The Mitchell Law Firm, L.P., Plaintiff—Appellant, versus Bessie Jeanne Worthy Revocable Trust; Estate of Bessie Jeanne Worthy, Defendants—Appellees.
No. 20-10492
United States Court of Appeals for the Fifth Circuit
August 10, 2021
Appeal from the United States District Court for the Northern District of Texas USDC No. 3:16-cv-02582
Before HIGGINBOTHAM, COSTA, and OLDHAM, Circuit Judges.
The Mitchell Law Firm sued to recover its fees for a breach-of-fiduciary-duty suit. The parties reached an agreed judgment. The district court later discovered that it lacked subject-matter jurisdiction and vacated its judgment pursuant to
I.
Bessie Jeanne Worthy lived (and eventually died) in Texas. As her health failed, Ms. Worthy sought caretaking assistance from her nephew, Larry Hodge. Larry agreed to help. In exchange, Worthy gave Larry her power of attorney, and she
Two of Larry‘s adult children are also beneficiaries of the Estate—Rodney Hodge and Cheri Tye. After Worthy died, both began reviewing Larry‘s use of Worthy‘s assets. Rodney and Cheri discovered Larry had misused funds and failed to adequately report his spending, so they asked a Texas probate court to remove their father as executor of the Estate. The court refused. Rodney and Cheri then filed suit against Larry, alleging that he breached his fiduciary duty. The Mitchell Law Firm (“Mitchell” or the “Firm“) agreed to represent Larry in that litigation in his capacities as an individual, as administrator of the Estate, and as trustee of the Trust. On July 28, 2016, a jury returned a verdict against Larry.
Soon thereafter, Mitchell (acting on behalf of Larry) filed a motion in Texas probate court for authorization to withdraw funds from the Estate and transfer them to the Trust. Specifically, it sought an order “authorizing the withdrawal of all funds in the Estate Account[] . . . [to] be delivered directly to [Larry‘s] undersigned attorney—The Mitchell Law Firm L.P.” The probate court denied that motion and denied reconsideration.
Mitchell then filed the instant federal suit against the Trust, invoking the court‘s diversity jurisdiction. The Firm alleged breach of contract and sought monetary damages of $76,155.50. Mitchell later amended its complaint to add the Estate as a defendant. That destroyed diversity jurisdiction because the Estate (like Mitchell) is a citizen of Texas. See
From there the facts get even more unsettling. Gregory Mitchell (the principal of the Mitchell Law Firm) referred Larry to a new lawyer to handle the fee litigation. That much certainly made sense, given that Mitchell and Larry were adversaries. But who did Mitchell choose as Larry‘s new lawyer? Mitchell‘s officemate, Joyce Lindauer. Larry apparently informed Lindauer that he did not contest Mitchell‘s fees, and that she was to execute an agreed judgment to pay them. The two officemates—Mitchell and Lindauer—unsurprisingly reached an agreed judgment in which the Trust would pay Mitchell‘s requested damages. Lindauer testified that she did this without ever knowing about the litigation to remove Hodge or of the County Court‘s prior denials of Mitchell‘s request to pay the attorney‘s fees from the Estate account. The district court was also in the dark, so it accepted the agreement, and the Trust paid the judgment.
While the federal suit was pending, Rodney and Cheri again applied to remove Larry as trustee and administrator. This time a Texas state court agreed. It found “Larry . . . ha[d] failed to comply with his duties and obligations as required by the Texas Estates Code.” It further concluded he “failed to preserve and protect the assets of the [Estate].” Accordingly, the court removed Larry and it appointed Rodney as his successor.
II.
Mitchell says the district court erred for three reasons. First, Mitchell argues the court‘s subject-matter jurisdiction was res judicata and therefore immune from attack under
A.
First, res judicata. Under the Federal Rules, a party may seek relief from a judgment when “the judgment is void.”
This case involves a paradigmatic void judgment. The district court obviously lacked subject-matter jurisdiction under
The district court‘s lack of subject-matter jurisdiction obviously robbed its judgment of preclusive effect. See, e.g., RESTATEMENT (SECOND) OF JUDGMENTS §§ 11–12 (Am. Law Inst. 1982). Moreover, res judicata is a doctrine that bars a second action based on a valid final judgment in the first action. Id. § 13(a); Chicot County v. Baxter State Bank, 308 U.S. 371, 377 (1940); 18 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 4405, at 82 (2002) (“[B]oth issue preclusion and claim preclusion are enforced by awaiting a second action in which they are pleaded and proved by the party asserting them.“). So
Mitchell says we should embrace that head-scratching result based on Picco v. Global Marine Drilling Co., 900 F.2d 846 (5th Cir. 1990). He is wrong. Picco was an oil rig worker who filed suit in federal court to recover for injuries suffered on the job. Id. at 847. One of the defendants then filed for Chapter 11 bankruptcy, triggering an automatic stay. Id. at 848; see also
Soon thereafter, the Supreme Court held that a forum non conveniens dismissal did not necessarily carry res judicata effect. Chick Kam Choo v. Exxon, 484 U.S. 140 (1988). Prompted by Chick Kam Choo, Picco sought to refile his action in Texas state court. Picco, 900 F.2d at 848. Unfortunately for Picco the state statute of limitations had run. So Picco filed a Rule 60(b) motion asking the federal district court to set aside its original judgment and re-dismiss the case so he could file in state court. Ibid. The district court granted the motion, re-dismissed the case, and expressly noted it did not determine whether Texas state courts were an appropriate forum under Texas law. Id. at 849.
On appeal, Picco argued Rule 60(b)(4) relief was warranted because the bankruptcy stay divested the district court of jurisdiction to act on the suit—including to render a judgment of dismissal. Id. at 849–50. A panel of this court rejected that argument:
A court‘s determination of its own jurisdiction is subject to the principles of res judicata; it generally may not be challenged in a collateral proceeding. This bar applies whenever the party challenging the judgment has the opportunity to raise the jurisdictional issue but fails to do so.
Id. at 850 (citations omitted). The court then held that “Picco [was] barred from challenging the district court‘s jurisdiction in a Rule 60(b)(4) proceeding.” Ibid.
Mitchell urges us to take the above-block-quoted language from Picco, strip it out of context, and read it in isolation. That‘s never a good way to read or interpret anything. For example, it‘s not always true that “[a] court‘s determination of its own jurisdiction is subject to the principles of res judicata,” ibid.; the whole point of Rule 60(b)(4) is to undo a district court‘s erroneous assertion of subject-matter jurisdiction. It‘s equally obvious that preclusion rules applicable in a second “collateral proceeding,” ibid., do not always apply in the first proceeding itself; the whole point of new-trial motions, Rule 60(b) motions, and appeals is to undo the first judgment in ways that collateral attacks cannot. Reading Picco as Mitchell does would turn the decision into nonsense.
We instead read Picco fairly and holistically. And on that reading, Picco accords with our decision today. That‘s for three reasons.
First, Picco expressly declined to resolve the issue before us. The panel left open the question of whether Rule 60(b)(4) relief would be appropriate where the district court rendered judgment despite a “total want of jurisdiction.” See id. n.6 (citing Nemaizer v. Baker, 793 F.2d 58, 65 (2d Cir. 1986)); cf. RESTATEMENT (SECOND) OF JUDGMENTS § 12 (explaining that issue preclusion applies to a court‘s assertion of subject-matter jurisdiction except where “[t]he subject matter of the action was so
Second, Picco‘s only relevant holding is that the Bankruptcy Code‘s automatic-stay provision,
Third, there is an enormous difference between (A) dismissing in the face of a bankruptcy stay as in Picco, and (B) purporting to enter final judgment in the absence of subject-matter jurisdiction as in this case. It might be reasonable to say that parties’ litigation conduct matters for the former, but the Supreme Court is emphatic that it does not matter for the latter:
Subject-matter jurisdiction . . . is an Article III as well as statutory requirement; it functions as a restriction on federal power, and contributes to the characterization of the federal sovereign. Certain legal consequences directly follow from this. For example, no action of the parties can confer subject-matter jurisdiction upon a federal court. Thus, the consent of the parties is irrelevant, principles of estoppel do not apply, and a party does not waive the requirement by failing to challenge jurisdiction early in the proceedings.
Ins. Corp. of Ir. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982) (citations omitted). Where, as here, the district court lacked subject-matter jurisdiction, “the only function remaining to the court is that of announcing the fact and dismissing the cause.” Ex parte McCardle, 74 U.S. 506, 514 (1868). That is equally true when a party notices the jurisdictional defect before judgment, when a party notices it after judgment in
B.
Second, “standing.” Mitchell says Rodney is not a real party in interest in this suit and hence may not move for relief under
C.
Third and finally, Mitchell argues that the district court lacked jurisdiction to order the return of funds paid pursuant to the void judgment. It would be quite something if a party could invoke federal jurisdiction under false pretenses and then invoke the limitations of federal jurisdiction to keep tens of thousands of dollars in ill-gotten gains. But that has never been the law. It is axiomatic that “power is inherent in every court . . . to undo what it had no authority to do originally.” Nw. Fuel Co. v. Brock, 139 U.S. 216, 219 (1891). To that end, a court may “direct restitution, so far as practicable, of all property and rights which have been lost by [an] erroneous judgment.” Id. at 221. Here, the district court did precisely that—it directed Mitchell to return fees paid pursuant to its void judgment.
AFFIRMED.