EXACT SOFTWARE NORTH AMERICA, INC., f/k/a Macola, Inc., Plaintiff, v. INFOCON SYSTEMS, INC., Defendant-Appellant, v. J. FOX DEMOISEY, Intervenor-Appellee.
No. 12-3538.
United States Court of Appeals, Sixth Circuit.
May 23, 2013.
Rehearing Denied June 28, 2013.
716 F.3d 535
The question is not whether Germany‘s policy violates the American Constitution, whether it violates the parameters of an international treaty or whether Germany‘s law is a good idea. It is whether the Romeikes have established the prerequisites of an asylum claim—a well-founded fear of persecution on account of a protected ground. See INS v. Elias-Zacarias, 502 U.S. 478, 483, 112 S.Ct. 812, 117 L.Ed.2d 38 (1992) (explaining that, even if the petitioner could prove he held a particular political opinion, he must also show that he would be persecuted “because of [his] political opinion” rather than because he defied the guerilla army‘s general conscription policy); Chen Zhou Chai v. Carroll, 48 F.3d 1331, 1342 (4th Cir. 1995) (“Even if the applicant can characterize his failure to comply with the population control policy as a political opinion, the applicant must still demonstrate that the government‘s actions or threats against the applicant, even to the extent those actions or threats involve forced abortions or sterilizations, were taken for a reason other than to enforce the population control policy.“).
The Romeikes have not met this burden. The German law does not on its face single out any protected group, and the Romeikes have not provided sufficient evidence to show that the law‘s application turns on prohibited classifications or animus based on any prohibited ground.
III.
For these reasons, we deny the Romeikes’ petition.
ROGERS, Circuit Judge, concurring.
I join the majority opinion.
At one point in the petitioners’ brief, they assert that “the sole question before this Court is whether Germany is violating binding norms of international law through its treatment of homeschoolers.” Petitioners’ Br. 37. Our role, however, is not that of an international court adjudicating Germany‘s obligations to other countries in respect of its own citizens. Instead we sit as a court of the United States, enforcing statutes that implement some of the international obligations of the United States to other countries in respect of asylum applicants. As explained by the majority opinion, those obligations are fully met in this case.
Before: GILMAN, ROGERS and SUTTON, Circuit Judges.
SUTTON, Circuit Judge.
This software-licensing dispute became more intriguing after the parties settled it. On the eve of settlement, Infocon, a software distributor, fired its lawyer, J. Fox DeMoisey. Hoping to ensure that he got paid for his work, DeMoisey placed a charging lien on the settlement proceeds. Exact delivered the $4 million settlement to the district court, which distributed most of it to Infocon and placed the remaining $1.2 million in escrow pending resolution of the fee dispute. Nine months later, Infocon sued DeMoisey in Kentucky state court for malpractice. After that case ended with a summary judgment ruling in favor of the lawyer, the district court took on the fee dispute, held a bench trial and awarded DeMoisey $1.4 million in quantum meruit relief. Infocon complains that this was too much, that it had a right to a jury trial over the issue and, for the first time on appeal, that the district court lacked jurisdiction over the fee dispute because DeMoisey and Infocon both hail from Kentucky. We affirm.
I.
Since 1971, Exact, using this corporate name and one other, has developed software for small and mid-sized businesses. Infocon began distributing Exact‘s software in 1998. When Exact upgraded its software, Infocon also made money selling, installing and training users on the upgrades. A foreign company entered into talks to acquire Exact, and it suggested to distributors like Infocon that it would continue providing new versions of the software. But Exact abandoned its next upgrade, leaving distributors like Infocon out to dry.
Exact sued Infocon in Ohio state court in 2003. To hear Exact tell it, Infocon
To hear Infocon tell it, the company stopped making the payments because Exact misled Infocon about the plans to develop new upgrades. As a result, Infocon claimed, it had no obligation to turn over maintenance fees, indeed had already turned over more maintenance fees than it should have, and it had incurred a host of other expenses. Infocon removed the case to federal court on the basis of diversity jurisdiction,
Before long, the case entered an intractable phase of discovery. Exact, says the district court, showed “persistent noncompliance with” the court‘s “ever more stringent” discovery orders. R.397 at 2. Those orders came to a head in August 2006, when the district court threatened Exact that it might allow Infocon to seek a default judgment. Exact continued to drag its feet, and Infocon moved for a default judgment. At that point, Exact apparently got the message: It fired its lawyer, hired new counsel and asked the court to hold off on ruling on the motion.
The parties entered settlement negotiations. Infocon‘s two owners, Robert Hughes and Deepak Nijhawan, and DeMoisey mediated the case with Exact. At a meeting on February 28, 2007, Hughes and an Exact representative agreed on a $4 million figure. DeMoisey urged Infocon to hold out for more—at least $5.3 million—apparently so that he, Hughes and Nijhawan could receive equal $1 million shares (after taxes).
Hughes and Nijhawan saw things differently and worried that DeMoisey was getting greedy. According to them, DeMoisey started demanding 50 percent of any settlement (a premium on an oral 33-percent contingency fee arrangement), which would include bonuses for his co-counsel. Hughes and Nijhawan were concerned that Exact might bring another lawsuit, that it might pull its $4 million offer and that DeMoisey was pushing too hard. That left the clients and their lawyer, in the words of the district court (and Strother Martin), with a “failure to communicate.” R.397 at 6.
Hughes and Nijhawan hired new counsel, Peter Ostermiller. They formalized the settlement with Exact on March 12, and two days later told DeMoisey about the settlement. The district court ordered the parties to file a notice of dismissal by August 31. The order said: “any dispute re. terms of settlement to be submitted to the [Court] for final adjudication.” R.207. On August 12, Infocon fired DeMoisey, who filed a motion for leave to withdraw on August 13. That same day, DeMoisey filed a “Notice of Charging Lien,” “hereby notify[ing] the Court and parties of the existence of an equitable charging lien in favor of himself and his law office for unpaid services, attaching to the settlement proceeds payable by Exact Software to Infocon Systems, Inc.” R.211. After a status conference, the district court postponed the deadline for the parties to file a stipulated dismissal. That order said that the “court [was] to retain jurisdiction re. charging lien.” R.214. The court ordered Exact and Infocon to pay the settlement proceeds into a court registry and transferred $2.5 million to Infocon and $200,000 to DeMoisey, leaving the balance subject to the fates of further litigation. Exact filed a joint stipulation of dismissal, and on September 21 the district court signed the
DeMoisey and Infocon engaged in discovery over the fee dispute, after which they filed motions for summary judgment with the district court. On May 29, 2008, Infocon took things one step further and filed a legal malpractice action against DeMoisey in Kentucky state court. Concerned about the risk of claim preclusion, DeMoisey filed counterclaims for attorney‘s fees in the state action. He explained this to the district court in December and withdrew a number of his claims from the federal court—all of them in fact except his claim based on quantum meruit. Due to the state court action, DeMoisey asked the district court to “remand and reschedule the hearing now set for January 20, 2009” on his fee request. R.311. He “proposed that [the] Court continue to supervise the overall settlement or resolution of the pending Charging Lien matter,” id. at 2, and “preserve[]” the “status quo ... until all matters pending in the [state court] have been resolved,” id. at 7. The district court “vacated and continued” its trial date. R.332.
The state court granted summary judgment against Infocon based on the expiration of the statute of limitations. As for DeMoisey‘s counterclaims, the court ruled as a matter of law against him on all but the quantum meruit claim because there was never an enforceable contingency fee agreement. Before the state court could go to trial on the quantum meruit question, DeMoisey “moved to transfer the case back to” the federal district court, and the state court granted the motion. R.348-1. DeMoisey claimed that, in view of the state court‘s ruling, the district court “should now make its determination as to [the] quantum meruit value of [his] services.” R.348. In December 2011, the court presided over a three-day bench trial, at the end of which it awarded DeMoisey $1.4 million (inclusive of the $200,000 he received in 2007). Infocon appealed the fee award, and DeMoisey intervened on appeal to protect the award.
II.
We start as we must with jurisdiction. And we ignore as we must Infocon‘s failure to preserve the issue until it had lost in the district court. The jurisdiction of the federal courts is set by the Constitution and Congress, and may not be created by the consent (or forfeiture) of the parties, requiring us to police jurisdiction for ourselves, whether Infocon deserves the inquiry or not. Two potential jurisdictional defects exist.
A.
The first arises from the parties’ stipulation of dismissal. It “stipulate[s] and give[s] notice that the within action and all claims and counterclaims therein are dismissed with prejudice, each party to bear its own costs.” R.225. The parties submitted the order under Civil Rule
In Kokkonen, after the parties settled their dispute, they filed a “Stipulation and Order of Dismissal with Prejudice” and also did so under Civil Rule
Although today‘s case raises a Kokkonen issue, it does not raise a Kokkonen jurisdictional defect. Read in context, the parties’ stipulation of dismissal did not eliminate the court‘s authority to resolve the fee dispute between Infocon and DeMoisey. The stipulation does not appear alone. It is preceded by two recent orders that expressly reserved jurisdiction over the fee dispute and that were entered after the parties had settled the underlying case. The July 31 order said: “any dispute re. terms of settlement to be submitted to the [Court] for final adjudication.” R.207. And the August 27 order, which directed the parties to file a joint stipulation of dismissal, was more explicit: “court to retain jurisdiction re. charging lien.” R.214. All that the September 14 order did was end the underlying dispute between Exact and Infocon. But, as contemplated, it permitted Infocon and DeMoisey to return to court to determine the amount of money protected by the charging lien. The September 14 order says nothing about that dispute, and in view of the two prior orders the most reasonable interpretation of the last order is that it did not divest the court of its expressly reserved jurisdiction to resolve the fee dispute while allowing Exact to move on. Taken together, the three orders give a “reasonable indication” that the district court would take care of the attorney‘s lien dispute. Re/MAX Int‘l, Inc. v. Realty One, Inc., 271 F.3d 633, 643 (6th Cir. 2001).
Keep in mind that Civil Rule
One other thing supports this interpretation of the orders, both from the perspective of the court and the parties. A contrary view would require us to assume that the parties, DeMoisey and the court agreed to place $1.2 million in escrow in the court‘s registry, all while leaving the court without existing power to disburse it or the parties and DeMoisey without existing authority to get it back. Nothing in the record indicates that this is what the parties, DeMoisey or the court had in mind. Far better, we think, to read the stipulation‘s silence about the fee dispute as consistent with the prior two reservations of jurisdiction to resolve the dispute and as consistent with the court‘s ongoing jurisdiction over, indeed possession of, the res. All of this led counsel for Infocon to concede at oral argument that no Kokkonen defect exists, and for the reasons just stated we independently agree.
B.
The second potential jurisdictional defect stems from the reality that this fee dispute, like most fee disputes, concerns non-diverse parties—Infocon, a Kentucky corporation, and its lawyer, DeMoisey, a Kentucky resident. A few basics of diversity jurisdiction offer a starting point.
Federal courts have “original jurisdiction of all civil actions ... between citizens of different States” when the amount in controversy exceeds $75,000.
A federal court has “supplemental jurisdiction” over related claims that arise from the same core of operative facts that prompted the lawsuit over which the court has original jurisdiction. Thus:
in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.
Subsection 1367(b) cuts back on some of the supplemental jurisdiction that subsection (a) creates:
In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.
We think it does not for three reasons. First, the words of
Second, there is a good reason why Congress would not apply
More recently and more locally, Kalyawongsa v. Moffett illustrates the practice and offers an explanation for it. In holding that a lawyer-client fee dispute was part of the same case or controversy as the original lawsuit and came within
Third, we do not lightly presume that Congress would alter such an established practice. We know of no case before Congress added
Instead of ending the traditional authority of district courts over the lawyers in front of them for better (payment of their fees) or for worse (contempt), the statute pursued two other ends. It overruled Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989), by allowing courts to continue exercising jurisdiction in federal question cases over pendent state law claims, see Exxon Mobil Corp., 545 U.S. at 558; and it prevented plaintiffs from “evad[ing]” the complete-diversity requirement by filing a lawsuit against diverse defendants and promptly joining new non-diverse plaintiffs or defendants, Viacom Int‘l, Inc. v. Kearney, 212 F.3d 721, 727 (2d Cir. 2000) (Sotomayor, J.) (quoting H.R.Rep. No. 101-734, at 29 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6875); see Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374-75, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978) (rejecting supplemental jurisdiction over state law claim by plaintiff against non-diverse third-party defendant because a contrary rule would allow plaintiffs to “evade[] complete diversity“).
A fee dispute like this one implicates neither of these concerns. The dispute grew out of the underlying litigation. It did not exist, and by its nature could not have existed, at the time the lawsuit was filed. In view of the court‘s oversight of the settlement agreement, the court merely assumed responsibility for ensuring that the settlement proceeds were distributed fairly to all of the relevant parties and lawyers, a job well suited to the judge who oversaw the underlying litigation. Once Infocon fired DeMoisey and once he asked to withdraw from the case, the court had two options: (1) condition his withdrawal on full payment or (2) condition the distribution of the settlement proceeds on resolution of the appropriate fee owed to him. Both approaches traditionally have been available to a judge who has presided over the litigation without requiring the lawyer to “intervene” as a plaintiff in the case, and more to the point the language of
None of this means that district courts asked to determine a contingency fee or appropriate attorney‘s fees have authority to resolve every freestanding claim or defense that arises from a fee dispute. See Wolfe v. Lewis, 60 U.S. 280, 283, 19 How. 280, 15 L.Ed. 643 (1857). But that is not what Infocon and DeMoisey tried to do. They litigated their legal malpractice and contract claims in state court. In contrast to a legal malpractice claim, a request for quantum meruit relief merely offered a way of calculating the compensable work DeMoisey did for his client. It did not require the district court to resolve legal malpractice claims, where a strong case can be made that the district court would have lacked any such authority. See Elusta v. City of Chicago, 696 F.3d 690, 694 (7th Cir. 2012) (“Attorney‘s fee disputes are closely enough related to the underlying litigation to be the basis for supplemental jurisdiction, even if other attorney-client disputes, such as malpractice actions, are not.“). We need not resolve the point. For now, it suffices to say that a fees-for-services claim does not automatically exceed the district court‘s jurisdiction when the lawyer and client come from the same State.
This last point suggests another way of looking at this dispute, one not joined by the parties and one in some tension with our decision in Kalyawongsa v. Moffett. The premise of supplemental jurisdiction authorized by
Infocon insists that Griffin v. Lee, 621 F.3d 380 (5th Cir. 2010) (per curiam), requires a different outcome. Griffin was the beneficiary of a trust, and he sued the trustees for fraud and reformation in Louisiana state court. The trustees removed the case to federal court based on diversity jurisdiction, as Griffin hailed from Mississippi, and the trustees hailed from Delaware, New York, Ohio and Louisiana. On the same day that the district court granted summary judgment against Griffin, his lawyer, Lee, filed a motion to intervene as a party under Civil Rule 24. Lee asked for unpaid fees from Griffin, which he asked to be paid from the trust. The court awarded him over $16,000 and ordered the trustees to give him a cut on future payments to Griffin. But Lee, like one of the trustees, was from Louisiana, and according to the Fifth Circuit the lack of complete diversity deprived the court of supplemental jurisdiction over his claim under
Whether the Fifth Circuit correctly applied
C.
One last point on jurisdiction. Infocon argues that the district court gave up authority over the claim under
III.
The merits of the appeal are more straightforward. Infocon first argues that
The problem for Infocon is that a lien on settlement funds implicates an equitable, not a legal, function. Courts have long recognized that judges, not juries, have responsibility for discharging liens, including attorney‘s fee liens. In Wylie v. Coxe, 56 U.S. 415, 15 How. 415, 14 L.Ed. 753 (1854), a lawyer helped his client recover against Mexico. The lawyer had a contingency fee contract, but he never got paid. The lawyer‘s claim for fees “constituted a lien upon the [recovery] fund,” and that lien was “a sufficient ground for an equity jurisdiction.” Id. at 420. Barnes v. Alexander, 232 U.S. 117, 34 S.Ct. 276, 58 L.Ed. 530 (1914), came to the same conclusion. Invoking equity, the Court determined that a contingency fee agreement created a lien on the litigation proceeds. See also Sereboff v. Mid Atl. Med. Servs., 547 U.S. 356, 363-67, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006). “An action to foreclose a lien ... is equitable in nature.” 9 Wright & Miller, supra, § 2316. This conclusion applies equally to mortgage liens, see, e.g., Rozelle v. Conn. Gen. Life Ins. Co., 471 F.2d 29, 31 (10th Cir. 1972); tax liens, see, e.g., Damsky v. Zavatt, 289 F.2d 46, 53 (2d Cir. 1961) (Friendly, J.) (stating that “[f]oreclosure of the mortgagor‘s equity of redemption was an established head of equity jurisdiction well before 1791,” and concluding that enforcement of tax liens is “sufficiently akin to the historic equity practice to preclude successful contention for a right to jury trial“); and judgment liens, see, e.g., Perera Co. v. Goldstone, 491 F.2d 386, 387 (9th Cir. 1974).
More recently, the Second Circuit came to this conclusion in a similar setting. See Rosenman & Colin v. Richard, 850 F.2d 57 (2d Cir. 1988). Bernice Richard and Julian Sherrier fought over the ownership of some sculptures, and the Rosenman law firm represented Richard in the litigation. After trial, Richard refused to pay Rosenman because she thought it had charged too much, and Rosenman placed a lien on the underlying judgment. The district court held a bench trial and awarded Rosenman fees based on its quantum meruit claim. On appeal, Richard argued that she had a right to a jury trial. Not so, the Second Circuit held: “In the context of both attorneys’ liens and other liens, such actions have repeatedly been regarded as equitable in nature so that no jury right attaches.” Id. at 60. Although Rosenman‘s claim implicated legal issues like “the contractual liability giving rise to the lien,” actions “to enforce a lien are inherently equitable,” regardless of how the lien came about. Id. at 60–61. The same is true here.
To counter this authority, Infocon makes one essential point: Quantum meruit relief often rests on legal claims. True enough, if an attorney brings a breach of contract claim against a former client, the client may ask for a jury. See Simler v. Conner, 372 U.S. 221, 223, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963). But actions to enforce liens remain equitable actions, even when the dispute that led to the lien implicates the meaning of the underlying contract. Rosenman & Colin, 850 F.2d at 61.
Infocon next argues that, even if the district court had authority over this quantum meruit claim, the court misjudged it by awarding more money to De-
Infocon complains that the district court failed to account for DeMoisey‘s alleged violations of state rules of professional conduct—in truth, failed to account for them in full, as the court deducted $100,000 for just this reason. The court faulted DeMoisey for his “failure to confirm the existence of a signed fee agreement” and criticized how DeMoisey handled Nijhawan‘s and Hughes’ request to share in a $45,000 sanction award paid by Exact. R.397 at 25. But the court decided not to reduce DeMoisey‘s fee for his decision to start a business (Alocam) with his clients because this ethical lapse had no bearing on the fee dispute, a choice that did not exceed the court‘s discretion.
Infocon faults the court for taking a dim view of Peter Ostermiller (the lawyer Infocon hired to replace DeMoisey) and drawing improper “inferences” from Ostermiller‘s representation. Br. at 49. But the district court did no such thing. The court meaningfully referred to Ostermiller two times in calculating DeMoisey‘s fee. In analyzing the deteriorating professional relationship between DeMoisey and Infocon, the court noted that Ostermiller‘s failure to extend professional courtesies to DeMoisey likely contributed to the problems. And in asking whether DeMoisey delivered exceptional results, the court suggested that Infocon could have negotiated a higher settlement, but that Infocon‘s failure to do so was against DeMoisey‘s advice and may have stemmed from Ostermiller‘s intervention. We see nothing wrong with either consideration, and repeat that both are the kinds of things a judge with a ring-side view of the dispute is apt to understand far better than judges with a cold paper record to go by.
Infocon claims the court should not have found that DeMoisey and his associate worked 3,500 hours. Because the pair thought they had a contingency fee agreement, they did not carefully keep track of their time, and DeMoisey could point to only 1,947.25 hours in his reconstructed records. But DeMoisey testified that this estimate was conservative, and the court found his testimony credible. DeMoisey‘s expert testified along the same lines, suggesting that the estimate might be “understated by half.” R.397 at 20. The court accordingly assumed that the duo spent between 3,500 and 4,000 hours on the case. That was reasonable on this record.
That leaves a few other claims. Infocon argues that DeMoisey did not deserve $300,000 for exceptional results. But when one considers, as the district court did, that DeMoisey helped turn “a relatively modest collection action” into “a multimillion dollar lawsuit, ... result[ing] in a $4 million settlement” for Infocon, id. at 24, that argument melts away. Infocon argues that the court should have reduced the award because other firms worked on the case and because Hughes helped with discovery. But neither point goes to what DeMoisey‘s work was worth and what the
IV.
For these reasons, we affirm.
JEFFREY S. SUTTON
UNITED STATES CIRCUIT JUDGE