Lyndonville Savings Bank v. Lussier

• Decision Date: 01 August 1999
• Docket Number: Docket No. 98-7079
• Citation: 211 F.3d 697
• Parties: (2nd Cir. 2000) LYNDONVILLE SAVINGS BANK & TRUST COMPANY, Plaintiff-Appellee, v. ROGER R. LUSSIER and APPLIED RESEARCH AND DEVELOPMENT, INC., Defendants-Appellants, EVELYN LUSSIER, Defendant. STATE OF VERMONT, COMMISSIONER OF THE DEPARTMENT OF BANKING, INSURANCE, SECURITIES AND HEALTH CARE ADMINISTRATION, Movant
• Court: U.S. Court of Appeals — Second Circuit

Page 697

211 F.3d 697 (2nd Cir. 2000)

LYNDONVILLE SAVINGS BANK & TRUST COMPANY, Plaintiff-Appellee, v. ROGER R. LUSSIER and APPLIED RESEARCH AND DEVELOPMENT, INC., Defendants-Appellants, EVELYN LUSSIER, Defendant.

STATE OF VERMONT, COMMISSIONER OF THE DEPARTMENT OF BANKING, INSURANCE, SECURITIES AND HEALTH CARE ADMINISTRATION, Movant.

Docket No. 98-7079

August Term, 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: November 10, 1999

Decided: May 03, 2000

Defendants Roger R. Lussier and Applied Research and Development, Inc. appeal from a judgment of the United States District Court for the District of Vermont (Murtha, C.J.) awarding plaintiff Lyndonville Savings Bank $8,769,740.00, and from an order denying defendants' motion to set aside the judgment and dismiss for lack of jurisdiction.

Judgment vacated and case dismissed.

[Copyrighted Material Omitted]

DAVID J. WILLIAMS, St. Johnsbury, Vermont (Sleigh & Williams, St. Johnsbury, Vermont, of counsel), for Defendants-Appellants.

RICHARD A. JOHNSTON, Boston, Massachusetts (Hale and Dorr LLP, Boston Massachusetts; John C. Gravel, Bauer, Anderson & Gravel, Burlington, Vermont, of counsel), for Plaintiff-Appellee.

Before: CARDAMONE, SOTOMAYOR, and KATZMANN, Circuit Judges.

CARDAMONE, Circuit Judge:

We construe on this appeal a federal statute that permits a restitution order entered in a criminal sentencing proceeding to be enforced like a judgment in a civil suit. The restitution order in this case directed defendants to repay their victim a large sum of money. The victim brought a federal civil suit to have the criminal order amended to direct payment in full "forthwith," rather than in installments as provided in the restitution order. The statute in question grants a victim the right to enforce a restitution order "in the same manner as a judgment in a civil action." But this statutory right to enforcement is part of the criminal sentencing process and may not be read to create a separate and independent civil cause of action to obtain modification of a restitution order. Enforcement of the criminal order and the institution of a civil suit may both be part of our legal landscape, but the two are not interchangeable like two peas in a pod; they are very different legal processes resembling each other no more than an apple does an oyster.

Defendants Roger Lussier and Applied Research and Development, Inc., Lussier's wholly-owned corporation, appeal from a judgment of the United States District Court for the District of Vermont (Murtha, C.J.) entered September 19, 1997, awarding plaintiff Lyndonville Savings Bank and Trust Co. (Lyndonville or bank) $8,769,740.00. (The district court dismissed Evelyn Lussier as a defendant on February 15, 1996). The award was based on defendant Lussier's misdeeds as Lyndonville's president and chairman of its board of directors between 1988 and 1993. In essence, Lussier and his cronies dominated the board, which also served as the bank's loan committee. Lussier used his co defendant Applied Research and Development as a shell corporation to facilitate his breach of his fiduciary duty. He used his control over the bank to finance a variety of his friends' and business associates' imprudent, and ultimately disastrous, investments.

As a result of these activities, Lussier was indicted, tried and on December 22, 1993 convicted in the United States District Court for the District of Vermont (Billings, J.) on 17 counts of bank fraud, false bank entries, receipt and payment of illegal commissions, money laundering, and making false statements to federal bank examiners. On June 21, 1994 he was sentenced to 46 months in prison and a $100,000 fine, and directed to make restitution to Lyndonville of $426,204.67. The restitution was to be paid in installments amounting to at least 10 percent of Lussier's gross monthly income. We affirmed the judgment of conviction and sentence on August 18, 1995. See United States v. Lussier, 71 F.3d 456 (2d Cir. 1995).

Lussier then filed a motion to rescind the restitution order under 18 U.S.C. §§3583(e)(2) and 3663(g), on the ground that the order was founded on conduct not forming the basis for any of the 17 counts for which he was convicted. The district court ruled it lacked authority to entertain the motion. We affirmed. See United States v. Lussier, 104 F.3d 32 (2d Cir. 1997). Undaunted, on January 23, 1997 Lussier again challenged the restitution order, this time by filing a motion under 28 U.S.C. §2255 on the same ground and also claiming his trial counsel was ineffective.

Meanwhile, on September 26, 1995 - a month after we affirmed Lussier's judgment of conviction - Lyndonville had filed the instant civil suit against defendants in the United States District Court for the District of Vermont before Chief Judge J. Garvan Murtha, seeking: payment of the entire restitution amount "forthwith"; execution on the restitution order; damages under 12 U.S.C. §503 based on Lussier's status as a director and officer of a bank allegedly in the Federal Reserve Bank system; and recovery under four state law theories, including breach of fiduciary duty and fraudulent conveyance. On July 25, 1997 the bank informed the court that it was abandoning that portion of the complaint that sought damages under 12 U.S.C. §503, doubtless due to the fact that Lyndonville had never been a member of the Federal Reserve system. Hence, the only federal question remaining in Lyndonville's civil suit was its restitution claim.

On September 15, 1997, in response to Lussier's §2255 motion in the criminal action, Magistrate Judge Niedermeier filed a report recommending elimination of the restitution award. The district court referred the matter back to the magistrate judge for resolution of the conflict of interest claim that was the basis of Lussier's contention that defense counsel was ineffective.

The district court held a six-day bench trial in the present civil action by the bank against the defendants. That trial ended on November 3, 1997. On December 19, 1997 the trial court entered judgment awarding Lyndonville $8,769,740.00 on its state law claims against Lussier, and reserved decision on the restitution claim. On March 11, 1998 it returned to the §2255 petition and adopted the magistrate judge's recommendation to eliminate the restitution order. On July 2, 1998 Lussier filed a motion under Federal Rules of Civil Procedure 12(h)(3) and 60(b) to set aside the civil judgment in the instant litigation and dismiss the bank's complaint for lack of subject matter jurisdiction.

The district court denied the motion, stating that because it had federal question jurisdiction over the bank's restitution claim, it had supplemental jurisdiction under 28 U.S.C. §1367(a) over the case as a whole. From the December 1997 judgment awarding the bank over $8 million and from the denial of the motion to dismiss the bank's suit for lack of subject matter jurisdiction, defendants appeal. Although we find that the district court had subject matter jurisdiction over the federal claim in this case, we conclude that the federal claim cannot sustain an award and that the district court had no power to exercise supplemental jurisdiction over the state law claims. Hence, we vacate the judgment.

DISCUSSION

I Existence of a Federal Question

This case presents us with a question of subject matter jurisdiction raised for the first time after trial. It is axiomatic that federal courts are courts of limited jurisdiction and may not decide cases over which they lack subject matter jurisdiction. Unlike failure of personal jurisdiction, failure of subject matter jurisdiction is not waivable and may be raised at any time by a party or by the court sua sponte. If subject matter jurisdiction is lacking, the action must be dismissed. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986); United Food & Commercial Workers Union, Local 919 v. Centermark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994). The standard of review for determinations regarding subject matter jurisdiction is clear error for factual findings, and de novo for the legal conclusion as to whether subject matter jurisdiction exists. See Filetech, S.A. v. France Telecom, S.A., 157 F.3d 922, 930 (2d Cir. 1998).

Lussier contends that the order directing him to make restitution to the bank allowed the bank to invoke only the district court's enforcement jurisdiction, and that such jurisdiction did not give the court supplemental jurisdiction over Lyndonville's state law causes of action. The bank responds that the Victim and Witness Protection Act (Act), specifically 18 U.S.C. §3663(h)(2), creates a federal civil cause of action to obtain a judgment in the full amount of restitution ordered at sentencing, and that the jurisdiction conferred by §3663(h)(2) supports supplemental jurisdiction over its state law claims. This provision has since been superseded by 18 U.S.C. §3664(m)(ii)(B) (Supp. 2000). It is undisputed that subject matter jurisdiction is not conferred by diversity because Lussier and Lyndonville are both citizens of Vermont. No other basis for subject matter jurisdiction is urged.

Federal question jurisdiction exists whenever the complaint states a cause of action under federal law that is neither "clearly ... immaterial and made solely for the purpose of obtaining jurisdiction" nor "wholly insubstantial and frivolous." Bell v. Hood, 327 U.S. 678, 682-83 (1946); accord Spencer v. Casavilla, 903 F.2d 171, 173 (2d Cir. 1990). It is well settled that plaintiff's failure to state a federal claim upon which relief could be granted does not mean that federal question jurisdiction is lacking. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89 (1998). After the question of subject matter jurisdiction has been resolved, a court proceeds to the merits question, that is, whether the plaintiff has stated a federal cause...