KREIDER DAIRY FARMS, INC., а Pennsylvania Family Farm Corporation v. Dan GLICKMAN, Secretary of the United States Department of Agriculture; Dan Glickman, Appellant in No. 98-1906, (D.C.98-cv-00518); Kreider Dairy Farms, Inc., a Pennsylvania Family Farm Corporation v. Dan Glickman, Secretary of the United States Department of Agriculture; Ahava Dairy Products, Inc.; Kreider Dairy Farms, Inc., Appellant in No. 98-1982, (D.C.95-cv-06648); Kreider Dairy Farms, Inc., a Pennsylvania Family Farm Corporation v. Dan Glickman, Secretary of the United States Department of Agriculture; Kreider Dairy Farms, Inc., Appellant in No. 98-1983, (D.C.98-cv-00518)
Nos. 98-1906, 98-1982 and 98-1983
United States Court of Appeals, Third Circuit
Filed: Aug. 27, 1999
Before: SLOVITER and MANSMANN, Circuit Judges, and WARD, District Judge.
Argued: June 9, 1999
The state may try Hull if it chooses, and the writ will be granted conditioned on his trial within 120 days. Because he was found incompetent to stand trial at his last valid competency hearing (in 1975), the state must first establish that Hull has presently regained his competency to stand trial before trying him. At this point, his actual competency as of 1979 is irrelevant to any criminal proceedings against him. See Dusky, 362 U.S. at 403, 80 S.Ct. 788 (remanding to the trial court “for a new hearing to ascertain petitioner‘s present competency to stand trial,” given “the difficulties of retrospectively determining the petitioner‘s competency as of more than a year ago“); see also Drope, 420 U.S. at 183, 95 S.Ct. 896 (same, when competency hearing was held six years before writ was granted); Robinson, 383 U.S. at 387, 86 S.Ct. 836 (same).
For the foregoing reasons, the judgment of the District Court will be reversed and the case remanded for the granting of a writ of habeas corpus conditioned on Hull‘s being tried within 120 days, with the understanding that, if Hull cannot be tried within this period because he is found incompetent to stand trial, the state has at its disposal procedures for treating Hull, see
David W. Ogden, Acting Assistant Attorney General, Michael R. Stiles, United States Attorney, Barbara C. Biddle, United States Department of Justice, Civil Division, Apрellate Staff, Michael E. Robinson, United States Department of Justice, Appellate Section, Douglas Hallward-Driemeier (Argued), United States Department of Justice, Civil Division, Appellate Staff, Washington, D.C., Counsel for United States Department of Agriculture.
Before: SLOVITER and MANSMANN, Circuit Judges, and WARD,* District Judge.
OPINION OF THE COURT
MANSMANN, Circuit Judge.
These appeals implicate important issues related to our appellate jurisdiction in the context of a dispute over dairy regulations. Specifically, we must determine the extent to which our jurisdiction extends to District Court orders remanding for further factual findings in administrative proceedings in light of Forney v. Apfel, 524 U.S. 266, 118 S.Ct. 1984, 141 L.Ed.2d 269 (1998). We hold today that because the discussion on appellate jurisdiction in Forney is founded upon specific language located within the Social Security Act, the holding in Forney does not extend to all District Court orders remanding for further administrative proceedings. We also reaffirm our longstanding rule that we lack jurisdiction over District Court orders remanding for further administrative findings unless an important legal issue has been finally determined which would evade appellate review in the absence of an immediate appeal.
Applying these principles to the appeals before us, we find that we lack jurisdiction over the appeal filed by Kreider Dairy Farm, Inc. (“Kreider“) in 1998 from a 1996 District Court order which remanded for further factual findings relating to the merits of the dairy dispute. Accordingly, we will dismiss Kreider‘s appeal (No. 98-1982) for lack of jurisdiction. Under these same principles, however, we find that we do have appellate jurisdiction over the timely appeal filed by the Secretary of the
With respect to the merits of the USDA‘s appeal, we hold that the District Court erred in exercising jurisdiction over Kreider‘s appeal and accordingly will vacate the District Court‘s 1998 Order. Finally, we will dismiss summarily Kreider‘s “cross-appeal” from the District Court‘s August 10, 1998 order (No. 98-1983) as Kreider has informed us that it never intended to cross-appeal frоm that order and has not pursued that cross-appeal in its briefing or at oral argument before us.
I.
These appeals come to us after a long and tortured procedural history that spans nearly a decade. Because this procedural history is central to our decision, we shall discuss it in some detail. By contrast, because we do not reach the merits of the parties’ dispute over the dairy regulations at issue in these appeals, the underlying factual background that forms the basis of that dispute will be discussed only generally.1
A.
Kreider is a dairy farm corporation that produces and distributes packaged kosher fluid milk within the New York–New Jersey milk marketing area with the aid of two independent subdistributors. The production and sale of milk within the New York–New Jersey milk marketing area is regulated by Order 2 which was promulgated under the Agricultural Marketing Agreement Act of 1937 (“AMAA“),
The Market Administrator (“MA“) responsible for administering Order 2 denied Kreider‘s application for producer-handler status, finding that Kreider did not meet the producer-handler requirements due to Kreider‘s use of independent subdistributors. See generally
After a December 14, 1994 hearing, an Administrative Law Judge (“ALJ“) issued a decision holding that Kreider was entitled to producer-handler status under Order 2. The Agricultural Marketing Service appealed to a Judicial Officer (“JO“) of the USDA, who acts on behalf of the Secretary of Agriculture in all adjudicative matters. See
On October 18, 1995, Kreider filed a complaint pursuant to the AMAA in the District Court challenging the JO‘s decision. See AMAA,
B.
On remand, the ALJ held a hearing and issued a decision on August 12, 1997 holding that Kreider was “riding the pool” and therefore was not entitled to producer-handler status. Under applicable regulations, the ALJ‘s decision becomes effective thirty-five (35) days after service upon the parties unless appealed to the JO thirty days (30) after service. See
On September 12, 1997, Kreider moved for an extension of time to file its appeal from the ALJ‘s August 12, 1997 decision. The JO granted Kreider an extension until September 19, 1997. On September 19, 1997, Kreider sent its appeal via Federal Express next day delivery. The Office of the Hearing Clerk stamped Kreider‘s appeal as received on September 25, 1997.
On January 12, 1998, the JO issued an opinion denying Kreider‘s administrative appeal as untimely because, under applicable regulations, an administrative appeal is deemed to be filed “when it is postmarked, or when it is received by the hearing clerk.”
While Kreider‘s motion for reconsideration was pending before the JO, Kreider filed a complaint with the District Court on February 2, 1998 challenging the ALJ‘s August 12, 1997 decision and noting that the JO had denied its appeal as untimely.2 The JO denied Kreider‘s motion for reconsideration on February 20, 1998. On April 3, 1998, Kreider filed an amended complaint challenging the JO‘s January 12, 1998 and February 20, 1998 decisions. The USDA filed a motion to dismiss.
By opinion and order entered August 10, 1998 (“1998 Order“), the District Court denied the USDA‘s motion to dismiss, vacated the JO‘s January 12, 1998 and February 20, 1998 decisions, and remanded for the JO to consider the merits of Kreider‘s aрpeal of the ALJ‘s August 12, 1997 decision. See Kreider Dairy Farms, Inc. v. Glickman, No. 98-518, 1998 WL 481926 (E.D.Pa. August 10, 1998). The District Court held that because Kreider‘s April 3, 1998 amended complaint challenging the JO‘s decisions related back to Kreider‘s initial complaint filed on February 2, 1998, Kreider‘s appeal of the JO‘s January 12, 1998 decision was timely. The District Court further determined that because the JO erred in holding that a United States postmark was required under applicable regulations, Kreider‘s appeal to the JO
C.
On October 7, 1998, the USDA filed a timely appeal from the District Court‘s 1998 Order which was docketed with us at 98-1906. On October 21, 1998, Kreider filed a cross-appeal. In Kreider‘s notice of appeal, Kreider listed the docket numbers from the District Court‘s two prior proceedings hoping to bring an appeal from the District Court‘s 1996 Order. Kreider‘s cross-apрeal was treated as two separate appeals: 1) a cross-appeal from the District Court‘s 1998 Order (docketed at 98-1983); and 2) an appeal from the District Court‘s 1996 Order (docketed at 98-1982).
On October 30, 1998, we sent a letter to the parties questioning our jurisdiction over Kreider‘s appeal from the District Court‘s 1996 Order. We invited submissions by the parties outlining the basis for our jurisdiction. Both parties submitted letters. In its letter, the USDA contends that we have jurisdiction over Kreider‘s appeal from the District Court‘s 1996 Order under Forney v. Apfel, 524 U.S. 266, 118 S.Ct. 1984, 141 L.Ed.2d 269 (1998) and Sullivan v. Finkelstein, 496 U.S. 617, 110 S.Ct. 2658, 110 L.Ed.2d 563 (1990). In addition, both the USDA and Kreider cite Forney as the basis for our jurisdiction in their briefs. Kreider also asserts various other grounds for jurisdiction in its letter. Both parties seem to recognize that Kreider never intended to file a cross-appeal from the District Court‘s 1998 Order.
II.
Even though Kreider and the USDA agree that we have jurisdiction over the appeals before us, it is well established that we have an independent duty to satisfy ourselves of our appellate jurisdiction regardless of the parties’ positions. See, e.g., Collinsgru v. Palmyra Bd. of Ed., 161 F.3d 225, 229 (3d Cir. 1998). The District Court orders from which both Kreider and the USDA have appealed are orders rеmanding for further administrative proceedings. Normally, an order remanding for further proceedings is not a final order subject to immediate appellate review under
A.
We traditionally have recognized an exception to the general finality rule for certain District Court orders remanding for further administrative proceedings. Specifically, we have exercised appellate review when a District Court finally resolves an important legal issue in reviewing an administrative agency action and denial of appellate review before remand to the agency would foreclose appellate review as a practical matter. See AJA, 817 F.2d at 1073 (citing Horizons Int‘l, Inc. v. Baldrige, 811 F.2d 154 (3d Cir. 1987)); Union R.R., 648 F.2d at 909.
An example of an immediately appealable remand under this exception is found in AJA, 817 F.2d 1070. After the Army Corps denied AJA‘s application for a permit, AJA filed suit in District Court. AJA, 817 F.2d at 1071-72. The District Court denied the Corps’ motion for summary judgment and remanded holding that AJA
We exercised jurisdiction over the Corps’ appeal evеn though the District Court‘s order remanding for further administrative proceedings was not a final order. We noted that the District Court had resolved an important legal issue opening the door to arguments by all applicants that they are entitled to a hearing prior to a permit denial. Id. at 1073. In addition, we found that the issue may evade appellate review; if the Corps granted AJA a permit on remand, the Corps would be unable to appeal the hearing issue and if the Corps denied AJA a permit, the issue of whether AJA is entitled to a hearing would be moot. Id. For these reasons, we held that the Corps’ appeal fell within our previously recognized exception to the finality rule.
B.
In addition to our well established exception to the finality rule for certain District Court orders remanding for further administrative proceedings, the Supreme Court recently carved out a very specific exception to the finality rule for remand orders under the Social Security Act. See Forney, 524 U.S. 266, 118 S.Ct. 1984, 141 L.Ed.2d 269, and Finkelstein, 496 U.S. 617, 110 S.Ct. 2658, 110 L.Ed.2d 563. In Finkelstein, the Court held that the District Court‘s order effectively holding that certain regulations were invalid and remanding for further administrative findings without resort to those regulations was immediately appealable. The Court relied heavily upon specific language within the Social Security Act in reaching this decision.4 The Court, however, also noted that if benefits were awarded on remand under the inquiry mandated by the District Court “there would be grave doubt” as to whether the Secretary could appeal his own order. Finkelstein, 496 U.S. at 625, 110 S.Ct. 2658.
As the Court‘s recent decision in Forney makes clear, however, the Finkelstein rationale is limited to the specific language found in the Social Security Act. In Forney, the Court held that not only can the Secretary appeal immediately an order remanding for further administrative proceedings, but that a claimant equally is entitled to appeal a District Court order remanding for further administrative proceedings. The Court reasoned that Finkelstein primarily was based on the language of the Social Security Act and that the reasoning in Finkelstein does not “permit an inference that ‘finality’ turns on the order‘s importance, or the availability (or lack of availability) of an avenue for appeal from the different, later, agenсy determination that might emerge after remand.” Forney, 524 U.S. at —, 118 S.Ct. at 1987.
After Forney, it is clear that Finkelstein did not simply apply our general exception to finality to a social security case, but rather created a separate exception to the finality rule based on the language of the Social Security Act. Accordingly, Forney cannot be read to extend appellate jurisdiction to all District Court orders remanding for further administrative proceedings as the parties contend, but rather speaks only to appellate jurisdiction under statutes containing language comparable to that found in the Social Security Act.
C.
Given that Forney and Finkelstein do not control our jurisdiction over these appeals, we return to our general exception to the finality rulе to determine whether we have jurisdiction over either of the appeals before us. Specifically, we must determine whether either the 1996 Order or 1998 Order finally resolves an important legal issue over which appellate review would be foreclosed as a practical matter in the absence of an immediate appeal.
In its 1996 Order, the District Court determined that the language relating to producer-handler status was ambiguous and that it was appropriate to resort to the promulgation history of the provision at issue. The District Court then remanded for further factual findings as to whether Kreider was the type of dairy the provision was meant to include. On remand, the ALJ determined that Kreider was not entitled to producer-handler status. This determination was subject to review by a JO and then by the District Court.
Under our exception to the finality rule, the 1996 Order is not subject to immediate appeal. It does not finally resolve a particularly important legal issue and, more importantly, it is not an order that will evade appellate review. Absеnt an order that would evade review, our interest in avoiding piecemeal litigation and duplicative efforts overrides any interest we may have in entertaining the merits of Kreider‘s appeal at this juncture. Accordingly, our traditional exception to finality in agency proceedings does not afford us jurisdiction over Kreider‘s appeal from the 1996 Order.5
Our exception, however, does provide appellate jurisdiction over the USDA‘s timely appeal from the 1998 Order. This order vacated the JO‘s determination that Kreider‘s appeal was untimely and remanded for the JO to hear the merits of Kreider‘s appeal from the ALJ‘s decision. This decision resolves an issue of law that may evade review if immediate appeal is not permitted; should Kreider receive the relief it seeks on remand, it is doubtful that the USDA would be able to appeal its own decision in order to raise the procedural issues decided by the District Court in its 1998 Order. Therefore, under our exception for agency appeals, we have jurisdiction over the USDA‘s аppeal from the 1998 Order.6
III.
Having established that we have jurisdiction over the USDA‘s appeal of the
After the District Court‘s initial remand via the 1996 Order, Kreider first filed a complaint in the District Court on February 2, 1998. In this complaint, Kreider sought review of the ALJ‘s August 12, 1997 decision on the merits. At that time, Kreider‘s motion for reconsideration of the JO‘s January 12, 1998 order, which dismissed Kreider‘s administrative appeal as untimely, was still pending. It is clear to us that the District Court did not have jurisdiction over Kreider‘s February 2, 1998 complaint.
First, as the District Court recognized, it did not have jurisdiction to review the ALJ‘s August 12, 1997 decision because that decision is not a final agency decision subject tо judicial review. See Kreider, 1998 WL 481926 at *7. Second, even if Kreider‘s February 2, 1998 complaint had challenged the JO‘s January 12, 1998 decision, which it did not, the District Court would have lacked jurisdiction to review that decision at that time due to Kreider‘s pending motion for reconsideration. See Stone v. INS, 514 U.S. 386, 391, 115 S.Ct. 1537, 131 L.Ed.2d 465 (1995) (noting the general rule that the timely filing of a motion to reconsider an agency‘s action generally renders the underlying order nonfinal for purposes of judicial review); West Penn Power Co. v. United States Envtl. Protection Agency, 860 F.2d 581, 584 (3d Cir.1988) (same).7
Because the District Court lacked jurisdiction to entertain any appeal by Kreider on February 2, 1998, the date Kreider filed its first complaint, the District Court erred in exercising jurisdiction under the theory that Kreider‘s April 3, 1998 amended complaint related back to Kreider‘s February 2, 1998 complaint. An amended complaint that purports to relate back to an original complaint asserting an improper appeal which was filed on a date upon which the District Court would have lacked jurisdiction over the appeal raised in the amended complaint, must be dismissed for lack of jurisdiction. See, e.g., Reynolds v. United States, 748 F.2d 291, 293 (5th Cir.1984) (holding that District Court properly dismissed for lack of jurisdiction amended complaint that could only relate back to pleading filed on a date upon which the District Court would have lacked jurisdiction over the issues asserted). Absent a viable relation back theory, Kreider‘s April 3, 1998 complaint is an untimely appeal of the JO‘s January 12, 1998 decision.8 Accordingly, because the District Court lacked jurisdiction over Kreider‘s appeal of the JO‘s January 12, 1997 decision, we will vacate the District Court‘s 1998 Order.
IV.
For the foregoing reasons, we will dismiss summarily Kreider‘s cross-appeal from the District Court‘s 1998 Order (No. 98-1983), dismiss Kreider‘s appeal from the District Court‘s 1996 Order (No. 98-1982) for lack of jurisdiction, and vacate the judgment of the District Court in the USDA‘s appeal from the District Court‘s 1998 Order (No. 98-1906).
I concur in the opinion of Judge Mansmann. I write separately to express my concern that our opinions, and those of other courts, dealing with the issue of appellate jurisdiction over district court orders remanding to an administrative agency have used language thаt is inconsistent with basic principles of federal jurisdiction. In particular, I take issue with language referring to our jurisdiction in that instance as an “exception” to the finality rule. See, e.g., Bridge v. United States Parole Commission, 981 F.2d 97, 101-02 (3d Cir.1992); United States v. Spears, 859 F.2d 284, 287 (3d Cir.1988); Perales v. Sullivan, 948 F.2d 1348, 1353 (2d Cir.1991). In plain words, there can be no judicially created “exception” to the jurisdiction Congress has granted the courts of appeals.
I.
Any analysis of the jurisdiction of the courts of appeals must begin with the recognition that under our Constitutional separation of powers it is Congress that sets the jurisdiction of the federal courts, and the judiciary has no power to make exceptions to the congressional determinations in that respect. See United States v. Hollywood Motor Car Co., 458 U.S. 263, 264, 102 S.Ct. 3081, 73 L.Ed.2d 754 (1982) (per curiam); see also 15A Charles Alan Wright, Arthur R. Miller, and Edward H. Cooper, Federal Practice and Procedure § 3905, at 232 (2d ed.1991).
When Congress made its initial division of the jurisdiction between the federal trial courts and the appellate courts, it drew the line at final decisions. “The general principle of federal appellate jurisdiction, derived from the common law and enacted by the First Congress, requires that rеview of nisi prius proceedings await their termination by final judgment.” DiBella v. United States, 369 U.S. 121, 124, 82 S.Ct. 654, 7 L.Ed.2d 614 (1962) (citing First Judiciary Act, §§ 21, 22, 25, 1 Stat. 73, 83, 84, 85 (1789)); see also 15A Wright, Miller & Cooper, supra, § 3907, at 268 (“For two centuries, the final judgment rule has been the heart of appellate jurisdiction in the federal system.“).9
With few exceptions, that remains the touchstone today. The Supreme Court has explained that the final judgment rule discourages piecemeal appeals which carry with them the potential for harassment and excessive costs for litigants, see Cobbledick v. United States, 309 U.S. 323, 325-26, 60 S.Ct. 540, 84 L.Ed. 783 (1940); 15A Wright, Miller & Cooper, supra, § 3905, at 239, and protects the independence of the district judge, see Firestone, 449 U.S. at 374, 101 S.Ct. 669. The final judgment rule has survived because it is generally believed that it “promot[es] efficient judicial administration.” Id. (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 170, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974)).
Over the years, Congress has made discrete decisions “that particular policies require that private rights be vindicable immediately.” See Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863, 880 n. 7, 114 S.Ct. 1992, 128 L.Ed.2d 842 (1994) (discussing provision for immediate appeal under
II.
It follows that the references to “exceptions” to our statutorily authorized jurisdiction are misguided. Even the Supreme Court has no power to make an exception to the finality rule that does not have a statutory predicate. Nonetheless, opinions of the lower federal courts repeatedly refer to the collateral order “exception” emanating from the holding of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), that the courts of appeals have jurisdiction over “a small class of orders” that, albeit not the final decision in the case, resolve important questions completely separate from the merits, which would be effectively unreviewable were they to wait appeal from the final judgment in the underlying action. The notion of an “exception” to the finality doctrine is illogical as Congress alone establishes our appellate jurisdiction.
The collateral order doctrine was hardly a new theory of finality never previously comprehended. More than two decades earlier, the Court stated that, although final judgments are the rule,
it is well settled that an adjudication final in its nature as to a matter distinct from the general subject of the litigation and affecting only the parties to the particular controversy, may be reviewed without awaiting the determination of the general litigation.
United States v. River Rouge Improvement Co., 269 U.S. 411, 414, 46 S.Ct. 144, 70 L.Ed. 339 (1926).
A leading treatise observes that “[t]he most certain aspect of collateral order appeals is that they depend on
In Johnson v. Fankell, 520 U.S. 911, 917, 117 S.Ct. 1800, 138 L.Ed.2d 108 (1997), the Court stated: “In [Cohen], as in all of our cases following it, we were construing the federal statutory language of
I agree with the majority that the two cases arising under the Social Security Act, Sullivan v. Finkelstein, 496 U.S. 617, 110 S.Ct. 2658, 110 L.Ed.2d 563 (1990), and Forney v. Apfel, 524 U.S. 266, 118 S.Ct. 1984, 141 L.Ed.2d 269 (1998), represent an exception to the final judgment rule. But the exception is one made by Congress, not the courts.
In Finkelstein, the Court considered the jurisdiction of the courts of appeals to hear an appeal by the Secretary of Health and Human Services from a district court‘s order invalidating regulations issued by
The issue arose eight years later in Forney v. Apfel, 524 U.S. 266, 118 S.Ct. 1984, 141 L.Ed.2d 269 (1998). There, it was an individual seeking benefits, rather than the government, who appealed the district court‘s decision following a remand to the agency under
Of course, it would have facilitated our decision as to our appellate jurisdiction over an order remanding to an administrative agency if Congress had explicitly provided for such, and it may be that cases such as this will lead it to consider doing so. In any event, the precedent allowing such an appeal in appropriate circumstances, including that from this court, precludes any retreat now.
The most obvious analog, and the one relied on by many courts of appeals, is the collateral order doctrine, notwithstanding the fact that most of the agency remand orders would not qualify because the remand would rarely be on an issue separate from the merits. See 15B Wright, Miller & Cooper, supra, § 3914.32, at 240 (asserting that “[a]n impressive number of cases” permit appeal under the doctrine). It has been suggested thаt the tendency is to accept the appeals of government agencies, apparently because “administrative agencies, as more or less coordinate branches of government, deserve the protection of special appeal opportunities.” Id. at 56-57 n. 9 (Supp.1999) (citing, inter alia, Bergerco Canada v. United States Treasury Dep‘t, 129 F.3d 189, 191-92 (D.C.Cir.1997); Baca-Prieto v. Guigni, 95 F.3d 1006, 1008-09 (10th Cir.1996); Hanauer v. Reich, 82 F.3d 1304, 1306-07 (4th Cir. 1996); Schuck v. Frank, 27 F.3d 194, 196-97 (6th Cir.1994)). But see Cotton Petrol. Corp. v. United States Dep‘t of the Interior, 870 F.2d 1515, 1521-22 (10th Cir.1989); AJA Assocs. v. Army Corps of Eng‘rs, 817 F.2d 1070, 1072-73 (3d Cir.1987).
Wright, Miller, and Cooper have summarized the reasons courts rely on the collateral orders doctrine. In some circumstances, an agency may be statutorily barred from appealing its own decision. In others, the agency‘s decision will render the issue moot, because the agency has complied with the district court‘s order. Additionally, agencies ought not face the risk of contempt to prompt an immediate appeal, or the danger that the agency will be unable to recapture later any benefits paid in the interim. See 15B Wright, Miller & Cooper, supra, § 3914.32, at 240–41.
I agree that a practical construction of finality suffices to justify review of an
Cletus P. Lyman (Argued), Michael S. Fettner, Lyman & Ash, Philadelphia, PA, for Nick Dardovitch.
Steven R. Sparks (Argued), Eckell, Sparks, Levy, Auerbach & Monte, A Professional Corporation, Media, PA, for Catherine A. Backos, as trustees of Glenn Eagle Square Equity Associates Trust and Glenn Eagle Square Equity Associates, Inc.
Before: BECKER, Chief Judge, SCIRICA and ROSENN Circuit Judges.
OPINION OF THE COURT
BECKER, Chief Judge.
These cross-appeals present interesting questions concerning the amount-in-controversy requirement for diversity jurisdiction, the extent to which an attorney holding a contingent-fee agreement may charge additional fees for collecting the proceeds of a settlement or judgment, and the proper administration of trusts by trustees and the beneficiaries’ remedies for errors therein under Pennsylvania law. The principal appellant is defendant Mark S. Haltzman, a member of the Pennsylvania bar and a trustee of the Glen Eagle Square Equity Associates Trust (the “Trust“). Haltzman successfully represented Catherine A. Backos, a co-defendant and co-trustee, in a separate civil RICO claim brought by her and Glen Eagle Square Equity Associates (“GESEA“), in which she was a major shareholder, on a contingent fee basis. In order to administer and distribute the proceeds of settlement of the RICO claim, Haltzman and Backos established the Trust, naming themselves as trustees. There were numerous beneficiaries, including two shareholders and creditors of GESEA—Nick Dardovitch, the plaintiff and cross-appellant, and Backos—and also Haltzman himself, whose interest sprang from his contingent fee. As part of his efforts in administering the Trust, Haltzman took steps to collect on the notes that constituted the trust corpus. He paid himself an attorney‘s fee for this action out of the Trust‘s funds, and this case centers on the propriety of Haltzman‘s acceptance of these additional fees.
As always, the threshold question is one of jurisdiction. Dardovitch alleged, and the District Court found, that his claim fell within the District Court‘s diversity jurisdiction. Haltzman argues that this subject-matter jurisdiction is lacking because Dardovitch‘s claim fails to meet the amount-in-controversy requirement. Haltzman contends that the amount in controversy is determined by payments presently due. That is ordinarily the case. But where, as here, the plaintiff had good cause to believe that he needed to bring suit to establish his right to receive any funds under the trust, the entire amount of the plaintiff‘s interest in the trust can become the amount in controversy. Since this amount substantially exceeded the jurisdictional amount, the District Court had subject-matter jurisdiction.
Both Haltzman and Dardovitch raise numerous issues relating to the District Court‘s decision on the merits. The central issue is whether an attorney who enters into a contingent-fee agreement that is not specific on the point is entitled to additional fees for collecting the proceeds of the settlement or judgment. The District Court concluded that Haltzman‘s fee under the original contingent fee agreement included both his actions in securing a settlement and any steps necessary to collect the proceeds of the settlement, and that he was therefore not entitled to additional fees for the colleсtion actions. The
Haltzman challenges this reading of the Trust and contingent fee agreement, arguing that they were limited to his prosecution of the action to judgment and did not include his collection efforts. In analyzing the fee agreement, the District Court looked at a variety of factors, including the fact that Haltzman himself drafted the agreement; the terms of the agreement; and the general understanding of contingent-fee agreements. It also considered, but rejected as self-serving, Backos‘s testimony concerning her intent in entering into the agreement. We conclude that the District Court‘s findings of fact and conclusions of law as to the meaning of the retainer agreement and the Trust must be upheld.
Haltzman also challenges the District Court‘s award of attorney‘s fees to Dardovitch. The court ordered Haltzman to pay part of Dardovitch‘s attorney‘s fees based on general equitable principles applicable in trust cases. Without holding a hearing, the court ordered Haltzman to pay most of Dardovitch‘s accrued fees from the beginning of the suit until the court granted Dardovitch partial summary judgment and ordered an accounting. This award was based on the conclusion that most of this work was necessitated by Haltzman‘s continued refusal to admit that Dardovitch was a beneficiary of the Trust. The court also ordered Haltzman to pay one-quarter of the fees Dardovitch had paid for his attorneys’ work subsequent to the accounting. This latter award was based on the fact that some of Dardovitch‘s objections to Haltzman and Backos‘s accounting were sustained, although many were not.
We agree with the general propriety of directing Haltzman to pay Dardovitch‘s fees. However, because the District Court held no hearing, did not adequately explain the basis of its fee calculation, and in particular did not sufficiently tie the award to the factors warranting the award, we will vacate the district court‘s order and remаnd with instructions to hold a hearing to recalculate the attorney‘s fee award based on the reasonableness of the claimed fees. On remand, the court should examine the claims carefully to ensure that the claimed fees are sufficiently related to the justifications for the fee award.
In his cross-appeal, Dardovitch challenges the District Court‘s conclusion that Backos should not be jointly liable for Haltzman‘s breach of his fiduciary duty. The District Court relieved Backos of liability because it concluded that she relied on Haltzman to such an extent in legal matters that his breach cannot fairly be attributed to her. Under Pennsylvania law, a trustee is obligated to exercise reasonable care to ensure that her co-trustees do not breach their fiduciary duties. A trustee who breaches this duty may become jointly liable for the breaches of the cotrustee. Furthermore, reliance on the advice of counsel is only one factor to be considered in determining whether a trustee acted reasonably, and even then the reliance itself must be reasonable. The Court‘s decision, which seems to have applied at most a subjective reasonableness standard, appears to be contrary to the objective reasonableness standard of Pennsylvania law. Accordingly, we will vacate the District Court‘s order and remand Dardovitch‘s claim against Backos so that the court can evaluate her liability under the correct standard, i.e., whether she exercised reasonable care to ensure that Haltzman did not breach his fiduciary duty. The orders of the District Court will thus be affirmed in part and vacated in part, and the case remanded for further proceedings consistent with this opinion.
I. Facts and Procedural History
This case originated in the settlement of a civil RICO suit brought by Backos and GESEA. GESEA was organized to purchase and operate a shopping center. Its
In January 1994, when Backos was unable to keep current with her payments to Haltzman for litigation expenses, the representation agreement was again amended to provide a priority for Haltzman in the proceeds of the litigation. See App. at 1778-79. Under the amended agreement, Haltzman was to receive the entire first $150,000 of any sums received as a result of thе litigation; Backos and GESEA were to receive the next $150,000; and Haltzman was to be entitled to 30% of the next $1.7 million and 15% of any recovery over $2 million. Shortly thereafter, the suit settled for $994,000. The settlement agreement provided that Backos and GESEA would be paid via long-term, non-interest-bearing notes in this amount.
Apparently out of concern that GESEA‘s creditors would immediately claim all of the money, Backos and GESEA set up a trust—the GESEA Trust—for the receipt and distribution of the proceeds of the settlement. Haltzman and Backos were named trustees. The proceeds were to be distributed in accordance with the representation agreement, along with certain payments to GESEA‘s creditors. The remaining money due GESEA was to be distributed to the shareholders in proportion to their interests. See App. at 1574-79. Dardovitch‘s share of the $994,000 settlement was $104,000, although it was only due and payable as the Trust received it. Prior to the filing of the complaint in this case, Haltzman informed Dardovitch by letter that only about $30,000 was due to him at that time.
It became clear after the settlement that it would be difficult to collect on the notes. Accordingly, Haltzman took legal measures. See, e.g., Glen Eagle Square Equity Assocs. Trust v. DSL Capital Corp., No. CIV. A. 95-7939, 1996 WL 689113 (E.D.Pa. Nov.26, 1996) (entering judgment in favor of plaintiff on action confessing judgment on one of the aforementioned promissory notes). Ultimately, Haltzman conducted work for which he billed the Trust approximately $63,000 on an hourly basis. As of May 1997, the Trust had received $335,000, of which $172,000 was paid out as legal fees and $44,000 as litigation costs, to Haltzman. Thus, 64.5% of the money thus far received has gone to pay legal fees and costs.
Although Dardovitch was informed of the creation of the Trust and received a copy of the distribution schedule of funds from it, he received little additional information from Haltzman or Backos concerning the status or nature of the Trust. Accordingly, he asked them about the income and expenditures of the Trust in order to determine whether they were managing it properly, and whether any money was due him. Haltzman and Backos, however, gave him no information; indeed, by August 1996, Dardovitch still had not received any information on or money from the Trust. Although Bаckos subsequently provided him with some information, it was incomplete and inaccurate, and Dardovitch again requested information from Haltzman.
Please be advised that Nick Dardovitch is not a beneficiary of the Trust Agreement, as the beneficiaries of the Trust are Glen Eagle Square Equity Associates, Inc. and Catherine Backos. Accordingly, even if the information you requested in your letter was appropriate (which it is not), he is not entitled to an accounting. Further, the Trust document itself does not require that the Trustee provide an accounting to the beneficiaries.
Please also be advised that Mr. Dardovitch has, in the past, acted detrimentally to the best interests of Glen Eagle Square Equity Associates, Inc. I suggest that Mr. Dardovitch consider his prior action and his possible liability as to same before he elects to take actions which will expose himself to potential liability.
Please be further advised that to the extent that your office decides to bring litigation, which would be improper based on the fact that Mr. Dardovitch is not a beneficiary of the Trust, the Trust will seek to hold your firm, as well as Mr. Dardovitch, liable for all of its costs and expenses and will seek damages for malicious prosecution and abuse of process. Your letter is apparently a continuation of Mr. Dardovitch‘s past guerilla tactics in attempting to extort money to which he was not entitled.
App. at 58 (emphasis added).
On January 6, 1997, Dardovitch filed suit against Haltzman, Backos, and the Trust for amounts due him and for an accounting. Haltzman and Backos defended by challenging jurisdiction and denying that Dardovitch was a beneficiary of the Trust. The District Court initially determined that it had subject-matter jurisdiction, see App. at 84-85, and that Haltzman was not entitled to a jury trial, see App. at 820. It then granted partial summary judgment in favor of Dardovitch, concluding that he was clearly a beneficiary, and ordered an accounting. See Dist. Ct. Order, App. at 812-19.
Dardovitch then challenged certain aspects of the accounting, and the Court held a hearing. Seе Dardovitch v. Haltzman, Civ. A. No. 97-52, 1998 WL 13271 (E.D.Pa. Jan.13, 1998). The Court concluded that Dardovitch could not challenge pre-Trust transactions, see 1998 WL 13271, at *2-*3, and that Backos had not breached her fiduciary duty, see 1998 WL 13271, at *8 n. 28. It also found that Haltzman had breached his fiduciary duty by claiming attorney‘s fees for the collection costs and ordered him to refund the fees to the Trust. See 1998 WL 13271, at *4-*7. Because of certain setoffs, however, the Court ultimately found that Haltzman had to pay about $14,000 back to the Trust. See Appellant‘s Brf.App. 2, at 6-7. The District Court also ordered Haltzman to pay most of Dardovitch‘s attorney‘s fees from before the accounting, as well as one-quarter of his post-Accounting fees, for a total of approximately $64,000.
Haltzman appeals from the District Court‘s orders making a variety of challenges, some of which we dispose of summarily in the margin. In particular, he challenges the District Court‘s decisions finding subject-matter jurisdiction, denying his request for a jury trial;1 imposi-
II. Subject-Matter Jurisdiction
Dardovitch brought his claim under the District Court‘s diversity jurisdiction. See
Notes
Dardovitch challenges different aspects of the District Court‘s calculation of the surcharge. He argues that the District Court erred in allowing Haltzman to receive attorney‘s fees from the Trust for litigation against the Hanaway group of creditors. In particular, he contends that Haltzman should not be permitted to recover these fees from the Trust because his actions in defense of the Hanaway‘s claims were in breach of his fiduciary duty to the Trust. The District Court rejected Dardovitch‘s objection to this payment, concluding that Haltzman‘s work was, in this case, not covered by the contingent fee agreement and resulted in a benefit to the Trust. See App. at 1398-99; Appellant‘s Brf.App. 2, аt 5-6. We see no clear error in the District Court‘s conclusion, and will affirm its order on this point.
Finkelstein, 496 U.S. at 625, 110 S.Ct. 2658 (emphasis in original). “The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum of $50,000, exclusive of interest and costs, and is between citizens of different States.”[T]he district court shall have the power to enter “a judgment affirming, modifying, or reversing the decision of the Secretary, with or without remanding the cause for rehearing.”
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“[t]he judgment of the court shall be final except that it shall be subject to review in the same manner as a judgment in other civil actions.”