The Consent Trap

A new decision from the Fifth Circuit holds that implied consent cannot overcome a formal denial of consent to entry of a final judgment by a magistrate judge, even when the objecting party expressly consented.  PNC Bank v. Ruiz, Case No. 20-50255 (5th Cir. 3/3/2021), which can be accessed here.  The decision is of interest to bankruptcy lawyers because the issue of consent is common to the actions of both bankruptcy judges and magistrate judges.

Following Stern v. Marshall, 564 U.S. 462 (2011), bankruptcy courts retained most of their ability to function as normal. However, the bankruptcy courts could not enter a final judgment in a matter which was not directly tied to the restructuring of the debtor-creditor relationship absent consent of the parties. In those cases, the bankruptcy court could submit proposed findings of fact and conclusions to the district court which would have the authority to enter judgment. Thus, if a matter falls within the Stern ruling, the options are that the bankruptcy court may enter a final judgment with consent or it must submit proposed findings and conclusions to the district court.  Examples of matters which fall within the Stern doctrine are counterclaims to proofs of claim which seek affirmative relief against the non-debtor party, suits by a trustee under state law and fraudulent transfer claims.

The jurisdiction for magistrate judges to enter final judgments is also based on consent. A magistrate judge may only enter a final judgment if the parties have consented. 

What Happened

In PNC Bank, a bank filed suit in federal court seeking to foreclose a lien securing a Texas home equity loan. The Bank filed a statement in which it objected to entry of a final judgment by a magistrate.  The clerk mistakenly said that PNC had consented rather than objecting. Mrs. Ruiz, on the other hand, did consent.

Some time later, PNC obtained new counsel and filed a motion for summary judgment. It apparently did not realize that it had previously denied its consent. The motion was referred to a magistrate judge based upon the erroneous docket notation. Mrs. Ruiz did not object to the magistrate judge's authority to enter a final judgment. The magistrate ruled in favor of the bank. At that point, Mrs. Ruiz realized the glitch in the process and appealed based on lack of authority to enter a final judgment. 

The Fifth Circuit's Ruling

In an opinion written by Kurt Engelhardt (who was appointed to the District Court bench by President George W. Bush and to the Fifth Circuit by President Trump), the court ruled that the magistrate lacked authority to enter the final judgment. While consent may be implied from a party's conduct, it cannot overcome an express statement of lack of consent (even if the non-consenting party would have likely changed its election if it knew about the issue). Thus, the judgment was reversed and the case was remanded to the district court.

The court recognized that Mrs. Ruiz was trying to overturn a decision by a magistrate whose authority she had consented to.  Nevertheless, it was too important of an issue to ignore. Judge Engelhardt wrote:

To be sure, dismissing this appeal for lack of jurisdiction seemingly rewards what might be characterized as gamesmanship on the part of Ruiz. See Hester v. Graham, Bright & Smith, P.C., 289 F. App’x 35, 40 (5th Cir. 2008) (“Allowing parties to object to a [magistrate judge] and insist upon a new trial only when he issues an order unfavorable to them would allow a ‘gamesmanship’ of the system that the Supreme Court has sought to avoid.”). In other contexts, indeed, she might be estopped by her own acquiescence from now asserting PNC’s failure to consent. But not where, as here, fundamental questions of jurisdiction are involved. See Coury v. Prot, 85 F.3d 244, 248 (5th Cir. 1996) (noting that “parties can never consent to federal subject matter jurisdiction, and lack of such jurisdiction is a defense which cannot be waived.”). Besides, we must raise the jurisdictional issue sua sponte if necessary. See Union Planters Bank Nat’l Ass’n v. Salih, 369 F.3d 457, 460 (5th Cir. 2004) (“[F]ederal courts are duty-bound to examine the basis of subject matter jurisdiction sua sponte, even on appeal.”). We also recognize that gamesmanship is a two-way street, and, if the shoe were on the other foot, PNC might now be claiming non-consent based on its own initial refusal. Accordingly, inferring consent under these facts would not categorically eliminate the possibility of gamesmanship under similar circumstances with a different posture in future cases.  

Opinion, pp. 6-7. 

What Does It Mean?

So what did Mrs. Ruiz gain from her appeal? The legal answer is that she received a do-over. The motion for summary judgment will now be considered by the district judge. The district judge will likely rule the same way that the magistrate judge did unless there was a glaring defect in the magistrate's ruling. Maybe the do-over will allow Mrs. Ruiz to present arguments which were not originally presented to the magistrate judge. However, practicality is that district judges are busy people. When another judge, be it a magistrate judge or a bankruptcy judge, has taken the trouble to examine a legal issue in detail, the district judge is likely to reach the same decision. Thus, barring something unexpected like a winning argument that was not presented to the magistrate judge, Mrs. Ruiz will have only obtained a delay. There is a value to time. Perhaps Mrs. Ruiz won the lottery in the interim and will be able to pay off the house. Perhaps she would be able to file chapter 13 now when she could not have before. Maybe she just delayed the inevitable. 

This case illustrates the consequence of Stern (and similar decisions affecting magistrate judges). The consent regime did not eliminate the effectiveness of bankruptcy judges and magistrate judges. Instead, it merely created new procedural pathways which must be followed and which can create traps for the unwary.