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Quatama Park Townhomes Owners Association v. RBC Real Estate Finance, Inc.

United States District Court, D. Oregon

March 18, 2019

QUATAMA PARK TOWNHOMES OWNERS ASSOCIATION, Plaintiff,
v.
RBC REAL ESTATE FINANCE, INC.; LAMPLIGHT CAPITAL & ASSET MANAGEMENT, LLC; DECATUR ADVISORS LLC; SCOTT McFERRAN; LAURA WILSON, and DARON ANDERSON, Defendants.

          Michael J. Vial, Vial Fotheringham LLP, Attorneys for Plaintiff.

          Graham B. Miller and Ryan M. Tarter, Wood, Smith, Henning & Berman LLP, Attorneys for Defendants Scott McFerran, Laura Wilson, and Daron Anderson.

          Kurt C. Peterson, Kilmer, Voorhees & Laurick pc, Attorneys for Defendants Decatur Advisors, LLC and Scott McFerran.

          George S. Pitcher and David C. Campbell, Lewis Brisbois Bisgaard & Smith LLP, Attorneys for Defendants Decatur Advisors LLC and Scott McFerran.

          Anne R. Beehler and Hal Mark Mersel, Bryan Cave LLP, Eric D. Lansverk and Joseph A.G. Sakay, HILLIS CLARK MARTIN AND PETERSON PS Attorneys for Defendants RBC Real Estate Finance, Inc.

          Klarice A. Benn, Abbott Law Group pc, Attorneys for Defendant Lamplight Capital & Asset Management LLC.

          OPINION AND ORDER

          MICHAEL H. SIMON, UNITED STATES DISTRICT JUDGE

         Plaintiff Quatama Park Townhomes Owners Association (“Association”) brings this lawsuit (Quatama II) against six defendants. Four defendants, Scott McFerran (“McFerran”), Laura Wilson (“Wilson”), Daron Anderson (“Anderson”), and Decatur Advisors LLC (“Decatur”) (collectively, the “Moving Defendants”), move to disqualify the law firm of Vial Fotheringham LLP (“VF”) from continuing to represent the Association in this action. In an Opinion and Order, United States Magistrate Judge Stacie F. Beckerman granted the motion to disqualify the Association's counsel, and the Association timely objected. After reviewing the record and hearing oral argument, the Court finds the Opinion and Order is contrary to law and denies the motion to disqualify.

         STANDARD OF REVIEW

         The Federal Magistrates Act grants district courts the authority to delegate certain matters to magistrate judges. See 28 U.S.C. § 636(b)(1). In civil actions, a district court may designate a magistrate judge to determine any pretrial matter, except motions for injunctive relief, for judgment on the pleadings, for summary judgment, to permit or deny maintenance of a class action, to dismiss for failure to state a claim, and to involuntarily dismiss an action. 28 U.S.C. § 636(b)(1)(A). For any of these excluded motions, a district judge may designate a magistrate judge to conduct hearings and submit proposed findings of fact and recommendations for disposition. 28 U.S.C. § 636(b)(1)(B).

         Rule 72 of the Federal Rules of Civil procedure implements the authority provided by the Federal Magistrates Act. Under Rule 72(a), a magistrate judge may “hear and decide” all referred pretrial matters that are “not dispositive of a party's claim or defense.” Fed.R.Civ.P. 72(a). For pretrial matters referred to a magistrate judge that are dispositive of a claim or defense, in the absence of consent by all parties, Rule 72(b) allows the magistrate judge only to “enter a recommended disposition, including, if appropriate, proposed findings of fact.” Fed.R.Civ.P. 72(b)(1).

         The terms “dispositive” and “nondispositive” in Rule 72 do not perfectly coincide with the categories listed in 28 U.S.C. § 636(b)(1). For example, a magistrate judge may not issue a temporary restraining order or preliminary injunction, even though such orders are not dispositive. The Ninth Circuit has held that the motions excluded from determination by a magistrate judge under § 636(b)(1)(A) “are not an exhaustive list of all the pretrial matters that are excepted from the magistrate judge's authority.” United States v. Rivera-Guerrero, 377 F.3d 1064, 1067 (9th Cir. 2004). As explained by the Ninth Circuit, “magistrate judges may hear and determine nondispositive matters, but not dispositive matters[.]” Mitchell v. Valenzuela, 791 F.3d 1166, 1168 (9th Cir. 2015). Dispositive matters include those expressly listed in § 636(b)(1)(A), as well as “analogous” matters. Id. “To determine whether a motion is dispositive, [the Ninth Circuit has] adopted a functional approach that looks to the effect of the motion, in order to determine whether it is properly characterized as dispositive or nondispositive of a claim or defense of a party.” Id. at 1168-69.

         The distinction between a dispositive motion and a nondispositive matter is significant for the standard of review. When a party timely objects to a magistrate judge's findings and recommendations concerning a dispositive motion, the district judge shall make a de novo determination of those portions of the magistrate judge's proposed findings and recommendations to which an objection has been made. 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b)(3). When a party timely objects to a magistrate judge's determination of a nondispositive matter, however, the district judge may reject that determination only when it has been shown that the magistrate judge's order is either clearly erroneous or contrary to law. 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P. 72(a).

         “To the extent a district judge is concerned about the possibility that assigning a nondispositive matter to a magistrate judge will confine his or her power to revise the outcome, a reference directing the magistrate judge to make recommendations is possible.” 12 Charles Alan Wright and Arthur R. Miller, et al., Federal Practice and Procedure: Civil § 3069 (3d ed. 2018) (“Wright & Miller”). As explained by one district court,

That certain case dispositive matters must always be referred for recommendations rather than determination does not mandate the converse, i.e., that nondispositive matters must always be referred for determination rather than recommendations. It is evident from the [Federal Magistrates] Act's legislative history that the purpose of the Act's referral and review provisions is to define the limits of the powers which a court may allow a magistrate to exercise, not to restrict the ultimate authority of an Article III court over a case pending before it.

Delco Wire & Cable, Inc. v. Weinberger, 109 F.R.D. 680, 685 (E.D. Pa. 1986), quoted in Wright & Miller, supra, § 3069. “Thus, when a district court judge refers a nondispositive matter to a magistrate judge specifically for recommendation-even though the matter could have been referred for determination-review is plenary . . . .” Howe Inv., Ltd. v. Perez Y Cia. de Puerto Rico, Inc., 96 F.Supp.2d 106, 113 (D. P.R. 2000); see also Trone v. Smith, 621 F.2d 994, 997-98 (9th Cir. 1980) (noting that the magistrate judge only “recommended” that a motion to disqualify counsel be denied, which the district court then reviewed de novo).

         In the pending lawsuit, the Association urges the Court to treat Magistrate Judge Beckerman's Opinion and Order as findings and recommendations on a dispositive matter and, thus, provide de novo review. Defendants, however, argue that a motion to disqualify counsel is a nondispositive matter and that the Magistrate Judge's decision should only be rejected if its factual findings are clearly erroneous or its conclusions are contrary to law. The Court agrees with Defendants. If the Magistrate Judge's decision is upheld, the Association may continue to prosecute all of its claims against each of the Defendants, after obtaining new counsel. Thus, there is nothing in the pending motion to disqualify Plaintiff's counsel that is analogous to any of the motions expressly identified in § 636(b)(1)(A). See also Howe Inv., Ltd., 96 F.Supp. at 113 (holding that a motion to disqualify is a nondispositive matter that a magistrate judge may determine unless the district court referred the matter only for a report and recommendation). Accordingly, the Court will evaluate the Magistrate Judge's factual findings to determine if any are clearly erroneous. More relevant to the pending dispute, however, the Court also will evaluate the Magistrate Judge's legal conclusions to determine if any are contrary to law, which involves a de novo review of those issues.[1]

         BACKGROUND

         A company owned by James Standring (“Standring”) developed a planned residential community in Washington County, Oregon known as “Quatama Park Townhomes” (“Quatama Park”). Other companies owned by Standring provided construction and other services for Quatama Park. The construction lender was RBC Real Estate Finance, Inc. (“RBC”). In 2011, RBC foreclosed on the Quatama Park project and became the successor declarant for that development. RBC then hired Decatur to manage the completion of the development.

         Wilson and Anderson worked for Decatur. RBC appointed Wilson and Anderson as the sole members of the Association's Board of Directors (the “Board”) until control of Quatama Park would be turned over to the lot owners. In July 2013, Lamplight Capital & Asset Management, LLC (“Lamplight”) purchased RBC's interest in the project. Lamplight reappointed Wilson and Anderson as the Association's sole directors.

         In July 2015, the Board hired VF to provide legal services to the Association as outside general counsel. VF's representation agreement was addressed to the Board, which then consisted of only Wilson and Anderson. There were no other officers or managers of the Association, whose activities were solely directed by Wilson and Anderson. Wilson signed VF's representation agreement as the “Authorized Representative” of the Association. In August 2015, Anderson resigned from the Board, and Lamplight appointed McFerran to replace him. McFerran also worked for Decatur.

         In November 2015, the Association engaged VF on a contingent fee basis to file a lawsuit for money damages against Standring's companies and other contractors and sub-contractors, seeking money damages for repairs related to various construction defects. McFerran signed the contingent fee agreement with VF as the “Authorized Representative” of the Board. At that time, Wilson and McFerran were the only directors of the Board. Before filing this lawsuit, attorney Ryan Harris (“Harris”) from VF asked both Wilson and McFerran to provide Harris with “any other documents showing other potential defendants.”

         Also during this time period, Wilson and McFerran were consulting with attorney Eugene Grant of Davis Wright Tremaine LLP (“Davis Wright”). In response to a request to Wilson and McFerran from VF sent on November 2, 2015, Eugene Grant of Davis Wright responded to VF as follows:

Thanks for your advice and assistance. I will be consulting with Scott [McFerran] and Laura [Wilson] and the other members of the Lamplight team today and will get back to you ASAP today regarding the assessment allocation method. We understand there are risks whichever way we allocate and assess the unit repair costs, ...

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