. 28 U.S.C. § 636(b)(1)(A). Under this section, a district court reviews a magistrate judge's order to determine if it is "clearly erroneous or contrary to law." Id.; see also Fed. R. Civ. P. 72(a). In contrast, § 636(b)(1)(B) provides that, with regard to the motions excepted from subsection (A), a district court may "designate a magistrate judge to conduct hearings, including evidentiary hearings, and to submit to a judge . . . proposed findings of fact and recommendations." 28 U.S.C. § 636(b)(1)(B). Further, this section authorizes a district court to issue appropriate "additional duties" to a magistrate judge so long as they are consistent with the Constitution. 28 U.S.C. § 636(b)(3). Because a magistrate judge is only empowered under this section to make recommendations, a district court's review is de novo. See Fed. R. Civ. P. 72(b). The Supreme Court has summarized these grants of authority to mean that "nondispositive" pretrial matters are governed by § 636(a) and "dispositive" matters are covered by § 636(b). Gomez v. United States, 490 U.S. 858, 873-74 (1989). Rule 72, which implements § 636, likewise requires a de novo review for "pretrial matter[s]" that are "dispositive of a claim or defense." Fed. R. Civ. P. 72(b)(1).

On appeal, the Tenants contend that the magistrate judge's ruling on sanctions in this case is "dispositive" within the meaning of § 636 and Rule 72, and the district court was thus statutorily required to perform de novo review. We agree that the sanctions ruling in this case — issued pursuant to a district court's inherent authority and after the underlying litigation had ended — was "dispositive" and required de novo review.

Sanctions are authorized by rule in several instances, including Federal Rules of Civil Procedure 11, 16, and 37. In Chambers, the Court recognized that federal courts also have an "inherent" power under Article III to award attorney's fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Chambers, 501 U.S. at 44-46. This inherent power is "governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Id. at 43 (internal quotation marks omitted).

A motion for sanctions under the district court's "inherent" power is not a pretrial matter under §636(B)(1)(a). Magistrate judges have no inherent Article III powers — they have only those powers vested in them by Congress. See N.L.R.B. v. A-Plus Roofing, Inc., 39 F.3d 1410, 1415 (9th Cir. 1994) (noting magistrate judges are "creatures of statute, and so is their jurisdiction. [Courts] cannot augment it"). Congress has not created statutory authorization for magistrate judges to exercise inherent Article III powers. Cf. In re Rainbow Magazine, Inc., 77 F.3d 278, 283-84 (9th Cir. 1996) (noting bankruptcy judges have inherent power to sanction because Congress created specific statutory authorization). Assuming a district court can delegate its inherent powers under § 636(b)'s "additional duties" clause, de novo review of the exercise of those powers is required. See United States v. Osborne, 345 F.3d 281, 289-90 (4th Cir. 2003) (holding that "additional duties" clause permitted district court to authorize a magistrate judge to conduct a plea colloquy, but that such authorization is consistent with Article III only if de novo review by an Article III court is available upon request).

In addition, the sanctions order in this case addressed a non-party and was issued after the conclusion of the underlying litigation. The magistrate judge's ruling was thus "dispositive of a claim," that is, a claim for sanctions against White. In fact, as the Tenants note, the sanctions motion was the only "claim" against White in the case.

In sum, the motion for sanctions in this case — requested under the district court's "inherent" power and issued after the conclusion of the underlying case — was not a nondispostive pretrial matter under §636(B)(1)(a), and the magistrate was permitted only to enter a Report and Recommendation subject to the district court's de novo review. The district court's failure to apply the proper de novo standard of review is reversible error. ALCOA v. EPA, 663 F.2d 499, 502 (4th Cir. 1981).

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