Court Opinion

ID: 182235
Source: CourtListenerOpinion
Date Created: 2011-01-05 17:30:17+00
Date Added: 2024-06-11T17:25:58.641753
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit

                                                                  January 5, 2011
                    UNITED STATES COURT OF APPEALS
                                                 Elisabeth A. Shumaker
                                                                    Clerk of Court
                                 TENTH CIRCUIT

 RIVIERA DRILLING &
 EXPLORATION COMPANY, a Texas
 corporation,

               Plaintiff - Appellant,                    No. 10-1081
          v.                                             (D. Colorado)
 GUNNISON ENERGY                            (D.C. No. 1:08-CV-02486-REB-CBS)
 CORPORATION, a Delaware
 corporation; SG INTERESTS I, LTD.,
 a Texas limited partnership; SG
 INTERESTS VII, LTD., a Texas
 limited partnership,

               Defendants - Appellees.

                            ORDER AND JUDGMENT *

Before LUCERO, EBEL, and HARTZ, Circuit Judges.

      Riviera Drilling & Exploration Company, a Texas corporation, filed an

antitrust complaint against Defendants Gunnison Energy Corporation, SG

Interests I, Ltd., and SG Interests VII, Ltd. on November 14, 2008, in the United

States District Court for the District of Colorado. Two months later, the court set

      *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
trial for 13 days beginning February 22, 2010. On January 20, 2010, however,

Riviera’s counsel, Hill & Robbins, moved to withdraw. The motion was served

on Riviera and its in-house counsel, and was unopposed by Defendants. In

support of the motion, counsel filed an ex parte memorandum. The magistrate

judge reviewed the memorandum and held a hearing on the motion on January 25.

Although the judge thoroughly and sternly warned Scott Thurner, a principal and

officer of Riviera, that a corporation could not litigate in court without an

attorney and that the court could dismiss the suit if Riviera did not obtain

replacement counsel, he consented to the withdrawal and the judge granted the

motion.

      On February 2, 2010, Riviera, through counsel, filed a voluntary petition

for bankruptcy under Chapter 11. Three days later Scott Thurner and Jacob

Thurner, another principal and officer of Riviera, informed the district judge at

the trial-preparation conference that Riviera had been unable to obtain

replacement counsel. Jacob told the court that they had not appreciated the

difficulty of finding a new attorney and asked the judge to reconsider the motion

to withdraw. The judge denied the motion because it was not made through

counsel and it should have been made first to the magistrate judge. The court

then ruled that the bankruptcy petition did not stay the trial proceeding and

ordered Riviera to show cause by February 9 why the case should not be

dismissed with prejudice.

                                          -2-
      On February 9, Jacob Thurner filed a motion to have Hill & Robbins

reinstated as counsel. The district judge denied the motion and dismissed the

complaint with prejudice for failure to prosecute. Riviera appeals. We have

jurisdiction under 28 U.S.C. § 1291 and affirm.

I.    DISCUSSION

       On appeal Riviera argues that the magistrate judge should not have

allowed its counsel to withdraw, the district court should have reversed the

magistrate judge’s order allowing withdrawal, and the district court should not

have dismissed the complaint with prejudice. In the alternative, Riviera argues

that the district court’s order of dismissal is void as a violation of the automatic

bankruptcy stay under 11 U.S.C. § 362(a). We consider each claim in turn.

      A.     The Order Allowing Counsel to Withdraw

      Riviera contends that the magistrate judge should not have granted Hill &

Robbins’ motion to withdraw. Ordinarily, we review the grant of a motion to

withdraw for an abuse of discretion. See Stafford v. Mesnik, 63 F.3d 1445, 1448

(7th Cir. 1995). But Riviera did not file a timely written objection to the

magistrate judge’s ruling. See Fed. R. Civ. P. 72(a). Under this circuit’s firm-

waiver rule, it therefore “waive[d] appellate review of both factual and legal

questions.” Morales-Fernandez v. INS, 418 F.3d 1116, 1119 (10th Cir. 2004).

We apply the rule unless “a pro se litigant has not been informed of the time

period for objecting and the consequences of failing to object, or . . . the ‘interests

                                          -3-
of justice’ require review.” Id. The first exception does not apply because a

corporation cannot appear pro se. See Rowland v. Cal. Men’s Colony, Unit II

Men’s Advisory Council, 506 U.S. 194, 201–03 (1993). And even if Riviera could

rely on the second exception by showing good cause for failing to object to the

magistrate judge’s ruling, see In re Key Energy Resources, Inc., 230 F.3d 1197,

1200 (10th Cir. 2000), our ultimate review would be for plain error, see Emp’rs

Reinsurance Corp. v. Mid-Continent Cas. Co., 358 F.3d 757, 769 (10th Cir.

2004), and Riviera cannot satisfy that standard because it has not shown that the

magistrate judge committed any error in this case.

      The memorandum submitted by Riviera’s attorneys in support of the motion

to withdraw presented numerous reasons for withdrawal: Riviera’s repeated

failures to follow their advice, Riviera’s failure to cooperate and even

communicate with them at critical times, and Riviera’s failure to pay legal fees

and expenses. It said that Riviera had failed to fulfill its obligations despite

repeated warnings that the firm would withdraw. Specifically mentioned were

Riviera’s

      responding to an offer from Defendants’ counsel by sending a letter
      directly to the Defendants’ principals, refusing to sign a verification
      statement for accurate discovery responses, failing to participate in
      settlement conferences in a meaningful way, displaying a general
      unwillingness to accept and follow [counsel’s] advice on matters
      material to litigation strategy, and failing to pay the fees of necessary
      experts.

                                          -4-
J. App., Vol. II at 5. The memo asserted that Riviera’s refusal to participate in a

settlement conference scheduled with the magistrate judge and its refusal even to

communicate with counsel the day before the scheduled conference made

continued representation impossible. Correspondence from counsel to Riviera

was attached to the memo. It confirmed that counsel had warned Riviera in

August and November 2009 that its case was being jeopardized by failure to make

required payments to experts; and a January 14, 2010, letter informed Riviera that

without expert testimony the claim could not succeed at trial.

      Despite the apparent merits of counsel’s frustration with Riviera, the

magistrate judge could still have denied the motion because of the burden on the

client resulting from withdrawal from the case so close to trial. But Riviera’s

principals consented to the withdrawal, even after warnings from the magistrate

judge of the potential consequences and even though Riviera had in-house counsel

to advise it. Under these circumstances the magistrate judge’s decision was not

plain error.

      B.       The District Court’s Refusal to Reconsider

      Riviera argues that the district court’s denial of its motion for

reconsideration of the order granting leave to withdraw was an abuse of

discretion. Under 28 U.S.C. § 636(b)(1)(A) the district court must defer to the

magistrate judge’s ruling on nondispositive matters unless the ruling is “clearly

erroneous or contrary to the law.” Allen v. Sybase, Inc., 468 F.3d 642, 658 (10th

                                         -5-
Cir. 2006) (internal quotation marks omitted). That is, the district court must

affirm unless “on the entire evidence [it] is left with the definite and firm

conviction that a mistake has been committed.” Id. (internal quotation marks

omitted). We then review the district court’s review for abuse of discretion. See

id. at 659.

       We hold that the district court did not err in denying Riviera’s verbal

motion for reconsideration or its later written motion to reinstate counsel. Both

motions were made by nonlawyer representatives of Riviera, and a corporation

can present a motion only through licensed legal counsel. See Rowland, 506 U.S.

at 201–03.

       C.     Dismissal With Prejudice

       Riviera challenges the district court’s decision to dismiss its complaint with

prejudice as a sanction for its failure to prosecute. Under Federal Rule of Civil

Procedure 41(b) a district court may dismiss an action with prejudice if the

plaintiff fails “to prosecute or to comply with [the Federal Rules of Civil

Procedure] or a court order.” We review for an abuse of discretion a district

court’s decision to dismiss an action for failure to prosecute. See Ecclesiastes

9:10-11-12, Inc. v. LMC Holding Co., 497 F.3d 1135, 1143 (10th Cir. 2007). “An

abuse of discretion occurs when a district court makes a clear error of judgment

or exceeds the bounds of permissible choice in the circumstances. This occurs

when a district court relies upon an erroneous conclusion of law or upon clearly

                                          -6-
erroneous findings of fact.” Id. (brackets, citation, and internal quotation marks

omitted).

      Before choosing the sanction of dismissal, the district court should

ordinarily consider the following factors:

      (1) the degree of actual prejudice to the defendant; (2) the amount of
      interference with the judicial process; (3) the culpability of the
      litigant; (4) whether the court warned the party in advance that
      dismissal of the action would be a likely sanction for noncompliance;
      and (5) the efficacy of lesser sanctions.

Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (10th Cir. 1992) (citations, ellipses,

and internal quotation marks omitted). “These factors do not constitute a rigid

test,” but are simply “criteria for the district court to consider.” Id. Moreover,

“we can of course affirm a district court’s dismissal based on our own

independent assessment of its legal propriety.” Nasious v. Two Unknown B.I.C.E.

Agents, 492 F.3d 1158, 1162 (10th Cir. 2007). Riviera argues that the district

court failed to evaluate and weigh all five factors and that dismissal with

prejudice is an extreme sanction that is unreasonable in this case. Under the

deferential abuse-of-discretion standard, we affirm the district court’s dismissal

order. We address each factor in turn.

             1.     Prejudice to Defendants

      The district court found that there was no possibility of trial as scheduled

and that the trial could not be reset before March 2011 “without disturbing other

trial settings.” J. App., Vol. I at 275. It noted the obvious “substantial prejudice

                                          -7-
[to Defendants] in the form of wasted time, effort, and expense” that would result

from such delay. Id. at 274. The intense work required in the weeks just before a

13-day trial would need to be largely repeated after a one-year delay. See Rogers

v. Andrus Transp. Servs., 502 F.3d 1147, 1152 (10th Cir. 2007) (“Having to

prepare for trial on multiple occasions can be a considerable burden, wasting time

and resources.”). The court also observed that a continuance would “prolong for

the defendants the substantial uncertainty faced by all parties pending litigation.”

J. App., Vol. I at 275. Ehrenhaus noted that “a lawsuit containing the serious and

stigmatizing allegations of fraud damages the reputation of those accused so long

as the lawsuit remains pending.” 965 F.2d at 921. The same can be said of

antitrust allegations.

      We reject Riviera’s argument that there was “no actual factual evidence”

that Defendants would be prejudiced by a continuance. Aplt. Br. at 18. An

experienced trial judge could see the obvious. Nor is it relevant that there had

been no prior delays and that the case was “only” 14 months old. The problem

was the timing of the continuance—the eve of trial. If counsel had withdrawn

months before the scheduled trial, we assume that the court would not have

dismissed the case. But a plaintiff who, at the last minute, is unprepared for trial

is not properly prosecuting its case. We see no error in the district court’s finding

of substantial prejudice.

             2.     Interference With Judicial Process

                                          -8-
      The district court found that Riviera “short-circuited [the court’s] efforts

shortly before they were to come to fruition at trial.” J. App., Vol. I at 275.

Thirteen days on a district court’s calendar is a precious resource. Riviera

categorizes the problem as just “one missed deadline.” Aplt. Br. at 24. Perhaps,

but few missed deadlines can so greatly disrupt a court’s schedule. The district

court properly evaluated this factor.

             3.     Culpability of Riviera

      Much of Riviera’s attack on the dismissal concerns the district court’s

finding that it was responsible for the inability to proceed to trial. It presents

itself as always eager to try the case, as undertaking great effort to obtain

replacement counsel, and as the victim of its ignorance of the difficulty of

obtaining counsel when it agreed to the withdrawal of Hill & Robbins.

      But the district court quite properly concluded that Riviera had substantial

culpability for its inability to proceed to trial. Although the magistrate judge

refused to “assign[] fault or blame in any way” when it granted the motion to

withdraw by Hill & Robbins, J. App., Vol. I at 132, the letters to Riviera that the

firm submitted to the court paint a picture of a client knowingly preventing

counsel from pursuing the litigation.

      In any event, there is no need to apportion blame between lawyer and

client. Under the Ehrenhaus factors we rarely distinguish between the party and

its agent. See Gripe v. City of Enid, Okla., 312 F.3d 1184, 1188–90 (10th Cir.

                                          -9-
2002). But cf. Davis v. Miller, 571 F.3d 1058, 1064 (10th Cir. 2009) (recognizing

exception to general rule for habeas petitioners because liberty is at stake and

malpractice suit could not provide relief). Thus, whether the consensual

withdrawal of counsel was the fault of Riviera or of its counsel is of no

importance. What can be said with certainty, however, is that no one else must

bear that blame. Neither the Defendants nor the court had any obligation to

perform the duties of the already occupied position of general counsel for Riviera.

Accordingly, the district court properly weighed this factor against Riviera.

             4.    Notice of Possible Dismissal

      In its order of dismissal the district court did not explicitly mention the

fourth Ehrenhaus factor—a warning by the court of the possibility of dismissal.

But any error in this regard is inconsequential, because there undoubtedly was

such a warning. Before the magistrate judge granted the motion of Hill &

Robbins to withdraw, he repeatedly emphasized to Riviera’s representative the

dire consequences that could result from not retaining replacement counsel,

saying that lack of counsel “will effectively end the case,” J. App., Vol. I at 129,

and would present “an insurmountable problem.” Id. at 133. See Jones v.

Thompson, 996 F.2d 261, 265 (10th Cir. 1993) (notice prong was satisfied when

plaintiffs admitted that “the court warned them in advance that dismissal of the

action would be a likely sanction for noncompliance”). Even if the district court

did not weigh the notice factor in deciding to dismiss the case with prejudice,

                                         -10-
there is no reason to believe that consideration of the factor could have caused the

court to choose a lesser sanction or no sanction at all.

             5.     Availability of Lesser Sanctions

      The district court’s dismissal order also did not explicitly address the fifth

Ehrenhaus factor—the availability of lesser sanctions. But its consideration of

this factor was clearly implicit in its analysis. Because Riviera had filed for

bankruptcy, a financial sanction was out of the question. The only issue was

whether to dismiss or grant a continuance. The court found that Riviera had no

“realistic prospect” of proceeding to trial “in the reasonably foreseeable future,”

since there was “no indication . . . that any attorney had indicated even a potential

willingness to represent Riviera even if a brief continuance of the current trial

date is granted.” J. App., Vol. I. at 274. Moreover, the correspondence from Hill

& Robbins to Riviera strongly suggested that even if an attorney would take the

case, it could not be successfully tried at the scheduled time because the

necessary experts had not been paid their fees. And, as previously noted,

anything beyond a brief continuance would require postponing trial more than a

year, causing unacceptable prejudice to the Defendants.

      In light of the findings by the district court, we hold that it did not abuse its

discretion in deciding that dismissal with prejudice was the proper disposition.

      D.     The Bankruptcy Stay

                                         -11-
       Riviera contends that the automatic bankruptcy stay under 11 U.S.C. § 362

voided the district court’s order of dismissal. A petition in bankruptcy operates

as a stay of:

       (1) the commencement or continuation, including the issuance or
       employment of process, of a judicial, administrative, or other action
       or proceeding against the debtor that was or could have been
       commenced before the commencement of the case under this title, or
       to recover a claim against the debtor that arose before the
       commencement of the case under this title; [and]

       ....

       (3) any act to obtain possession of property of the estate or of
       property from the estate or to exercise control over property of the
       estate;

11 U.S.C. § 362(a) (emphasis added). Riviera argues that § 362(a)(3) precluded

the dismissal of its lawsuit, because the lawsuit is an asset of the bankruptcy

estate. The district court orally ruled that the bankruptcy stay did not apply to its

actions, and we agree.

       Because the lawsuit was brought by the debtor Riviera, not against it,

§ 362(a)(1) is inapplicable. A debtor can continue to pursue its claims against

another party even after filing for bankruptcy protection. And § 362(a)(3) is also

inapplicable, because an attempt to dismiss or defeat a debtor’s lawsuit is not an

act to obtain possession or exercise control over property of the debtor’s estate.

To adopt Riviera’s reading of § 362(a)(3) would prevent those sued by debtors

from defending themselves. See United States v. Inslaw, Inc., 932 F.2d 1467,

                                         -12-
1473 (D.C. Cir. 1991) (“[S]omeone defending a suit brought by the debtor does

not risk violation of § 362(a)(3) by filing a motion to dismiss the suit, though his

resistance may burden rights asserted by the bankrupt.”); In re Bryner, 425 B.R.

601, 607–08 (B.A.P. 10th Cir. 2010).

II.   CONCLUSION

      We AFFIRM the judgment of the district court.

                                        ENTERED FOR THE COURT

                                        Harris L Hartz
                                        Circuit Judge

                                         -13-
No. 10-1081, Riviera Drilling & Exploration Co. v. Gunnison Energy Corp.

EBEL, Circuit Judge, concurring.

      I join Parts I.B–D and II of the majority opinion in full. Additionally, I

concur in the result in Part I.A; however, I respectfully disagree with my

colleagues’ reasoning for concluding that the “interests of justice” exception does

not save Riviera’s appellate claims from our firm waiver rule. Specifically, I

believe that the majority improperly equates the “interests of justice” exception

with plain-error review, which in turn results in erroneous consideration of the

merits of Riviera’s claims. In my view, our precedent dictates that in counseled

cases such as this, we should not consider the merits of the underlying claims in

determining whether the “interests of justice” exception applies. Instead, we

should evaluate the facts surrounding Riviera’s failure to file timely, written

objections to the magistrate judge’s order permitting Riviera’s counsel to

withdraw. Because Riviera has not identified any circumstances that excuse its

failure, I would hold that the firm waiver rule precludes consideration of

Riviera’s claims without reaching the question whether the magistrate judge

committed reversible error.

      As the majority correctly states, the firm waiver rule ordinarily prevents us

from reviewing a magistrate judge’s ruling if the aggrieved party failed to file

proper objections to that ruling in the district court. Morales-Fernandez v. INS,

418 F.3d 1116, 1119 (10th Cir. 2005); see also Hutchinson v. Pfeil, 105 F.3d 562,
566 (10th Cir. 1997) (“Properly filed objections resolved by the district court are

a prerequisite to our review of a magistrate judge’s order under [28 U.S.C.]

§ 636(b)(1)(A).”). We have recognized two exceptions to this rule: “when (1) a

pro se litigant has not been informed of the time period for objecting and the

consequences of failing to object, or when (2) the ‘interests of justice’ require

review.” Morales-Fernandez, 418 F.3d at 1119. I agree with the majority that the

first exception does not apply here because Riviera, as a corporation, cannot

appear pro se in federal court. See Tal v. Hogan, 453 F.3d 1244, 1254 (10th Cir.

2006); Flora Constr. Co. v. Fireman’s Fund Ins. Co., 307 F.2d 413, 414 (10th Cir.

1962). I also agree that the second exception does not apply in this case, though I

reach this conclusion on different grounds than does the majority.

      The majority reasons that the “interests of justice” exception does not apply

because the magistrate judge did not commit reversible error. But in In re Key

Energy Resources Inc., 230 F.3d 1197 (10th Cir. 2000), we specifically “h[e]ld

that, in counseled, civil, nonhabeas cases, the merits of the underlying case should

not be considered in determining whether the interests of justice exception has

been met.” Id. at 1200 (emphasis added). Rather, “[w]e conclude[d] that, in

counseled cases, determination of the interests of justice exception should focus

instead on the facts that purport to excuse the lack or untimeliness of the filing of

objections.” Id.

                                          -2-
      Considering these principles, I can find nothing in the record that warrants

application of the exception in this case. The only fact that could conceivably

excuse Riviera’s failure was its lack of counsel after the magistrate judge granted

the motion to withdraw. In my view, that is not sufficient for at least two

reasons: (1) Riviera consented to its counsel’s withdrawal despite the magistrate

judge’s repeated warnings about the possible consequences, and (2) Riviera had

general counsel to advise it and possibly to enter an appearance and file

objections, or at least seek an extension of time, on its behalf. Therefore, I would

hold that the firm waiver rule applies and dispose of Riviera’s claims without

reaching the merits.

      The majority relies on Morales-Fernandez for the proposition that “interests

of justice” review is synonymous with plain-error review, which necessarily

requires consideration of the merits in order to determine whether the magistrate

judge committed any error. It is true that this Court in Morales-Fernandez

equated the “interests of justice” standard with the plain-error standard and

proceeded to review the appellant’s claim on the merits. 418 F.3d at 1122–25.

But that case is distinguishable from In re Key Energy Resources because the

defendant in Morales-Fernandez was acting pro se. Compare Morales-Fernandez,

418 F.3d at 1122 (“We find the reasoning of the circuits that apply a plain error

standard to the a [sic] pro se litigant’s failure to object to a magistrate judge’s

                                           -3-
reports persuasive.”), with In re Key Energy Resources, 230 F.3d at 1200

(consideration of the merits not appropriate in “counseled, civil, nonhabeas

cases”). Indeed, a panel of this Court recently recognized this distinction in an

unpublished disposition. In Barger v. Astrue, the panel explained that the

“interests of justice” exception may apply in both pro se and counseled cases, but

that it is “especially narrow ‘in counseled, civil, nonhabeas cases,’” where the

underlying merits of the appellant’s claims should not be considered. No. 09-

3313, 2010 WL 3548491, at *1 (10th Cir. Sept. 14, 2010) (unpublished) (quoting

In re Key Energy Resources, 230 F.3d at 1200). In a footnote, the Court

explained the different standard for pro se cases: “In contrast, the importance of

the issues raised is a relevant consideration in assessing the interests of justice

exception in pro se cases, Morales-Fernandez, 418 F.3d at 1120, and the waiver

rule will be suspended if the pro se litigant can demonstrate plain error in the

magistrate judge’s unobjected-to recommendation.” Barger, 2010 WL 3548491, at

*1 n.1.

      Because we have already determined that Riviera cannot be treated as a pro

se litigant, 1 I would apply the rule from In re Key Energy Resources rather than
      1
        Riviera argues in its brief that because the magistrate judge permitted its
counsel to withdraw, it was effectively a pro se litigant during the time period
when it was required to file objections if it wished to preserve its claims for
appellate review. This argument is without merit, as it requires us to disregard
the well-settled rule that a corporation cannot appear pro se. Moreover, unlike
the pro se litigants that the rule in Morales-Fernandez was designed to protect,
                                                                        (continued...)

                                          -4-
the Morales-Fernandez plain-error standard in evaluating the “interests of justice”

exception. Accordingly, I join only the majority’s conclusion in Part I.A.

(...continued)
Riviera was represented by counsel during the hearing on the motion to withdraw
and had access to in-house counsel at all relevant times.

                                        -5-