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Wallace v. Skadden

March 26, 2004

KATHERINE T. WALLACE, APPELLANT
v.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP, ET AL., APPELLEES



Appeal from the United States District Court for the District of Columbia (No. 98cv01946)

Before: Henderson, Randolph and Rogers, Circuit Judges.

The opinion of the court was delivered by: Karen Lecraft Henderson Circuit Judge

Argued January 22, 2004

Opinion for the court filed by Circuit Judge HENDERSON.

The appellant, Katherine T. Wallace, appeals the lower court's: (1) refusal to recuse itself in her case; (2) decision to award costs and attorneys' fees against her pursuant to 28 U.S.C. § 1927; and (3) adoption of the report by a magistrate judge acting as a special master recommending fees and costs of $25,000. We find no error with regard to the first two rulings but conclude that the district court erred regarding the third when it ignored the procedural requirements of Fed. R. Civ. P. 53. We therefore vacate that decision and remand for further proceedings in accordance with this opinion.

I. BACKGROUND

In 1995, Wallace was fired from her job as an associate in the Washington, D.C. office of the law firm of Skadden, Arps, Slate, Meagher & Flom, LLP (Skadden). She responded by suing the firm and some of its lawyers in Superior Court for defamation and wrongful discharge. As part of discovery in that suit, Wallace subpoenaed several former Skadden employees as witnesses. Skadden offered to provide legal representation for those former employees, some of whom accepted. The Superior Court ultimately granted summary judgment to Skadden. Skadden's provision of legal representation to its former employees led Wallace to sue Skadden, the witnesses and their lawyers and law firms participating in the Superior Court case (the appellees here) in federal court in August 1998 under the Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C. § 1964(c). Wallace broadly alleged that the appellees conspired to control and withhold testimony in her Superior Court case – citing bribery, obstruction of justice and witness tampering as the underlying predicate acts – and sought $120 million in damages.

In September 1998, the appellees moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6). As part of that motion, they also moved for an award of attorneys' fees and costs pursuant to 28 U.S.C. § 1927 because Wallace's claims were "baseless" and made in "bad faith." Joint Appendix (JA) 85-88.*fn1 In response, Wallace countered that her claims were legally and factually supported. Regarding the request for attorneys' fees, however, Wallace merely suggested – in the introduction and the conclusion of her brief – that the appellees' "motion for costs and fees" also be denied "[b]ecause . . . there is a genuine issue of material fact as to whether" the appellees had violated RICO. JA 92-93. Almost one year later, in September 1999, the district court dismissed Wallace's case pursuant to Fed. R. Civ. P. 12(b)(6). It found inter alia that Wallace's RICO claims were based solely on "bare and conclusory" allegations. JA 140-43. It further granted the appellees' motion for costs and fees under 28 U.S.C. § 1927, observing that Wallace had offered "no direct opposition" to the motion and thus there was "an uncontroverted record suggesting that Dr. Wallace had engaged in this litigation out of bad faith." JA 143-44.

Following that order, the district court set a schedule to determine the amount of costs and fees but Wallace appealed the district court's order. Wallace subsequently voluntarily dismissed the portion of her appeal related to the district court's decision to sanction her under 28 U.S.C. § 1927 and instead pursued only her appeal of the dismissal of her RICO claims. In support of her appeal, Wallace cited an ex parte communication between the district judge's law clerk and counsel for Skadden, claiming that the contact contributed to an "appearance of bias and misconduct" on the part of the district court and required the district judge's recusal. See Appellees' Br. at B31-B33. In May 2000, we affirmed the district court without opinion, finding Wallace's RICO allegations factually insufficient and "no impropriety" or "evidence of judicial bias" resulting from Skadden's counsel's ex parte contact with the district judge's law clerk. JA 149A.

Again before the district court, the appellees sought a determination of the amount of their fee award. For her part, Wallace disputed the court's original decision to sanction her under 28 U.S.C. § 1927 and in January 2001 again moved to disqualify the district judge based on the prior ex parte communication. The district court denied her motion, noted that the issue whether to sanction her had been decided two years earlier and referred the determination of the appropriate amount to a magistrate judge for a report and recommendation. JA 258-59; see 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72. A few weeks later, the court modified – with the parties' subsequent consent – the original referral, appointing the magistrate judge to act as a special master. See 28 U.S.C. § 636(b)(2); Fed. R. Civ. P. 53.

The magistrate judge initially referred the case for mediation but that proved unsuccessful. It then conducted, in July 2001, an evidentiary hearing during which several appellees and their counsel as well as Wallace testified. On January 21, 2003, the magistrate judge, acting as a special master, issued an eighteen-page report which concluded by "suggest[ing] that Dr. Wallace be ordered to pay $25,000." JA 278. The report was filed with the district court the following day. Neither side filed objections to the report or made any motion with regard to it.

On February 11, 2003, the district court sua sponte adopted the special master's report. JA 279. The court noted that Wallace had filed no written objection to the report. Invoking Local Civil Rule 72.3(b), the court adopted the magistrate judge's recommendation and ordered Wallace "to pay $25,000 as a deterrent to future filing of frivolous legal actions." JA 279-80.

II. DISCUSSION

Wallace's first claim – that the district judge should have recused herself – need not occupy us long. To the extent that Wallace seeks review of the district judge's decision not to recuse on the basis of an " appearance of impropriety," Appellant's Br. at 30 (emphasis in original), she asserted as much on her first appeal. See Appellees' Br. at B29 (including Wallace's original appellate brief which alleged "actual or apparent impropriety"). We concluded then that there was "no impropriety" or "evidence of judicial bias" on the district judge's part with regard to the ex parte communication between her law clerk and Skadden's counsel. JA 149A. ...


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