Court Opinion

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Opinions of the United
1998 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

7-10-1998

Continental Casualty Co v. D'Andrea
Precedential or Non-Precedential:

Docket 97-5004

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Recommended Citation
"Continental Casualty Co v. D'Andrea" (1998). 1998 Decisions. Paper 156.
http://digitalcommons.law.villanova.edu/thirdcircuit_1998/156

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Filed July 10, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-5004

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

Argued: January 22, 1998

Before: SLOVITER, LEWIS, and ROSENN, Circuit Judges.

(Opinion Filed July 10, 1998)

       A. Richard Bailey (Argued)
       Cozen & O'Connor
       1900 Market Street
       Philadelphia, PA 19103
       Counsel for Appellee
       Audrey J. Copeland (Argued)
       Marshall, Dennehey, Warner,
        Coleman & Goggin
       1845 Walnut Street
       Philadelphia, PA 19103
       Counsel for Appellant

OPINION ANNOUNCING THE JUDGMENT
OF THE COURT

ROSENN, Circuit Judge.

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

                                  2
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.1 D'Andrea then filed a third-
_________________________________________________________________

*Although Judge Lewis heard argument in this case, he has been
unable, however, to clear this written opinion because of illness.

1. Specifically, Continental alleged that D'Andrea's failure to adhere to
the requirements of the architect and general contractor, basic industry
and engineering practices, and Deptford's building code resulted in the
destruction of the walls.

                               3
party complaint against Douglas, Almonesson, and the
Tarquini Organization, the architect for the project.2 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
_________________________________________________________________

2. D'Andrea voluntarily dismissed Tarquini from the lawsuit on March
31, 1994.

                               4
(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

                                5
       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

                               6
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 present summary judgment
motion." On January 2, 1997, D'Andrea filed a notice of
appeal.3

II.

On appeal, D'Andrea contends that the magistrate judge's
sanctions far exceeded the scope of Federal Rule of Civil
Procedure 16 pertaining to scheduling and management of
pretrial conferences. D'Andrea asserts that "[n]o rule,
`inherent power,' statute or law supports the
disproportionate and vastly excessive fees and cost
sanctions under the circumstances in this case. The
egregiously unjust sanction far outweighed any discretion
that a magistrate or district court might have to sanction a
party for perceived misconduct during pre-trial
proceedings." Furthermore, D'Andrea argues that sanctions
were wrongly directed to the client rather than its counsel,
that the imposition of the sanctions ignored the plaintiff's
conduct in the first instance in filing a "spurious lawsuit"
when it had no claim against the defendant. Had the
_________________________________________________________________

3. The district court had subject-matter jurisdiction pursuant to 28
U.S.C. S 1332(a)(1). This Court has appellate jurisdiction pursuant to 28
U.S.C. S 1291.

                               7
plaintiff produced the entire written contact, or had it
indicated in discovery that portions of the contract were
incomplete and referred to the addendum, defendant
asserts this case would have summarily ended. Instead, the
defendant argues, that "unjust punishment has been
imposed upon D'Andrea for delay caused by Continental's
unintentional obfuscation (or deliberate concealment) of the
waiver of subrogation."

Before we address D'Andrea's strenuous arguments, a
serious threshold question that we must confront is
whether or not they may be raised on appeal. Continental
argues that D'Andrea may not obtain review in this court
because it failed to object to the magistrate judge's orders
and, with respect to the second order, it agreed to the
imposition of the fees and costs in exchange for permission
to amend its answer and assert the affirmative defense of
the waiver of subrogation. Continental further contends
that review in this Court is not permitted because D'Andrea
failed to appeal the orders to the district court as required
by Federal Rule of Civil Procedure 72(a)4 and District of New
Jersey Local Rule of Civil Procedure 40D(4)(a).5

D'Andrea replies that review is proper in this court
because, although it did not object to the magistrate judge's
orders, an objection was unnecessary because all the
parties knew that D'Andrea was "unhappy" with the orders.
D'Andrea also urges that its failure to appeal the second
order is not fatal because the district court "reviewed" it
sua sponte in its order granting summary judgment,
thereby satisfying Rule 72(a)'s requirement of district court
_________________________________________________________________

4. Rule 72(a) provides, in pertinent part, that:

       Within 10 days after being served with a copy of the magistrate
       judge's order, a party may serve and file objections to the order;
a
       party may not thereafter assign as error a defect in the magistrate
       judge's order to which objection was not timely made.

5. District of New Jersey Local Rule of Civil Procedure 40D(4)(a)
provides,
in pertinent part, that:

       Any party may appeal from a Magistrate's determination of a non-
       dispositive matter within 10 days after a party has been served
with
       a copy of the Magistrate's order, unless a motion for reargument of
       the matter has been timely filed and served.

                               8
review. D'Andrea offers no excuse for failing to object to or
appeal the first order.

The district court referred this case to the magistrate
judge pursuant to the Federal Magistrates Act (the "Act"),
which permits United States District Judges to assign
specified matters to magistrate judges. See 28 U.S.C.
SS 631-39. There are two types of assignments under the
Act. First, pursuant to 28 U.S.C. S 636(b)(1)(A),6 with
specifically noted exceptions, a magistrate judge may hear
and decide pretrial matters which do not ultimately dispose
of the litigation. Id. The magistrate judge's order is
dispositive as to the discrete matter referred to him or her
unless the district court takes action to overrule it. United
Steelworkers of America v. New Jersey Zinc Co., Inc., 828
F.2d 1001, 1005 (3d Cir. 1987) (citing legislative history). In
this type of referral, pursuant to Rule 72(a) and Local Rule
40D(4)(a), a party aggrieved by the magistrate judge's order
may seek review of it by appealing to the district court
within 10 days after being served with a copy of the order.
Upon appeal, the district court "may reconsider any pretrial
matter ... where it has been shown that the magistrate's
order is clearly erroneous or contrary to law." 28 U.S.C.
S 636(b)(1)(A).

Second, pursuant to S 636(b)(1)(B),7 the district court may
_________________________________________________________________

6. That section provides:

       (b)(1) Notwithstanding any provision of law to the contrary--(A) a
       judge may designate a magistrate to hear and determine any pretrial
       matter pending before the court, except a motion for injunctive
       relief, for judgment on the pleadings, for summary judgment, ... to
       dismiss or to permit maintenance of a class action, to dismiss for
       failure to state a claim upon which relief can be granted, and to
       involuntarily dismiss an action. A judge of the court may
reconsider
       any pretrial matter under this subparagraph (A) where it has been
       shown that the magistrate's order is clearly erroneous or contrary
to
       law.

28 U.S.C. S 636(b)(1)(A).

7. That section provides:

       (b)(1) Notwithstanding any provision of law to the contrary--(B) a
       judge may also designate a magistrate to conduct hearings,

                               9
designate a magistrate judge to hold a hearing, receive
evidence and hear argument, make proposed findings of
fact, and recommend a disposition. Once the magistrate
judge's report and recommendation is filed, parties have 10
days to object to it. 28 U.S.C. S 636(b)(1)(C). The district
court must then review de novo the parts of the magistrate
judge's report and recommendation to which a party
objects. Id. The magistrate judge's report and
recommendation does not have the force of law, it being
merely a recommendation, unless and until the district
court enters an order accepting or rejecting it. See New
Jersey Zinc, 828 F.2d at 1005.

There is an important distinction between the two types
of referrals under the Act. In a subsection (A) referral, the
magistrate judge's order has the force of law unless
appealed. It is final in the sense that it may be appealed. In
contrast, in a subsection (B) referral, the magistrate judge's
recommendation only becomes effective when the district
court accepts it. Hence, in a subsection (B) referral no
appealable decision exists until the district court accepts
the magistrate judge's recommendation. For this reason, we
have held that a failure to object to a magistrate judge's
report and recommendation does not foreclose appellate
review in this Court. See Henderson v. Carlson, 812 F.2d
874, 877 (3d Cir. 1987).8

It is well settled that the intention of the Federal
Magistrates Act is to "relieve courts of unnecessary work
and to improve access to the courts." Niehaus v. Kansas
Bar Ass'n, 793 F.2d 1159, 1165 (10th Cir. 1986) (quoted
with approval in New Jersey Zinc, 828 F.2d at 1007). "The
Act is designed to relieve the district courts of certain
_________________________________________________________________

       including evidentiary, and to submit to a judge of the court
       proposed findings of fact and recommendations for the disposition,
       by a judge of the court, of any motion excepted in subparagraph
(A).

28 U.S.C. S 636(b)(1)(B).

8. In Thomas v. Arn, 474 U.S. 140 (1985), the United States Supreme
Court held that, pursuant to their supervisory power, the circuit courts
may elect to permit or prohibit appellate review of unobjected to reports
and recommendations.

                               10
subordinate duties that often distract the courts from more
important matters." Peretz v. United States, 501 U.S. 923,
935 (1990) (citing legislative history); see also Government
of the Virgin Islands v. Williams, 892 F.2d 305, 311 (3d Cir.
1989). The Act furthers this goal by permitting district
judges to delegate certain matters to magistrate judges.
Peretz, 501 U.S. at 935 n.9 (quoting legislative history). The
time and resources of the district judges are conserved
because, once the matter is assigned to a magistrate judge
and he or she makes his or her decision or
recommendation, the district judge need take no time
reviewing the matter unless a party objects to the order.
Hence, unobjected to orders and recommendations or parts
thereof do not take up the district judge's time. If the
district courts were required to review all of the magistrate
judge's decisions and recommendations, even those to
which there was no objection, the policy of the Act would be
severely undermined.

In the instant case, the court assigned this case
pursuant to S 636(b)(1)(A). Hence, the magistrate judge was
authorized to decide nondispositive pretrial mattersfinally.
There is no dispute that the motion to amend filed by
D'Andrea did not dispose of the lawsuit or a claim. See
Pagano v. Frank, 983 F.2d 343, 346 (1st Cir. 1993) (motion
to amend is nondispositive); see also Pyca Indus. v.
Harrison County Waste Water Mgmt. Dist., 81 F.3d 1412,
1421 (5th Cir. 1996) (motion to amend is nondispositive in
context of Fed. R. Civ. P. 54(b) certification). Review of this
type of order is by appeal to the district court. Pursuant to
Rule 72(a) and Local Rule 40D(4)(a), a party opposed to a
magistrate judge's order must file objections within 10 days
of service of the order.

It is undisputed that D'Andrea did not object to or appeal
to the district court either of the magistrate judge's orders.
We first turn to the February 10, 1995 order of the
magistrate judge ordering D'Andrea to pay certain counsel
and expert witness fees. D'Andrea offers no excuse for its
failures to object to or appeal this order. As a general rule,
we do not consider on appeal issues that were not raised
before the district court in the absence of exceptional
circumstances. Fleck v. KDI Sylvan Pools, Inc., 981 F.2d

                               11
107, 116 (3d Cir. 1992); Tabron v. Grace, 6 F.3d 147, 153-
54 n.2 (3d Cir. 1993) (citing Selected Risks Ins. Co. v.
Bruno, 718 F.2d 67, 69 (3d Cir. 1983)). D'Andrea points to
no exceptional circumstances with respect to this order.9
Hence, we decline to review it.

With regard to the February 5, 1996 order, D'Andrea
claims an objection or appeal was not necessary. D'Andrea
asserts that the spirit of the objection and appeal
requirements were met because the magistrate judge and
Continental knew that D'Andrea was "unhappy" with the
February 5, 1996 order. D'Andrea argues that the judge's
and plaintiff 's knowledge of its unhappiness has the same
effect as an explicit and contemporaneous objection.

We disagree for two reasons. First, D'Andrea points to
nothing in the record which establishes that it was actually
"unhappy" with the magistrate judge's order. To the
contrary, we conclude that D'Andrea did not object because
it elected to accept, albeit reluctantly, the condition the
magistrate judge placed on permitting the amendment.
When questioned by the magistrate judge, Hudson never
stated that he opposed the order or that he intended to
appeal it. Instead, he repeatedly told the magistrate judge
that he understood the order and that he intended to
inform his client of it.10 In the exchange of letters between
counsel and the magistrate judge, D'Andrea then forewent
several additional opportunities to object by paying the fees,
without objection. We note that Hudson was keenly aware
_________________________________________________________________

9. We recognize that the plain language of Rule 72(a) seems to prohibit a
party from "assign[ing] as error a defect in the magistrate judge's order
to which objection was not timely made." Fed. R. Civ. P. 72(a). This
language, however, is not a bar to review by this Court when exceptional
circumstances exist. See Tabron, 6 F.3d at 153-54 n.2. We have
construed virtually identical language in Federal Rule of Civil Procedure
51 similarly. Although that rule prohibits review in this Court when a
party does not object to the district court's failure to give a jury
instruction, we have permitted plain-error review. See Fausher v. New
Jersey Transit Rail Opers., 57 F.3d 1269, 1289 (3d Cir. 1995).

10. We also note that Hudson seemed to be prepared to accept at least
some conditions on the amendment of his answer when he stated in his
motion to amend: "If Continental does believe that additional discovery
is needed, the court can certainly [make] such arrangements."

                                12
that the magistrate judge was frustrated by previous
counsel for D'Andrea's repeatedly delaying the litigation by
missing deadlines. It seems apparent that the real reason
for Hudson's failure to object to the order was to avoid
further upsetting the magistrate judge by again delaying
the litigation with an objection and an appeal to the district
court. Presumably, Hudson reasoned that, even with the
imposition of the attorneys' fees and costs, it was strategic
for his client to pay them under the circumstances; if he
was not permitted to amend his answer, his client faced a
potential judgment for as much as approximately $1.3
million.

Second, even if we conclude that D'Andrea was
"unhappy" with the magistrate judge's February 5, 1996
order and that this was evident from the record, the rules
of civil procedure do not permit a party's emotional state of
mind to substitute for an objection or appeal. Hudson had
several opportunities to state his opposition to the order
and elected not to do so.11 Allowing a party's evident
"unhappiness" about an order to constitute an objection is
antithetical to orderly litigation. Parties are often unhappy
with orders but elect not to object to them for tactical or
other reasons. Permitting a state of mind to substitute for
an objection on the record would allow a party to sandbag
the district court and the other parties by allowing or
inviting the court to make an error and then springing the
issue on the other party on appeal. See 9A Charles A.
_________________________________________________________________

11. D'Andrea suggests that the magistrate judge's intimidating behavior
made the "atmosphere" at the hearing unconducive to an explicit
objection. D'Andrea points to the judge's refusal to accommodate
Hudson's calendar in setting discovery deadlines and referring to the
presence of a United States Marshal to stifle further argument. We have
reviewed the record and note that, while somewhat angry and harsh, the
magistrate judge's comments were the result of frustration from
D'Andrea's previous counsel's repeatedly missing deadlines. Even
accepting D'Andrea's characterization of the judge's comments, they did
not excuse an explicit objection. The rules do not require a prolonged
protest or that the attorney directly confront an angry judge. They
require only a respectful and explicit objection. See Charles A. Wright &
Arthur R. Miller, Federal Practice and Procedure S 2472, at 94 (1995).
Regardless, the magistrate judge's captious behavior does not excuse
failing to file an appeal with the district court.

                               13
Wright & Arthur R. Miller, Federal Practice and Procedure
S 2472, at 93-95 (1995).

Explicit opposition or an objection on the record to a
proposed order permits the court to consider the position of
the opposing party and modify, or even possibly abandon,
the order in light of the arguments raised. See Fleck 981
F.2d at 116; Wright & Miller, supra, S 2472, at 94-95; cf.
Elder v. Holloway, 984 F.2d 991, 998 (9th Cir. 1993) (party
finding fault with jury charge must make timely objection
to give trial judge chance to correct error before
deliberation); see also Thomas v. Arn, 474 U.S. 140, 147
(1985) (requirement of timely objection to magistrate's
report furthers judicial economy and focuses court on heart
of parties' dispute). When a party fails to object, a court is
deprived of the opportunity to correct the alleged defect. In
this case, the magistrate judge and the district court were
denied the opportunity to correct possible errors in the
order because D'Andrea never objected to any of record.

D'Andrea next contends that its compliance with Rule
72(a) was excused because the district court sua sponte
"reviewed" the magistrate judge's second order when it
entered summary judgment on December 2, 1996. There is
no indication that the district court actually reviewed the
magistrate judge's order; the district court merely
ministerially ordered D'Andrea to comply with the
magistrate's order and pay the amount imposed.
Unbeknownst to the district court, D'Andrea had already
paid the amount without objection approximately three
months earlier, in September 1996. Indeed, there would be
no reason for the district court to review the order given
that no objection by either party had been made to it.

The overwhelming weight of authority supports our
decision. This Court has specifically held that a party
failing to appeal to the district court a magistrate judge's
order in a nondispositive matter may not raise an objection
to it on appeal to a circuit court. See New Jersey Zinc, 828
F.2d at 1008; accord Tabron, 6 F.3d at 153-54 n.2; Turner
v. Schering-Plough Corp., 901 F.2d 335, 341 n.4 (3d Cir.
1990). In addition, other circuits considering the issue also
have decided that a failure to appeal a magistrate judge's
subsection (A) order waives the right to challenge it on

                               14
appeal. See, e.g., Simpson v. Lear Astronics Corp., 77 F.3d
1170, 1174 (9th Cir. 1996); Illinois Conf. of Teamsters v.
Gilbert Trucking, 71 F.3d 1361, 1367-68 n.5 (7th Cir. 1995);
ICA Constr. Corp. v. Reich, 60 F.3d 1495, 1499 (10th Cir.
1995); CNP-q-Conselho Nacional v. Inter-Trade, Inc., 50 F.3d
56-57 (D.C. Cir. 1995); Pagano v. Frank, 983 F.2d 343,
345-47 (1st Cir. 1993); Boren v. N.L. Indus., 889 F.2d 1463,
1465 (5th Cir. 1989); Niehaus v. Kansas Bar Ass'n, 793
F.2d 1159, 1164 (10th Cir. 1986).

It may well be that plaintiff's counsel took advantage of
the magistrate judge's frustration to charge D'Andrea with
excessive attorneys' fees and costs. D'Andrea may also be
correct that the sanction was somewhat unjust.
Continental may also have filed a spurious lawsuit in light
of the addendum to the underlying contract waiving
subrogation rights and, presumably having calculated the
policy premium on that basis, must have known at all
times it had no claim against the defendant. Nonetheless,
even if an objection before the magistrate would have been
futile, D'Andrea still had its remedy in the district court in
each instance. It deliberately, however, chose not to avail
itself of that remedy.

Permitting review when no exceptional circumstances
exist would severely undermine the Act's aim to save the
district courts' time and resources by improperly
encouraging them to review even unobjected to orders.
Thus, to uphold the policies of the Act, we must define
exceptional circumstances narrowly. Only when the public
interest requires review of the unraised issue, when
manifest injustice would result from the failure to consider
the new issue, or when the alleged error was fundamental
and resulted in a highly prejudicial error do exceptional
circumstances exist.

In Fleck v. KDI Sylvan Pools, the trial court entered a
directed verdict to which counsel of the losing party did not
object. On appeal, we reviewed the issue holding that it was
waived and that there were no exceptional circumstances.
The appellant contended that the failure of its counsel to
object "was a fundamental and highly prejudicial error
resulting in a miscarriage of justice." We rejected counsel's
characterization of the error and refused to consider the

                               15
merits, stating: "Many errors by one's counsel prejudice a
case; but few are said to be a miscarriage of justice. Mere
prejudice is insufficient to retrieve an abandoned issue." Id.
at 116. In the instant case, D'Andrea offers no explanation
for its failure to raise an objection to the magistrate judge's
orders or in appealing to the district court. Its counsel's
conduct was not mere inadvertence or ineptness; counsel
strategically made a calculated exercise of judgment that
may have been ill-considered. See id. ("When a litigant
takes an unequivocal position at trial, he cannot on appeal
assume a contrary position simply because the decision in
retrospect was a tactical mistake"). Thus, we do not find
any exceptional circumstances. We are not aware of any
obstacles to an appeal to the experienced and learned
district judge and we see no public interest to be advanced
by considering the amount of the attorneys' fees and costs
here involved. See Altman v. Altman, 653 F.2d 755, 757-58
(3d Cir. 1981); cf. Princeton Community Phone Booth, Inc. v.
Bate, 582 F.2d 706, 708 n.1 (3d Cir. 1978).

That counsel for D'Andrea appears to have elected to
accept the magistrate judge's condition so that he could
amend his answer is, by itself, sufficient to establish that
no exceptional circumstances exist. Cf. United States
v. Olano, 507 U.S. 725, 732 (1993) (intentional
relinquishment of known right extinguishes error related to
that right). Even if that were not the case, no manifest
injustice resulted from the magistrate judge's order.
Although not free from cost to D'Andrea, the order
permitted D'Andrea to raise a defense almost two years
after it filed its original answer that it could have discovered
much earlier in the litigation, led to the case being decided
on the merits, and allowed D'Andrea to avoid a judgment
against it for approximately $1.3 million. We do notfind
any exceptional circumstances that would lead us to
exercise our discretion to review the second order.

Finally, we note that, while magistrate judges have ample
discretion in controlling their dockets, see In re Fine Paper
Antitrust Litig., 685 F.2d 810, 817 (3d Cir. 1982) (district
courts have wide discretion in controlling docket), and
imposing sanctions to protect parties from abuse and
unfair prejudice, cf. General Ins. Co. of America v. Eastern

                               16
Consol. Utils., Inc., 126 F.3d 215, 219 (3d Cir. 1997) (court
of appeals reviews imposition of discovery sanctions for
abuse of discretion), such discretion is not unlimited.
Although we are mindful of the magistrate judge's
frustration with the delays and his repeated
accommodations of counsel for D'Andrea and his
expression of such frustration, see Offut v. United States,
348 U.S. 11, 17 (1954) ("a modicum of quick temper ...
must be allowed even judges"), we question his imposition
of such an onerous condition on an amendment to a
pleading. See Fed. R. Civ. P. 15 (leave to amend pleadings
shall be freely given "when justice so requires"). Requiring
a party to pay $38,000 in attorneys' fees and costs to
amend a pre-trial pleading is rarely justified when there is
no evidence, or even a contention, that the sanctioned party
acted in bad faith. However, because D'Andrea voluntarily
decided to accept this condition without objection, we are
constrained to deny review.

III.

In sum, we reaffirm our holding in New Jersey Zinc that
a party that does not appeal a magistrate judge's
nondispositive order to the district court waives its right to
review the order in appellate court. Only when exceptional
circumstances are present will we review such an order.
Because we do not find exceptional circumstances in this
case, the district court's February 10, 1995 and February
5, 1996 orders will be affirmed. Each side to bear its own
costs.

                               17
SLOVITER, Circuit Judge, concurring in the judgment to
affirm.

I concur in the judgment to affirm, but I write separately
because my reasons differ to a significant extent from those
given by my colleague, Judge Rosenn. Judge Rosenn's
opinion sets forth, with his usual thoroughness and clarity,
the procedural history, and I therefore will only augment
his recitation with facts that I believe need emphasis.

The complaint was filed by Continental Casualty
Company against Dominick D'Andrea, Inc., a
subcontractor, for subrogation for damages Continental
had to pay to Almonesson Associates, L.P., the owner and
developer of a shopping mall, when concrete walls that
D'Andrea had constructed collapsed during a storm.
Continental, who filed the complaint, had the obligation to
prove that it was entitled to recover as subrogee. During
discovery, Continental was requested by D'Andrea's prior
attorney to produce the contract on which it based its suit,
and in response it produced the contract between the
Owner, Almonesson, and the general contractor, The
Douglas Company. Although the first page of the contract
incorporates by reference another document, "The 1987
Edition of the AIA Document A201, General Conditions of
the Contract for Construction," a standard form document
that is apparently used often in construction contracts,
that document, "the A201 document," was not produced by
Continental in discovery. Nor did D'Andrea's counsel
specifically request it. It was only after D'Andrea's new
counsel realized he did not have the complete contract, a
matter he learned from the motion for summary judgment
filed by Douglas, a third-party defendant, did he obtain the
A201 document. From that document, he discovered a
provision in which Continental had waived its rights to
subrogation of Almonesson's claim against D'Andrea. In
other words, Continental had filed a lawsuit claiming
subrogation when it had no legal right to do so, a
conclusion confirmed by the district court when it granted
summary judgment to D'Andrea and against Continental on
that basis.

Unfortunately for D'Andrea, the discovery of that
addendum to the contract was not made until March 1995,

                               18
by which time the magistrate judge to whom the pretrial
proceedings had been assigned had reached the limit of his
patience, apparently because of delays caused by the
illness of D'Andrea's former counsel. I note that no party
disagrees that D'Andrea's former counsel was seriously ill,
periodically hospitalized, and affected mentally by the
illness.

The motion of D'Andrea's new counsel to amend the
answer to assert this dispositive defense of the waiver-of-
subrogation clause was filed March 10, 1995, which was
after the magistrate judge had filed the pretrial order
(February 1995) expressly stating that there would be no
further extensions. Nonetheless, D'Andrea moved to amend
the Pretrial Order to add the affirmative defense and to
move for summary judgment on that basis. Continental
objected but sought additional discovery and an
opportunity to oppose the summary judgment motion
should the court grant D'Andrea's requests. The magistrate
judge told the parties to address the motion to the district
court, and that court then referred it back to him.

The magistrate judge, apparently frustrated at this turn
of events, granted the motion to amend the Pretrial Order
based on the waiver-of-subrogation provision of the
contract only on condition that all fees and expenses of
Continental "that relate to the amendment" shall be borne
by D'Andrea. Order dated Feb. 5, 1996. App. at 328. More
explicitly, the magistrate judge stated:

       all fees and expenses of [Continental] that relate to the
       amendment shall be borne by [D'Andrea], including but
       not limited to costs and fees for (i) briefing and
       argument of the present motion, (ii) any further
       discovery [Continental] requires, (iii) a scheduling
       conference, (iv) all opposition to [Continental's] motion
       for summary judgment; and [Continental] shall timely
       submit certifications which reflect its expenses related
       to the amendment.

       . . . [I]f [D'Andrea] does not pay[Continental's] fees . . .
       the affirmative defense which is the subject of this
       order shall be stricken and the . . . motion for summary
       judgment shall be dismissed.

                               19
App. at 328-29 (emphasis in original).

It is true, as Judge Rosenn points out, that D'Andrea's
counsel did not object at that time to the order conditioning
the right to amend on payment of fees and expenses, nor
did it appeal. But we cannot ignore evidence in the record
that may help explain why D'Andrea's counsel may have
thought that silence, rather than an appeal at that time,
was his required course. The transcript of the hearing on
the motion to amend before the magistrate judge on
February 2, 1996 discloses that the hearing was scheduled
only because the district court requested him to take a look
at it. The magistrate judge also asked D'Andrea's original
counsel to be present because some of the issues pertained
to his conduct.

The attitude of the magistrate judge toward the motion
was evident at the start, when he stated, "This is a textbook
example of abuse of the legal system." App. at 298. His
hostility toward the arguments presented on behalf of
D'Andrea is evident throughout, illustrated by his
denomination of D'Andrea's counsel's argument, inter alia,
as "hutzpa." App. at 304. I will not go through the colloquy
verbatim, but Judge Rosenn also acknowledges the
magistrate judge's "harsh comments" and "captious
behavior." Ultimately the magistrate judge announced that
he would permit the amendment because he believed that
otherwise under the law of the Third Circuit, they would be
"right back here in three years." App. at 321. He advised
counsel that D'Andrea's insurance company would have to
pay the legal fees related to the additional work needed to
allow Continental to respond to the additional affirmative
defenses.

Toward the end of that colloquy, counsel for Continental
asked the court, which had contemplated that the
additional discovery should be completed in 20 days, to
change that time to 60 days, which the court immediately
agreed to do. The following then took place:

        MR. HUDSON   [counsel for D'Andrea]: I almost hate
       to do this,   but you're raising a calendar. I know the
       second week   in February I'm going to be at expert
       depositions   that --

                                 20
        THE COURT: You are going to have to get someone
       else from your firm here. Now look it --

        MR. HUDSON: All right, I know. I thought I would
       tell you --

        THE COURT: Don't push the envelope here, my
       friend. I have this big huge marshall sitting back there.

        MR. HUDSON: I just wanted to raise it.

        THE COURT: Don't, don't, don't, don't.

App. at 325 (emphasis added).

I do not know for a fact what the magistrate intended by
the reference to the "big huge marshall," but it is
reasonable to believe that an attorney might take that as
some kind of threat, whether intended benignly or not.
When coupled with the fact that the fate of the amendment,
with what counsel believed was a dispositive affirmative
defense, and the fact, as Judge Rosenn acknowledges, that
the client faced a potential judgment for $1.3 million, it is
no wonder that counsel determined to proceed with the
discovery under an order that he may have believed was
unfair but which had not been reduced to any dollar
amount. Nor do I believe it is reasonable to fault counsel for
failing to appeal that non-dispositive order to the district
court at that time. Counsel, having been subject to the
magistrate judge's temper, may have reasonably determined
not to risk his ire by an appeal.

Thus, I respectfully disagree with Judge Rosenn that
D'Andrea has no excuse for its failure to object to or appeal
the order of February 5, 1996. Nor do I agree that Rule
72(a) provides an unbreachable barrier under
circumstances such as that here.

In United Steelworkers of America v. New Jersey Zinc Co.,
828 F.2d 1001 (3d Cir. 1987), we stated that although a
party ordinarily waives its ability to challenge on appeal a
magistrate's pretrial order by failing to file a timely
objection, the failure to file a formal objection with the
district court is not fatal to our review under"extraordinary
circumstances." Id. at 1008 (citations omitted). Although
Judge Rosenn acknowledges the "extraordinary

                                21
circumstances" exception, he believes that none have been
shown here. I, on the contrary, believe that what appears to
be an unexplained judicial threat, together with the
possibility that a client will not be permitted to interpose a
dispositive defense to a $1.3 million claim, is enough to
constitute "extraordinary circumstances."

We have construed language in Fed. R. Civ. P. 51 similar
to that in Rule 72 to permit appellate review for plain error.
See Fashauer v. New Jersey Transit, 57 F.3d 1269, 1289
(3d Cir. 1995). We have defined plain errors as those errors
that " `seriously affect the fairness, integrity or public
reputation of judicial proceedings.' " Osei-Afriyie v. Medical
College of Pennsylvania, 937 F.2d 876, 881 (3d Cir. 1991)
(quoting United States v. Atkinson, 297 U.S. 157, 160
(1936)). In Walden v. Georgia-Pacific Corp., 126 F.3d 506
(3d Cir. 1997), we explained that a plain error challenge will
succeed if there is an actual error, i.e., a deviation from or
violation of a legal rule, the error is plain, i.e., clear and
obvious under current law, and the error affects substantial
rights. In other words, the error must be prejudicial and
must have affected the outcome of the district court
proceedings. Id. at 520 (citing United States v. Olano, 507
U.S. 725, 732-34 (1993)); see also Charles Alan Wright &
Kenneth W. Graham, Jr., Federal Practice & Procedure
S 5043 (1996). Although we exercise our power to reverse
for plain error sparingly, Chemical Leaman Tank Lines, Inc.
v. Aetna Cas. & Surety Co., 89 F.3d 976, 994 (3d Cir.), cert.
denied, 117 S.Ct. 485 (1996), the circumstances of this
case are sufficiently serious for us to question the integrity
of the proceedings.

Finally, D'Andrea's counsel might well have decided that
there was little possibility that the order would be
overturned at that juncture. It is not unusual for trial
courts to impose costs on a party for its delay as a
condition to permit an extension. There was no basis to
assume that the amount of costs imposed would be
anything but reasonable. Thus, I would not preclude review
on the basis of D'Andrea's failure to appeal from the
February 5, 1996 order.

D'Andrea, however, was not without other opportunities
to seek redress at the trial court level. Assuming, as I am

                                22
willing to do, that counsel's obligation to the client justified
taking no action that might jeopardize the ultimate
disposition of the case, D'Andrea offers no plausible
explanation why it took no action once the district court
granted summary judgment. At that time, of course,
D'Andrea had already paid the full amount of the fees and
costs requested by Continental's counsel because that was
a condition precedent to the ruling. In the same order of
December 12, 1996 containing the district court's order
granting summary judgment to D'Andrea based on the
waiver of subrogation clause, the court also ordered"that
defendant comply with the February 5, 1996 order of[the
magistrate judge] regarding the fees and expenses incurred
by plaintiff in opposing the present summary judgment
motion."

As Judge Rosenn suggests in his opinion, the purpose
and effect of that provision of the order is unclear.
D'Andrea had already complied with the order to pay the
fees and expenses. Thus, if Judge Rosenn is correct that
the district court did not actually review the magistrate
judge's order, then the district court never focused on the
substance of D'Andrea's objection to the amount of fees and
costs which it had been required to pay.

Those objections are not without some facial plausibility.
While I personally am not persuaded by D'Andrea's
argument that the delay in interposing the dispositive
affirmative defense was not serious or prejudicial to
Continental, I believe there may be more basis to its
contention that the magistrate judge failed to assess the
relative responsibility for the delayed production of the
contract form.

The magistrate judge does not appear to have considered
the role of Continental in filing a subrogation claim where
the contract of the subrogor precluded such an action. To
the contrary, his approach absolved Continental of any
blame in filing and maintaining an action that lacked merit.
But Continental was the party that had the obligation
under Rule 11 of the Federal Rules of Civil Procedure to
investigate in good faith whether the claim could be
pursued under the law and the facts. Presumably, someone
in its organization was aware of the incorporation of the

                                23
A201 document in a contract negotiated by its insured, and
its failure to produce the entire document when requested
to do so in discovery led to the succeeding events.

Moreover, there is no suggestion that the magistrate
judge focused on D'Andrea's contention that Continental
pursued unreasonable discovery, such as that ultimately
precluded by the parol evidence rule, confident that
someone else would be paying the bill. Of course, discovery
is not limited to admissible evidence but the magistrate
judge had emphasized that costs it had authorized had to
be in connection with "reasonable" discovery, and there is
no indication on the record that Continental's counsel's bill
for fees and expenses was scrutinized by a judge for its
reasonableness after D'Andrea interposed its objection. In
fact, the magistrate judge summarily denied D'Andrea's
objections even after Continental agreed to modify its fee
request. See App. at 402, 415.

Despite what appear to me to be serious deficiencies in
the procedure relating to the assessment of the fees and
expenses, I do not vote to reverse and remand because I see
no indication in the record that D'Andrea's counsel made
an effort post-judgment to bring these matters to the
district court's attention. The docket does not show that
counsel made a motion under FRCP 59(e) to alter or amend
the judgment, which would have afforded the district court
the chance to hear from both parties. There is nothing at all
to suggest that any statement or action by the district court
created whatever in terrorem effect may have been caused
by the magistrate judge's attitude. Issues relating to costs
and expenses are by their very nature appropriate for
consideration in the first instance at the district court level.
Having neglected the opportunity to do this earlier,
D'Andrea is not entitled to have them considered by this
court. In so holding, however, I note that D'Andrea may not
be precluded from seeking relief by filing a Rule 60(b)(6)
motion in the district court, although I take no position on
its use in these circumstances.

Accordingly, I join Judge Rosenn in affirming the
judgment of the district court.

                                24
A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               25