Conetta v. Nat'l Hari Care Centers Inc.

• Decision Date: 03 October 2000
• Docket Number: CROSS-APPELLANTS,No. 00-1002,No. 00-1216,CROSS-APPELLEE,N,00-1002,00-1216
• Citation: 236 F.3d 67
• Parties: (1st Cir. 2001) DIANE M. CONETTA, PETER CONETTA, PLAINTIFFS, APPELLEES/, v. NATIONAL HAIR CARE CENTERS, INC., DEFENDANT, APPELLANT/ROBERT PUTO, DEFENDANT. o. 00-1139, Heard
• Court: U.S. Court of Appeals — First Circuit

Page 67

236 F.3d 67 (1st Cir. 2001)

DIANE M. CONETTA, PETER CONETTA, PLAINTIFFS, APPELLEES/CROSS-APPELLANTS, v. NATIONAL HAIR CARE CENTERS, INC., DEFENDANT, APPELLANT/CROSS-APPELLEE. ROBERT PUTO, DEFENDANT.

No. 00-1002, No. 00-1139, No. 00-1216

United States Court of Appeals For the First Circuit

Heard October 3, 2000

Decided January 8, 2001

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND [Hon. Ronald R. Lagueux, U.S. District Judge] [Copyrighted Material Omitted]

[Copyrighted Material Omitted] William P. Robinson III with whom Stephen M. Prignano, Stephen J. MacGillivray and Edwards & Angell, Llp were on consolidated brief for defendant.

William T. Murphy with whom William T. Murphy Law Offices, Inc. and Steven T. Hayes were on consolidated brief for plaintiffs.

Before Boudin, Circuit Judge, Cyr, Senior Circuit Judge, and Lynch, Circuit Judge.

Boudin, Circuit Judge.

This appeal, raising difficult questions concerning the Magistrates Act, 28 U.S.C. 631-39 (1994 & Supp. II 1996), arises out of complex facts which we summarize at the outset.

National Hair Care Centers, Inc. ("National") operated a chain of beauty salons until mid-1996 when it sold its assets to Regis Corporation. On August 14, 1993, Diane Conetta began working as manager at a National salon in Cranston, Rhode Island. Eleven months later, on July 13, 1994, National fired Conetta, saying that she had not taken proper inventories, coming up over $1,000 short in one instance. In February 1995, Conetta filed charges against National with the Rhode Island Commission for Human Rights; the charges, amended in May, were cross-filed with the Equal Employment Opportunity Commission ("EEOC"). Conetta alleged verbal sexual harassment and age discrimination by the supervisor of National's salons in the New England area.

On August 16, 1996, a week after receiving a right-to-sue letter, Conetta brought suit against National and the supervisor individually in federal district court in Rhode Island. In an amended complaint, she charged sexual harassment, age discrimination, and retaliatory discharge in violation of federal and state statutes,¹ as well as several common law torts (e.g., assault, negligent infliction of emotional distress). Conetta's husband filed a claim for loss of consortium. On December 9, 1996, the summons and complaint were served on CT Corporation, National's designated agent for service of process in Rhode Island; the supervisor was apparently never served. National did not answer the complaint. On January 14, 1997, the Conettas moved for entry of default and the court clerk entered a default against National on the same day. Fed. R. Civ. P. 55(a).

On February 12, 1997, the Conettas filed a motion for default judgment, Fed. R. Civ. P. 55(b)(2), which was referred by Judge Pettine to Magistrate Judge Lovegreen. A district court may designate a magistrate judge "to hear and determine any pretrial matter pending before the court" with a few explicit exceptions, district court review then being limited to orders "clearly erroneous or contrary to law," 28 U.S.C. 636(b)(1)(A).² Or, a magistrate judge may be told to hear and submit "proposed findings of fact and recommendations for . . . disposition" by the district judge as to motions excepted from subsection (b)(1)(A), id. 636(b)(1)(B), or on virtually any matter at all, id. 636(b)(3). The docket entry did not indicate which provision Judge Pettine sought to invoke.

On May 14, 1997, Magistrate Judge Lovegreen held a hearing on the motion. Both of the Conettas testified, and they also presented the testimony of a psychiatrist and offered various records and depositions concerning Diane Conetta's health and pay. The magistrate judge then granted the Conettas' motion for the entry of a default judgment, and on May 15, 1997, signed an order fixing the amount of damages at $301,100: this reflected $151,100 in compensatory damages and $100,000 in punitive damages for Diane Conetta, and $50,000 in compensatory damages for her husband's loss of consortium claim. Judgment was entered on June 4, 1997, and in January 1998, the Conettas brought a new suit to enforce the judgment.

Thus prompted, National, on February 9, 1998, filed a motion to vacate or set aside the entry of default and default judgment in the original suit. Fed. R. Civ. P. 55(c), 60(b). In a supporting affidavit, Wayne Riffle, National's president since June 1, 1995, and previously its chief financial officer, admitted that he had first learned of Conetta's complaints with the Rhode Island commission in May 1996. He also admitted receiving a copy of the summons and complaint in the federal court action but did not recall receiving any other documents. He then said that "as a layman [he was] under the impression" that Conetta was precluded from bringing a lawsuit relating to the matter until the state agency held a hearing, and that he believed that the agency proceeding was still pending when he received the summons and complaint.³

Chief Judge Lagueux, who took over the case from Judge Pettine, referred the new motions to Magistrate Judge Lovegreen. Magistrate Judge Lovegreen entered an order on April 22, 1998, granting National's motion to set aside the default judgment and the entry of default, conditioned on National's payment of $2,500 to the Conetta's for their expenses incurred in obtaining the judgment. Based on Riffle's affidavit, the magistrate judge found that National had demonstrated "excusable neglect," as required by Rule 60(b)(1) to set aside a default judgment; setting aside an entry of default requires "good cause," Fed. R. Civ. P. 55(c), which is a less demanding standard, Coon v. Grenier, 867 F.2d 73, 76 (1st Cir. 1989).

The Conettas then filed objections in the district court to the magistrate judge's decision, asserting that the district court should review the matter de novo. National defended the magistrate judge's order, urging that it be reviewed only for clear error or legal mistake. In Conetta v. National Hair Care Centers, Inc., 182 F.R.D. 403, 406-07 (D.R.I. 1998) ("Conetta I"), Chief Judge Lagueux held that the magistrate judge's order should be reviewed de novo and that an evidentiary hearing was necessary to decide whether National's failure to respond to the original complaint was "willful" and therefore not "excusable neglect."

On February 1, 1999, the district court held an evidentiary hearing, receiving testimony from Riffle and from Riffle's lawyer, Robert Ross. Riffle admitted that he had signed return receipts for Conetta's right-to-sue letter on August 26, 1996, and for her amended complaint on January 21, 1997, and that his wife had signed for receipt of the Conettas' motion for entry of default, also in January 1997. However, Riffle did nothing with the documents at the time except to file them with National's other papers.

Riffle said that in late April or early May 1997, he turned these files over to Ross, a partner in an Arkansas law firm. Ross stated that upon reviewing the papers, he realized that National was in default and assigned a recent law school graduate to draft a motion to vacate the default. The draft motion was apparently misplaced when the graduate left the firm to study for the bar and never filed in court. Apparently, it was not until Regis' counsel received the complaint in the Conettas' subsequent suit to enforce their default judgment that National again focused on the matter.

Prompted by an in-chambers meeting with the district judge after the hearing, National then filed a motion to vacate the default judgment as void. Fed. R. Civ. P. 60(b)(4). On April 27, 1999, the district court granted the motion on the ground that the default judgment was a "final" judgment and that "Article III . . . does not allow a magistrate judge to order the entry of a final judgment." Conetta v. National Hair Care Centers, Inc., 186 F.R.D. 262, 267 (D.R.I. 1999) ("Conetta II"). However, the district court refused to set aside the clerk's entry of default, finding that Riffle had failed to show "good cause" for not responding to the Conettas' summons and complaint. Id. at 268-70. The Conettas promptly moved for entry of a default judgment, but the district court rejected the motion in favor of holding a bench trial to determine damages.

After a three-day bench trial, the district court entered judgment on December 15, 1999, awarding Diane Conetta $35,000 for lost wages from the retaliatory discharge and $25,000 for pain and suffering arising from her hostile work environment and retaliation claims. The court found her husband's loss of consortium claim to be a "phantom claim" without evidentiary support and ordered nominal damages of $1. The district court also awarded prejudgment interest of six percent per annum from August 16, 1996, when the case was filed, to the date of ruling, for a total of approximately $12,000.

Thereafter, the Conettas moved to amend the judgment, Fed. R. Civ. P. 59(e), urging, inter alia, that the court should apply the Rhode Island statutory prejudgment interest rate of twelve percent effective from the date of Diane Conetta's discharge (July 13, 1994). After a hearing, the district court agreed, and amended its judgment on January 18, 2000, arriving at a new figure of roughly $39,000. National promptly appealed, and the Conettas cross-appealed.

1. The original judgment for $301,100 in favor of the Conettas based on the magistrate judge's findings was entered by the court clerk on June 4, 1997. It was the decision of Chief Judge Lagueux to set aside this judgment as void under Article III, Conetta II, 186 F.R.D. at 267, that led in due course to the other events at issue on this appeal, namely, the refusal to remove the entry of default and the recalculation of damages. At the threshold, the Conettas attack the district court's decision to set aside the default judgment as "void" pursuant to Rule 60(b)(4).

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