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Continental Cas. Co. v. Dominick D'Andrea

July 10, 1998

CONTINENTAL CASUALTY COMPANY
v.
DOMINICK D'ANDREA, INC., DEFENDANT/THIRD-PARTY PLAINTIFF,
v.
ALMONESSON ASSOCIATES; TARQUINI ORGANIZATION; THE DOUGLAS COMPANY; JOHN DOE 1-10, BEING A FICTITIOUS PERSON, CORPORATION OR ENTITY, THIRD-PARTY DEFENDANTS, DOMINICK D'ANDREA, INC., APPELLANT.



Appeal from the United States District Court For the District of New Jersey D.C. No.: 93-cv-1765

Before: Sloviter, Lewis, and Rosenn, Circuit Judges.

The opinion of the court was delivered by: Rosenn, Circuit Judge.

Argued: January 22, 1998

(Opinion Filed July 10, 1998)

OPINION ANNOUNCING THE JUDGMENT

OF THE COURT

In this appeal, the appellant primarily presents a troublesome challenge to the authority of a magistrate Judge to impose a substantial monetary sanction as a condition of allowing a pre-trial amendment to its answer. After the magistrate Judge issued a final pre-trial order setting the end of discovery and scheduling trial, and almost two years after the appellant filed its original answer, counsel for the appellant moved for leave to amend the answer to assert a controlling affirmative defense. During discovery, previous counsel for the appellant had delayed the litigation several times because of his severe illness. Frustrated with the delays, the magistrate Judge ultimately permitted the appellant to amend its answer and file a motion for summary judgment, but not before imposing the condition that the appellant pay the opposing party's reasonable attorneys' fees and costs for the additional discovery necessitated by the amendment. Later, the district court granted summary judgment based on the affirmative defense.

The appellant did not object to the condition at the time it was imposed, paid the amount of the sanction without objection, and did not appeal to the district court within 10 days as required by Federal Rule of Civil Procedure 72(a) and a local district court rule. We conclude that, unless exceptional circumstances exist, a party may not obtain relief in this court without making an objection and seeking

review of the magistrate Judge's order in the district court. Because we find no exceptional circumstances, we affirm.*

I.

The dispute in this case had its genesis in two severe windstorms that inflicted heavy damage on the foundation walls of a nascent shopping center. Almonesson Associates, L.P. ("Almonesson"), is the owner and developer of the shopping center, called The Court at Deptford in Deptford, New Jersey. Almonesson retained the Douglas Company ("Douglas") to serve as general contractor for the construction. Almonesson and Douglas memorialized their relationship by the "Standard Form of Agreement Between Owner and Contractor" printed by the American Institute of Architects ("AIA"). The front page of the agreement "adopted ... by reference" AIA Document A201, the "General Conditions of the Contract for Construction."

In September 1989, Douglas hired Dominic D'Andrea, Inc. ("D'Andrea"), as a subcontractor to perform the masonry work on the shopping center. The plaintiff, Continental Casualty Company ("Continental"), insured Almonesson against loss of and damage to Almonesson's property. D'Andrea, the defendant herein, performed the masonry work at the construction site between September and November of 1989. D'Andrea was not a party to the underlying construction contract. On November 16 and 21, 1989, severe winds blew down these exterior walls. Pursuant to its obligation under the insurance policy, Continental paid Almonesson $1.3 million for the damage to the walls.

On April 28, 1993, Continental filed this diversity action as subrogee of its insured, Almonesson, against D'Andrea in the United States District Court for the District of New Jersey. In its complaint, Continental alleged that D'Andrea's faulty construction of the exterior walls resulted in damages of $1.3 million.*fn1 D'Andrea then filed a third- party complaint against Douglas, Almonesson, and the Tarquini Organization, the architect for the project.*fn2 The case was assigned to a United States magistrate Judge for pretrial and discovery matters. The parties conducted discovery and during this period an apparently severe illness and an adverse reaction to medication resulted in D'Andrea's counsel's failure to meet discovery deadlines. As an accommodation to counsel, the magistrate Judge extended previously established discovery and other deadlines on numerous occasions. Ultimately, the magistrate Judge entered five separate scheduling orders and a final pre-trial order. He scheduled trial for June 12, 1995. In his final pre-trial order, dated February 10, 1995, the magistrate Judge warned that "there will be no further extensions of time and no reopening of discovery." (Emphasis in original).

Also in this order, the magistrate Judge permitted D'Andrea to depose Gene Carey, Nicholas S. Colanzi, and Joseph Sobel, expert witnesses retained by Continental. Apparently as a sanction for violating discovery deadlines, the Judge ordered D'Andrea to pay the three experts' reasonable expert witness fees and the reasonable attorneys' fees of counsel for Continental incurred during the depositions of Colanzi and Sobel. The order made no provision for D'Andrea to file a motion for summary judgment, but permitted Douglas to file one no later than February 17, 1995.

In March 1995, another attorney, Craig Hudson, entered an appearance on behalf of D'Andrea as co-counsel. On March 10, 1995, Hudson moved for leave to amend D'Andrea's answer to assert a critical and controlling affirmative defense based on a provision in the addendum to the AIA construction contract entered into by Almonesson and Douglas. This provision provided that: "[t]he Owner and Contractor waive all rights against (1) each other and any of the their subcontractors ... for damages caused by fire or other perils to the extent covered by property insurance." AIA Document A201, Article 11.3.7 (1987 ed.). The effect of this addendum was to deny Continental any subrogation rights against D'Andrea. Hudson gave two explanations for raising this defense at this late stage -- almost two years after D'Andreafiled its original answer. He attributed the failure to raise the defense to the illness of previous counsel and to the failure of plaintiff 's counsel to produce the addendum in discovery or otherwise point out the waiver of subrogation. In his motion, Hudson stated: "If Continental does believe that additional discovery is needed, the court can certainly [make] such arrangements." Hudson also requested permission to file a motion for summary judgment based on the addendum.

At oral argument before the magistrate Judge on Hudson's motion and request, counsel for Continental indicated that if the amendment were permitted, he would need to take additional discovery to counter D'Andrea's affirmative defense. The magistrate Judge evinced great displeasure with both the tardiness of Hudson's motion and the resulting additional discovery. The Judge commented that he had given previous counsel every accommodation by changing deadlines in order to compensate for time lost as a result of counsel's illness and that counsel for both parties had equal access to the addendum because it was explicitly referred to in the Almonesson-Douglas contract. Hudson agreed that at least part of the blame rested either with previous counsel or his client: "[W]e should have found it, and we didn't find it. It was a foul up on this end." The magistrate Judge refused to allow D'Andrea to amend its answer or move for summary judgment until it agreed to pay opposing counsel's fees and costs incurred in opposing D'Andrea's motions and in conducting the additional discovery. The Judge issued a written order setting forth the condition for the amendment on February 5, 1996.

There is no dispute that D'Andrea did not object to the condition imposed by the magistrate Judge to the amendment of its answer. Indeed, at the hearing, the following exchange took place between the magistrate judge and Hudson:

COURT: From this point forward, all of Mr. Bailey's [counsel for Continental] fees, reasonable legal fees, as a condition of permitting this amendment, will be paid for by ... Commercial Union [D'Andrea's insurer]. This is an explicit condition, and is the only condition under which I will permit the amendment of these affirmative defenses and summary judgment motion. ... You will pay as an explicit condition of permitting this, time for his legal fees in regard to opposing your motion. You're not going to pay for his cost at trial; only those fees related to the amendments. Is that clear?

HUDSON: So I can make sure I tell Commercial Union. Including opposing my motion for summary judgment?

COURT: Absolutely.

HUDSON: Okay.

Later in the hearing, the magistrate Judge reiterated this condition and asked: "Is this absolutely clear? Do you have any questions?" Hudson responded, "No." One last time, the court asked Hudson: "No question about what your obligation is with regard to Mr. Bailey?" Hudson responded: "No, I think you've made it pretty clear, Your Honor." After the court issued its written order setting forth the condition, D'Andrea did not file an appeal with the district court. During the next several months, the parties engaged in the additional discovery Continental claimed was necessitated by the amendment to D'Andrea's answer.

Following this discovery, by letter dated May 24, 1996, Continental's counsel provided Hudson with an itemized list of its fees and expenses which totaled approximately $38,000. Hudson responded, also by letter, that the attorneys' fees were unreasonable, excessive, and had included fees not encompassed by the magistrate Judge's February 10, 1995 and February 5, 1996 orders. At this time, Hudson did not object to the imposition of fees and costs or claim that the magistrate Judge's orders were erroneous. In two letters, one dated June 27, 1996 to counsel for Continental, and one dated August 8, 1996 to

the magistrate Judge, Hudson never objected to the imposition of the attorneys' fees and costs. Instead, his letter focused almost entirely on his objection to the amount of the fees requested by Continental. On August 27, 1996, by letter to counsel, the magistrate Judge ruled that D'Andrea must pay all of the fees and expenses sought by Continental. D'Andrea did not appeal the magistrate Judge's letter ruling to the district court. On September 17, 1996, Commercial Union Insurance Company, D'Andrea's insurer, paid the full amount of the fees requested by Continental.

D'Andrea duly filed its motion for summary judgment predicated on the addendum, which the district court granted. In its order, apparently unaware that D'Andrea had already done so, the district court directed D'Andrea to "comply with the February 5, 1996 order of ... [the magistrate Judge] regarding the fees and expenses incurred by plaintiff in opposing the ...


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