Lehman Bros. Kuhn Loeb Inc. v. Clark Oil & Refining Corp.

• Decision Date: 11 July 1984
• Docket Number: No. 83-1874,83-1874
• Citation: 739 F.2d 1313
• Parties: LEHMAN BROTHERS KUHN LOEB INCORPORATED, Appellee, v. CLARK OIL & REFINING CORPORATION, Appellant. Intervenor: United States for appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1313

739 F.2d 1313

LEHMAN BROTHERS KUHN LOEB INCORPORATED, Appellee, v. CLARK OIL & REFINING CORPORATION, Appellant.

Intervenor:

United States for appellee.

No. 83-1874.

United States Court of Appeals,

Eighth Circuit.

Submitted March 9, 1984.

Decided July 11, 1984.

Peper, Martin, Jensen, Maichel & Hetlage, William A. Richter, Lewis R. Mills, Mark S. Packer, St. Louis, Mo., for appellee.

Bernard A. Barken, Gary H. Feder, Shifrin, Treiman, Barken, Dempsey & Ulrich, St. Louis, Mo., for appellant.

J. Paul McGrath, Asst. Atty. Gen., Thomas E. Dittmeier, U.S. Atty., Michael F. Hertz, Peter R. Maier, Attys., Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C., for intervenor the U.S.

Before LAY, Chief Judge, and HEANEY, BRIGHT, ROSS, McMILLIAN, ARNOLD, JOHN R. GIBSON, FAGG and BOWMAN, Circuit Judges, en banc.

ROSS, Circuit Judge.

The appellee, Lehman Brothers Kuhn Loeb Incorporated, filed a complaint in the United States District Court for the Eastern District of Missouri, seeking damages for an alleged breach of contract and naming as defendant Clark Oil & Refining Corporation. This matter, by consent of the parties, was referred to a magistrate ¹ pursuant to 28 U.S.C. Sec. 636(c). The parties each filed a motion for summary judgment and the court granted the appellee's motion. An appeal was filed and argued to a panel of this court which recommended a rehearing before the court en banc because of the importance of one of the issues. In addition to challenging the magistrate's order granting summary judgment, the appellant has put into question the constitutionality of 28 U.S.C. Sec. 636(c). We hold that summary judgment was properly granted and that section 636(c) is constitutional.

I. Section 636(c) of the Magistrates Act.

Section 636(c)(1) provides, inter alia, that upon the consent of the parties, and when designated to exercise this jurisdiction by the district court, a magistrate may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case. Section 636(c)(3) allows for a direct appeal to the appropriate circuit court, or should they so agree, the parties may appeal the magistrate's judgment to the district court. 28 U.S.C. Sec. 636(c)(4).

The appellant bases its challenge to section 636(c) on Article III ² of the Constitution and on the reasoning expounded in Pacemaker Diagnostic Clinic v. Instromedix, Inc., 712 F.2d 1305 (9th Cir.1983) (hereinafter Pacemaker I ). In that case three judges of the Ninth Circuit construed Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) and concluded that Section 636(c) of the Magistrates Act violates Article III of the Constitution because it vests judicial power in courts whose chief officers are not insulated by life tenure and a guarantee that their salaries will not be diminished during their continuance in office. Pacemaker I at 1309. En route to this determination, the panel concluded that this grant of power was too extensive to fairly support a characterization of the magistrate as an adjunct of the district court. Id. at 1310. The panel also observed that under section 636(c) magistrates were given the power to adjudicate rights which could not fit within the circumference of a traditional exception to Article III--forums for congressionally created substantive rights. Id. at 1310.

The panel in Pacemaker I decided that section 636(c) could not be saved by analogizing it to an arbitrator's decision and declaring the constitutional issue to be one concerning only due process rights which could be waived by the parties. Id. 1310-1312. In addition an argument was rejected which would distinguish section 636(c) from the traditional separation of powers problem because the magistrates remain under the control of the Article III judiciary, the branch whose power is arguably invaded. Id. at 1312. Finally, the panel also decided that the availability of appellate review by an Article III court could not cure the constitutional ills it found apparent in section 636(c). Id. at 1313.

Unlike the panel in Pacemaker I, we do accept some of the arguments outlined above and find that section 636(c) is constitutional. In so doing we share in the conclusion arrived at by the courts ³ in Pacemaker Diagnostic Clinic v. Instromedix, Inc., 725 F.2d 537 (9th Cir.1984) (en banc ) (hereinafter Pacemaker II ) (reversing Pacemaker I ); Collins v. Foreman, 729 F.2d 108 (2d Cir.1984); Goldstein v. Kelleher, 728 F.2d 32 (1st Cir.1984); and Wharton-Thomas v. United States, 721 F.2d 922 (3d Cir.1983). As an initial matter we agree with the Third Circuit's determination in Wharton-Thomas and find that this issue is not controlled by the Supreme Court's decision in Northern Pipeline, supra. Id. at 926. In Northern Pipeline, supra, Justice Rehnquist, concurring and joined by Justice O'Connor, specifically limited the extent of the concurrence, and thus the actual holding, to:

I would, therefore, hold so much of the Bankruptcy Act of 1978 as enables a Bankruptcy Court to entertain and decide Northern's lawsuit over Marathon's objection to be violative of Art. III of the United States Constitution.

Northern Pipeline 458 U.S. at 91, 102 S.Ct. at 2882 (emphasis added). Both parties in this case did affirmatively consent to submit the controversy to a magistrate and Northern Pipeline is distinguishable on this ground.

The arguments attacking the constitutionality of section 636(c) draw their essential themes from either of two basic categories: due process or separation of powers. We agree with the court in Goldstein v. Kelleher, supra, when it wrote:

But insofar as Article III protects individual litigants, those protections can be waived. Cf. Patton v. United States, 281 U.S. 276, 281 [50 S.Ct. 253, 74 L.Ed. 854] (1930) * * * (waiver of sixth amendment guarantee of trial by jury). The plaintiff as well as the defendant here voluntarily consented to have this action handled through to judgment by a magistrate. They gave their consent pursuant to procedures designed to insulate this choice from influence by either the district judge or the magistrate. 28 U.S.C. Sec. 636(c)(2).

Goldstein at 35.

The more troublesome arguments are based on the separation of powers aspect of Article III. In this area we are persuaded by the reasoning of the majority in Pacemaker II when it drew a distinction between this issue and the "paradigmatic separation of powers case, where the integrity of one branch is threatened by another which attempts an arrogation of power to itself." Pacemaker II at 544 (citations omitted). As the majority in Pacemaker II went on to note, the various provisions of the Magistrates Act controlling, for example, the appointment of magistrates, Section 636(a); reference of cases to, and recall from, magistrates, Section 636(b)(1) & (c)(6); and appellate review, Section 636(c)(4) & (5); leave Article III courts firmly in control of the system as a whole. Id. at 544. In our opinion these mechanisms limit the magistrate's role to that of adjunct, safeguard the integrity of the Article III judiciary, and keep section 636(c) within the bounds set by Article III of the Constitution.

II. The Order Granting Summary Judgment

The appellee, an investment bank, in May of 1979 contracted with the appellant to assist it, first in the sale of certain assets, and subsequently in exploring the possibility of a merger, acquisition, or sale. The appellee was to receive quarterly payments on a retainer of $180,000 per year in exchange for its services. (This amount was subsequently reduced to $100,000 per year.) The contract also included the following provision:

If the Board of Directors of Clark ultimately decided that the sale of the Company were in the best interests of your shareholders, we would act as your agent in this process for a fee amounting to .4% of the consideration paid. Such fee is subject to offset for retainer payments described in Section 3, Page Three, hereof but is not subject to the maximum fee set forth in Section III, Page One, hereof.

If a transaction should occur between a Clark director, officer, a stockholder of more than 10% or other affiliated person, including trusts for families of the foregoing, or such person's representative, and a third party, no transaction fee will be paid to LBKL under the terms of this Agreement, unless such transaction is a part of Clark's merger or financial program or unless LBKL has been specifically engaged by Clark by separate written agreement to assist it in such transaction.

In 1979 Apex Oil Company began purchasing the appellant's stock on the open market. The appellee, at the direction of the appellant's management, investigated Apex Oil and prepared a strategy against the uninvited attempt to acquire the company. Unknown to both the management of the appellant company and the appellee the founder of the company, Emory T. Clark, began negotiations to sell all the stock owned by the Clark family to Apex Oil Company in the spring of 1981.

On July 14, 1981, the board of directors was informed of the negotiations and asked by Emory Clark to release certain nonpublic information to Apex Oil Company. The appellant's board of directors ordered the appellee to continue the search for a "white knight." The appellee's efforts in this endeavor proved unavailing and on July 31, 1981, a representative of Emory Clark requested that the board of directors approve the terms of Apex's proposed tender offer. Following a report prepared by the appellee on the fairness of the offer, the board of directors did approve the offer and recommended acceptance by all Clark shareholders. Apex subsequently purchased nearly all of the outstanding Clark Oil stock.

Following the sale of the stock, the appellee requested payment, pursuant to the quoted portion of the contract, in the amount of $1,953,227.58. That sum...