McDonnell Douglas Corp. v. Commodore Business Machines Inc.

Decision Date31 August 1981
Docket NumberNo. 79-4616,79-4616
Citation656 F.2d 1309
PartiesMcDONNELL DOUGLAS CORPORATION, Appellee, v. COMMODORE BUSINESS MACHINES INC. and Commodore Business Machines (Canada) Limited, Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

John W. Clark, Trepel & Clark, San Jose, Cal., for appellants.

Theodore Dunn, Huntington Beach, Cal., for appellee.

Appeal from the United States District Court for the Northern District of California.

Before GOODWIN and POOLE, Circuit Judges, and WYATT, * District Judge.

POOLE, Circuit Judge:

Commodore Business Machines (Commodore) appeals the judgment of the United States District Court for the Northern District of California, awarding plaintiff McDonnell Douglas the full $432,000 claimed in its breach of contract action, and denying Commodore's claim for a set off in the amount of $261,000. Commodore does not contest its liability for the balance of the debt.

The dispute arose out of a contract between subsidiaries of the two parties. McDonnell Douglas' subsidiary, Nitron, supplied Commodore with semiconductors for use in electric calculators. The product supplied by Nitron was a wafer containing a number of individual chips. When Commodore received the wafers it sent them to Electronic Arrays, a subcontractor, where the wafers were tested and diced and the individual chips were packaged. The $261,000 at issue is the value of the approximately 319,000 chips that were rejected as defective during the Electronic Arrays packaging process from February, 1975 through June, 1976.

Commodore introduced evidence that several months after the chips were rejected in its testing process, Commodore presented a debit memorandum for their value to Nitron. Commodore's then president testified that Nitron's executives requested that Commodore withdraw the memorandum because its adverse effect on Nitron's profit reports would likely induce McDonnell Douglas to cause Nitron to retire from the production of chips. Commodore had an interest in Nitron's continued participation in this industry because Nitron was its only supplier. For this reason, Commodore agreed to withdraw the memorandum. There was apparently some discussion about reconsidering the memorandum when Nitron was in better financial condition. However, Commodore does not contend that any representative of Nitron ever expressly stated that Commodore was entitled to any specific amount of credit. The matter appears to have been left for later agreement. Commodore contends that Nitron's failure to object at this time to the amount of the credit claimed constituted some sort of assent to liability in that amount. McDonnell Douglas later sold Nitron and disavowed any credit to Commodore for defective chips.

Pursuant to the parties' stipulation waiving the right to trial by the court and consenting to trial before a magistrate, the case was referred to U.S. Magistrate Frederick J. Woelflen. At trial, Commodore based its claim for a set off to its contract liability on two theories: (1) that the goods rejected during the testing by Electronic Arrays were defective and therefore in breach of the contract warranty; and (2) that representatives of the parties agreed that Commodore would be entitled to set off $261,000 against sums due for future deliveries.

The magistrate issued his first report on April 19, 1979. He found that the rejected dice had latent process defects, as required to trigger the warranty clause, and hence were in breach of the contract. He concluded that Commodore was liable to McDonnell Douglas in the amount of $432,000, subject to a set off in the amount of $261,000.

McDonnell Douglas brought objections to this conclusion before the district court. Without further hearing and without stating any reasons beyond "good cause," that court remanded the case to the magistrate for revised findings and conclusions.

In his second report, the magistrate revised his earlier conclusion, holding (1) that Commodore had presented no evidence that Nitron had admitted that Commodore was entitled to a $261,000 credit, and (2) that Commodore had not satisfied its burden of proof as to the amount of the set off it claimed because there was no evidence showing that all of the rejected dice were latently defective. He therefore ruled that Commodore was liable for the full amount due under the contract, without set off.

Commodore brought objections to the district court, and that court issued its own opinion in this case. Regarding the breach of warranty theory, the district court determined that Commodore had failed to make an effective rejection of the dice because several months elapsed between their delivery and presentation of the credit memorandum. Under the UCC, therefore, Commodore bore the burden of proof as to whether there had been a breach of warranty, and had failed to carry that burden. The only evidence supporting Commodore's position was the list of rejects from the Electronic Arrays testing, but testimony showed that those defects could have accrued after production. There was no evidence establishing which, if any, of the rejected dice suffered from latent process defects. On Commodore's second theory, the court again reviewed the evidence, which very clearly showed that no agreement was ever reached as to the amount of credit, if any, to which Commodore was entitled. In view of these findings, the court entered judgment against Commodore for the full $432,000. It is from this judgment that the present appeal is taken.


Commodore argues that the parties' stipulation waiving trial to the district court and consenting to trial by a United States magistrate had the effect of depriving the district court of the power to review the findings and recommendations of the magistrate. This theory must be rejected. In the first place, we seriously doubt that the form stipulation signed by the parties 1 could reasonably be read as intending the extraordinary effect of ousting the district court of its power to review the magistrate's report. See also N.D.Cal.Loc.R. 405(k) and 410-2(b).

More importantly, however, Commodore's claim is defective because it ascribes to the magistrate powers that he simply did not have when the judgment appealed from was entered. In 1976, Congress amended the Federal Magistrate Act, 28 U.S.C. § 631 et seq. Sections 636(a) and (b) described the powers of magistrates. 2 Neither of these sections empowers magistrates to enter final judgments:

In passing the 1976 amendments to the Federal Magistrates Act, Congress was alert to Art. III values concerning the vesting of decisionmaking power in magistrates. Accordingly, Congress made clear that the district court has plenary discretion whether to authorize a magistrate to hold an evidentiary hearing and that the magistrate acts subsidiary to and only in aid of the district court. Thereafter, the entire process takes place under the district court's total control and jurisdiction.

United States v. Raddatz, 447 U.S. 667, 681, 100 S.Ct. 2406, 2415, 65 L.Ed.2d 424 (1980) (footnotes omitted). See also Mathews v. Weber, 423 U.S. 261, 269-72, 96 S.Ct. 549, 553-55, 46 L.Ed.2d 483 (1976) ("A district judge would retain ultimate responsibility for decisionmaking in every instance in which a magistrate might exercise additional duties jurisdiction.")

Thus, it is quite clear that any action taken by the magistrate was taken subject to the "inherent supervisory power of the district judge." Harding v. Kurco, Inc., 603 F.2d 813, 814 (10th Cir.1979). In reviewing the magistrate's report, the district judge did no more nor less than fulfill his statutory and Constitutional responsibilities. And no agreement between the parties could have altered this state of affairs: the parties could not, by consent, invest greater powers in the magistrate than Congress had seen fit to vouchsafe him. See Taylor v. Oxford, 575 F.2d 152, 154-55 (7th Cir.1978).


Commodore also contends that the district court's review of the magistrate's first report was defective because it was required to but did not hear all of the evidence itself before acting on the case. This argument...

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