Some Thoughts on Appealing an Adverse Ruling from a Magistrate Judge

Ian Dankelman | Property Insurance Coverage Law Blog | July 7, 2019

Adverse rulings are always possible in federal litigation. This post explores how insureds can respond to adverse rulings issued by federal magistrate judges during pretrial litigation.

Congressional statute assigns magistrate judges broad authority to issue pretrial orders and opinions. In first-party property cases, magistrate judges often issue (1) orders on discovery issues and (2) reports and recommendations on case dispositive motions. Case dispositive motions include motions for summary judgment and motions to dismiss. If insureds receive an adverse opinion from a magistrate judge, insureds have the right to petition the district judge to reject the magistrate judge’s position.1

One of the most important considerations when determining whether to seek review of a magistrate judge’s opinion is the standard of review that the district judge must employ. Standards of review are important because they inform the district judge’s decision on how much deference to provide to the magistrate judge’s opinion.

The district court’s deference to the magistrate judge is at its zenith when the magistrate judge enters an order that is not case dispositive. For non-dispositive motions, the district court reviews the order under the clearly erroneous standard. To prevail, the petitioning party must leave the district court with a definite and firm conviction that the magistrate judge made a mistake or failed to apply (or misapplied) the correct law or procedural rule. The standard of review is extraordinarily deferential to the magistrate judge’s order. Under this standard, the petitioner must essentially convince the district judge that the magistrate judge’s order was so incorrect that no reasonable judge applying the correct law could have arrived at the same decision. If a party does not object to the magistrate judge’s order within 14 days, all objections to the order may be waived.

Magistrate judges often issue their opinions through a report and recommendation. In a report and recommendation, the standard of review often depends on whether the petitioner filed a timely objection to the order. Parties must lodge objections to the magistrate judge’s report and recommendation within 14 days. For issues that drew objection, the district judge must look at the entire relevant record and make its own determination of the correct outcome. This means that no deference (with the potential exception of witness credibility) is afforded to the magistrate judge’s determination. Any portion of the report and recommendation that drew no objection is reviewed under the clearly erroneous standard. After review, statute authorizes the district court to accept, reject or modify the magistrate judge’s findings.

Insureds and their attorneys must also consider the issue of issue waiver for circuit-level appeals. In some circumstances, failing to object to a magistrate judge’s order or report and recommendation can deprive the litigant of the opportunity to submit the error to the federal circuit courts of appeal or seek appellate review under a more favorable standard.

One other consideration insureds must consider is whether the adverse ruling really affects the ultimate merits of the case. Sometimes, a magistrate judge’s ruling on discovery or other issues provides clarity to the parties on important—but not dispositive— issues. Even if the insured’s requested relief was denied or the magistrate judge decided contrary to the desires of the insured, sometimes the best course of action is to move on and litigate the next issue. But if the magistrate judge issued an opinion that negatively affects the case, an insured might have no option but to appeal to the district court.
1 This discussion assumes that the parties have not consented to the jurisdiction of the magistrate judge to enter all orders and judgment in the case.

Another Reason to Always Respond (or Hensel Phelps Wins One!)

Christopher G. Hill | Construction Law Musings | June 18, 2019

Here at Construction Law Musings, Hensel Phelps Construction Co. is best known as the company that got whipsawed between indemnity rules and the lack of a statute of limitations for state agencies.  However a recent case out of the Federal District Court for the Eastern District of Virginia gave them a win and illustrates, once again, that failing to appear or respond is never a good option.

In Hensel Phelps Construction Co. v. Perdomo Industrial LLC, the Alexandria, VA federal court looked at an arbitration award entered for Hensel Phelps and against Perdomo under the Federal Arbitration Act.  The facts of the case showed that Perdomo “double dipped” into the deep end of refusal or failure to respond.  First of all, the contract required arbitration and any award was enforceable in any state or federal court having jurisdiction.  Based upon this language, Hensel Phelps filed a demand for arbitration with the American Arbitration Association against Perdomo and its surety, AAA sent notice to both Perdomo and Surety, and. . . neither responded or appeared at what was ultimately 8 days of hearings.  After hearing Hensel Phelp’s evidence and the total lack of defenses from Perdomo and Surety, the panel issued an award in favor of Hensel Phelps, finding Perdomo LLC in default and holding Perdomo LLC and Allied World jointly and severally liable in the amount of $2,958,209.71 and Perdomo LLC individually liable in the amount of $7,917,666.30 plus interest.

Hensel Phelps filed the action with the Alexandria court to confirm the arbitration award and after proper service of the petition Perdomo once again failed to respond.  Not only that, Perdomo failed to appear at the hearing on the inevitable default judgment motion filed by Hensel Phelps.  After finding that it had jurisdiction over the matter due to both the law and the contract, the Court held a default judgment was proper and that Hensel Phelps was entitled to the full award.  In doing so, theCourt held that Perdomo did not request modification of the award in the proper time and that Hensel Phelps had petitioned the Court in a timely manner under the Federal Arbitration Act.  In short, Hensel Phelps didn’t even have to work that hard because there were no defenses presented either by pleading or at the hearing (no one having appeared).

The takeaway, aside from having an experienced construction attorney on your side?  ALWAYS SHOW UP!  It was bad enough that Perdomo forfieted its right to defend itself at arbitration, but it then gave up what limited avenues of defense to the award that it may have had when it failed to pursue either modification or vacation of the award and then failed to even respond to the petition to confirm or motion for default judgment.  While defenses to the confirmation of a proper arbitration award are limited, at least Perdomo would have been able to put up a fight.

Effective October 1, 2019, Florida General Contractors Have a Statutory Right to Recovery of Attorney Fees Against a Defaulted Subcontractor’s Surety

Warren E. Friedman | Peck Law

Florida contractors will soon have a level playing field, at least related to the right to recovery of attorney fees in certain circumstances. Effective October 1, 2019, the Florida statute by which legal fees may be recovered from insurers and sureties was amended to expressly afford that right to contractors.

Florida’s Insurance statute, Chapter 627, affords a right to recovery of attorney fees when a judgment is obtained against an insurer and in favor of any insured pursuant to a policy or contract executed by the insurer. See Fla. Stat. § 627.428. In the construction context, the Florida Legislature has also applied this right to the recovery of attorney fees from sureties, for example in circumstances where suit is brought against a surety under a payment or performance bond. See Fla. Stat. § 627.756.

But there was an oddity to this statute – it specifically provided this right for “owners” and “subcontractors”, but “contractors” were skipped over. For as long as Section 627.756, Florida Statutes has been on the books, the right to recovery of attorney fees against a surety under a payment or performance bond was only afforded to owners, subcontractors, laborers, and materialmen. Specifically, since at least 1977, Section 627.756, Florida Statutes substantially provided as follows (emphasis added):

Section 627.428 applies to suits brought by owners, subcontractors, laborers, and materialmen against a surety insurer under payment or performance bonds written by the insurer under the laws of this state to indemnify against pecuniary loss by breach of a building or construction contract. Owners, subcontractors, laborers, and materialmen shall be deemed to be insureds or beneficiaries for the purposes of this section.

Fla. Stat. § 627.756(1) (2018)

Notably absent and excluded from the text is the word “contractors”, which is surprising because the right to pursue a claim on a performance bond usually exists for both owners and contractors. Owners have a potential right to pursue a claim against the general contractor’s performance (and sometimes payment) bond and general contractors have a potential right to pursue claims against their subcontractor’s performance (and sometimes payment) bond. Unless the performance bond explicitly provided a right to recovery of attorney fees, the statute, for decades, afforded no such right to the general contractor. General contractors were left responsible for attorney fees when one or more subcontractors defaults, with no right to recover legal fees unless stated in the bond itself.

On May 2, 2019, the Florida Legislature modified Section 627.756, Florida Statutes, which now reads as follows (emphasis added):

Section 627.428 applies to suits brought by owners, contractors, subcontractors, laborers, and materialmen against a surety insurer under payment or performance bonds written by the insurer under the laws of this state to indemnify against pecuniary loss by breach of a building or construction contract. Owners, contractors, subcontractors, laborers, and materialmen shall be deemed to be insureds or beneficiaries for the purposes of this section.

Fla. Stat. § 627.756 (Oct. 1, 2019)

Under the new version of the statute, general contractors possess a right for the recovery of attorney fees in claims against a surety, a right that did not previously exist except where provided in the bond or, under certain circumstances, in the bonded contract. This small change – the addition of the word “contractors” – is impactful and now affords a significant right to general contractors when pursuing claims against a defaulted subcontractor and its surety. The new law becomes effective on October 1, 2019 and applies only to payment and performance bonds issued after that date.

Top 10 Rules to be a Successful Lawyer

James Gray Robinson | ABA Journal | June 20, 2019

A third-generation trial attorney, I have spent a majority of my life either working as a lawyer or hearing about it at the dinner table growing up. I was a trial attorney in North Carolina for nearly 27 years and retired in 2004 to go into consulting. I moved to Oregon in 2016 and decided to take the Oregon state bar exam because I had an in-house counsel job offer that required a law license.

Once I passed the bar exam and got my law license, the job did not materialize. I decided to continue consulting with a focus on lawyers. After all, lawyers seem to have many unique skill sets and problems that only lawyers can appreciate. As I prepared for the exam, I began to reflect deeply on my years spent as a family law attorney and as a business consultant working with lawyers and law firms.

In hindsight, many past challenges and issues I experienced became very clear. We are here to live life and be as successful as we can possibly be. I have collected some thoughts about practicing law—and life in general—that can help lawyers to be successful, whether they are young or old.

1. Do not be a prisoner of your past. What happened in your life is a lesson, not a life sentence. We are our own jailors, and our minds are the key. You do not have to obsess over events that were painful or not what you wanted. You are not a victim, so don’t act like one. True leaders and winners accept what has happened and move on. However, we do have to learn and not repeat behavior that produces unpleasant results. This may be more important for older lawyers, as they would have more past experiences than a younger lawyer.

2. What comes out of your mouth is more important that what goes in it; however, you are what you eat. This can become a vicious cycle because when we eat or drink things that aren’t healthy, it makes us feel depressed, stressed or angry. We can say things we will regret when we feel terrible. So, if you are eating unhealthy foods or drinking too much, you will feel bad, which makes you say negative things, which makes you feel worse. So you will eat and drink more—and on and on. Alternatively, if you are depressed, stressed or angry because of your circumstances, eating unhealthy foods and drinking too much will make you feel worse, which makes you behave poorly and the cycle repeats.

James Gray Robinson

James Gray Robinson.

3. People will admire you more for your health and happiness than your bank account. Think about it; who are the people you admire most? What is the object of this game called life? Is it to die with the most toys or the most friends? Wealth and possessions are addictive; you will never have enough. If you are healthy and happy, wealth will naturally come to you in whatever form you choose. Wealth is relative when you are healthy and happy. Wealth will not be enough if you aren’t healthy and happy. True wealth is in your heart, not your bank account.

4. Take 10 minutes each day to not think but just breathe.One of the most common complaints among lawyers has to do with overthinking. Everything. We are trained to analyze, anticipate and avoid problems. The problem is we love to think, and that is not always good for us 24-7. Take 10 minutes every day and focus on your breathing. It will make you feel much better and give your brain a reboot.

5. Lawyers are admired more for their honesty (and/or humanity) than winning. We all know those lawyers who are aggressive, confrontational, disagreeable and just plain unlikeable. People may dislike dealing with them or fear them, but they are rarely admired. Think carefully when you choose how to deal with your colleagues, clients and the court. Would you rather be admired for your honesty and integrity or feared because you are a jerk?

6. You have to balance and take care of your body, your mind and your family/community. One of my senior partners once told me, “To be successful, you have to focus on your legal practice, your family and your church.” I believe that was incorrect. You have to focus on your physical body, your emotional body and your family, however you define that.

7. Nothing is more powerful than kind words. You can get your point across without being hateful. You will attract more clients with honey than bitterness. There has been a trend lately of lawyers threatening each other with ethics complaints or similar actions. This is ridiculous. Lawyers don’t have to threaten each other to make their point.

8. Embrace change. Change is good. Change is growth. Presidents and administrations change at least every eight years. Each time there is change, there is opportunity. Look for the opportunity in change. Don’t resist. If you leave a law firm or change your practice, that is a good thing! If we are struggling in our practice, it is evidence that something needs to change. Perhaps you need new partners, a new practice area or to get out of practicing law altogether. Most of the lessons we learn as lawyers are valuable in the business world and can translate to success elsewhere. Alternatively, get a new hobby.

9. If you don’t control your emotions, they will control you. Many people don’t understand how powerful their minds are and what they can do with them. When we don’t focus on positive events and thoughts, chances are we will focus on negative events and thoughts. That is what lawyers do because we focus on worst-case scenarios. It may come as a surprise, but most successful people do not focus on worst-case scenarios, they focus on the best thing that can happen.

Admittedly, if you are stressed, angry or depressed, it is difficult to focus on positive thoughts. However, it is the only way to heal whatever is causing the stress, anger or depression. As a footnote, if you are clinically depressed, best you seek medical advice. Abnormal brain chemistry may need more than positive thinking.

10. Being a lawyer is a gift. Remember we choose to be lawyers, we weren’t drafted. Many times, we feel like we are in prison or worse: hell. We are only required to do the best we can and that is always enough. If practicing law is not for you, you can do something else. If you are good at it but aren’t having fun, you need to get your mind in proper working order.

When practicing law gets dicey, that is the time you need to be grateful. It is easy to be grateful when you win the big case; it says more about your character and integrity if you can be grateful when times are rough.

Quick Note: Independent Third-Party Spoliation of Evidence Claim

David Adelstein | Florida Construction Legal Updates | May 4, 2019

In an earlier posting I discussed the difference between first-party spoliation of evidence and third-party spoliation of evidence.  

There is NO independent cause of action for first-party spoliation of evidencebecause that can be dealt with directly in the underlying lawsuit.  This deals with the assertion that an actual party to a lawsuit spoiled evidence. 

However, there is an independent cause of action for third-party spoliation of evidence since this deals with a nonparty to a lawsuit destroying critical evidence.   With that said, a third-party spoliation of evidence cause of action is rather difficult to prove and requires the plaintiff to prove the following six elements:  “(1) existence of a potential civil action, (2) a legal or contractual duty to preserve evidence which is relevant to the potential civil action, (3) destruction of that evidence, (4) significant impairment in the ability to prove the lawsuit, (5) a causal relationship between the evidence destruction and the inability to prove the lawsuit, and (6) damages.”  See Shamrock-Shamrock, Inc. v. Remark, 44. Fla. L. Weekly D1093a (Fla. 5th DCA 2019).    As it pertains to the duty to preserve evidence owed by a nonparty (the element underlined above), the court in Shamrock-Shamrock maintained that the duty does not arise simply because the nonparty can foresee the lawsuit or is aware of the lawsuit.  The court was not going to extend such duty on a nonparty to anticipate the critical evidence of others in a lawsuit where the nonparty is just that…a nonparty.  Rather, the duty to preserve evidence arises based on the existence of a contract, statute, or properly served discovery request on the nonparty.   Review this posting for more information on this case.