Baella-Silva v. Hulsey
| Decision Date | 30 June 2006 |
| Docket Number | No. 05-1214.,05-1214. |
| Citation | 454 F.3d 5 |
| Parties | Rafael BAELLA-SILVA; Laura Caruncho-Marcano; Conjugal Partnership Baella-Caruncho, Plaintiffs, Appellants, v. Paul H. HULSEY; Jane Doe; Conjugal Partnership Hulsey-Doe; John Doe; Cherie K. Durand; Conjugal Partnership Doe-Durand; Hulsey Litigation Group, Llc; Palmas Del Sol, S.E.; Raul Rodríguez; Silvia Leticia Borbolla-González; Conjugal Partnership Rodríguez-Borbolla; Arturo Baella; Francisco Rullán; Rosita Rullán; Conjugal Partnership Rullán-Rullán, Defendants, Appellees. United States Fidelity & Guaranty Company, Defendant. |
| Court | U.S. Court of Appeals — First Circuit |
José A. Andréu-García, with whom Andréu & Sagardía Law Office, was on brief, for appellants.
Paul H. Hulsey, with whom Cherie K. Durand, William J. Cook, and Hulsey Litigation Group, LLC, were on brief, for appellees.
Before TORRUELLA, Circuit Judge, HANSEN,* Senior Circuit Judge, LYNCH, Circuit Judge.
Rafael Baella-Silva, Laura Caruncho-Marcano, and the Conjugal Partnership Baella-Caruncho (collectively "Baella-Silva") appeal the district court's judgment assessing liquidated damages and an additional monetary sanction against Baella-Silva.
The sanctions order at issue here was entered after the district court determined that Baella-Silva had breached a prior settlement agreement which had been completely incorporated into the district court's earlier dismissal judgment. The settlement resolved a dispute concerning the allocation of attorneys' fees between Rafael Baella-Silva, an attorney, and the Hulsey Litigation Group, LLC, including attorneys Paul H. Hulsey and Cherie K. Durand (collectively "Hulsey").
The fee dispute arose over an award of attorneys' fees resulting from their joint efforts in representing a Puerto Rican company, Palmas del Sol, S.E., in litigation against United States Fidelity and Guaranty Company (USF & G) (hereinafter referred to as "the USF & G litigation"). Baella-Silva began as the lead attorney for Palmas del Sol, but when the USF & G litigation was removed to federal court, he retained the aid of the Hulsey Group. Later, Baella-Silva completely withdrew from the case, but before his withdrawal, he secured an agreement for his accrued fees. In the arrangement, Hulsey agreed to remit to Baella-Silva a certain percentage of any attorneys' fees awarded in the USF & G litigation. The USF & G litigation produced a settlement in favor of Palmas del Sol, triggering the attorneys' contingent fee arrangement with their client.
Baella-Silva filed this breach of contract action in the local court of the Commonwealth of Puerto Rico on September 2, 2004, alleging that Hulsey had refused to pay him the agreed upon percentage of the contingent fee. On September 10, 2004, Hulsey removed the case to federal court, asserting the existence of complete diversity between the real parties in interest for purposes of federal jurisdiction. Hulsey simultaneously asserted that although nondiverse parties appear in the caption, they had been fraudulently joined by Baella-Silva in an attempt to defeat diversity jurisdiction.
Baella-Silva opposed the removal and requested that the case be remanded back to the Commonwealth court due to a lack of complete diversity. USF & G deposited the disputed funds with the clerk of court. The district court held a hearing on the motion to remand on Friday, October 1, 2004, but did not rule on the motion because the parties entered into a settlement agreement concerning the attorneys' fee litigation on the same day. The district court incorporated the settlement into its judgment (hereinafter "the settlement judgment") and filed it under seal.
The settlement judgment resolved the attorneys' fee issue by awarding a specified sum to Baella-Silva and allocating to Hulsey the remainder of the amount deposited with the clerk. In addition to settling the fee dispute, the settlement judgment included a confidentiality clause providing for liquidated damages in the amount of $50,000 in the event either party disclosed the terms of the settlement agreement, and Baella-Silva expressly relinquished all claims against his former client, Palmas del Sol, and its partners relating to the USF & G litigation and agreed to have no contact with anyone working for or on behalf of Hulsey, Palmas del Sol, or its partners. The settlement judgment states that all parties agree to accept the district court's jurisdiction and that the district court "shall retain jurisdiction to enforce the terms of this [a]greement." No party appealed the settlement judgment.
On the following Monday, October 4, 2004, Baella-Silva electronically filed on the federal district court's public docket a motion for disbursement of funds, which disclosed some of the details of the sealed settlement judgment. Baella-Silva also filed two lawsuits in the local Commonwealth court against Palmas del Sol and its individual partners for amounts allegedly owed to him. Hulsey immediately filed a motion to suspend disbursement of all funds and to impose sanctions, asserting that Baella-Silva's actions breached the express terms of the settlement judgment by disclosing its confidential terms as well as by suing and harassing Palmas del Sol and its partners.
Following a hearing, the district court entered a sanctions order on December 22, 2004, concluding that Baella-Silva had breached the confidentiality clause by filing the motion for disbursement electronically, where it was posted live on the clerk's public docket for approximately one hour before he requested the clerk to seal the motion. Accordingly, the court entered judgment against Baella-Silva in the amount of $50,000 for liquidated damages as set forth in the settlement judgment. The district court also found that Baella-Silva had breached the settlement judgment a second time by filing two separate lawsuits against Palmas del Sol and its individual partners, seeking damages totaling $20,320. The district court assessed an additional sanction of $20,320 for this breach. The district court denied Baella-Silva's motion to reconsider, and Baella-Silva timely appealed the district court's sanctions order.
On appeal, Baella-Silva argues that the district court lacked subject-matter jurisdiction to enter the settlement judgment and the sanctions order due to a lack of complete diversity. Alternatively, Baella-Silva argues that the district court erred in assessing liquidated damages and the additional sanctions.
Because the parties settled the underlying dispute, the district court did not explicitly rule on the jurisdictional issues raised in Baella-Silva's motion to remand. By incorporating the settlement completely into a final judgment, however, the district court assumed it had jurisdiction to enter the settlement judgment. In the settlement judgment, the parties acknowledged and agreed to that jurisdiction as well as the court's continuing jurisdiction to enforce the agreement. The parties did not bring a direct appeal challenging the district court's jurisdiction or any other aspect of the settlement judgment within the time period provided for appeal. See Lipman v. Dye, 294 F.3d 17, 20 (1st Cir. 2002) (). Now, as part of his appeal of the sanctions order, Baella-Silva attempts to collaterally attack the jurisdictional basis for the settlement judgment, asserting a lack of complete diversity.
"It has long been settled that a lack of complete diversity between the parties deprives the federal courts of jurisdiction over the lawsuit." Casas Office Machs., Inc. v. Mita Copystar Am., Inc., 42 F.3d 668, 673 (1st Cir.1994) (internal marks omitted). Furthermore, "[a] court without subject-matter jurisdiction may not acquire it by consent of the parties." Fafel v. DiPaola, 399 F.3d 403, 410 (1st Cir.2005). "Weighing against this seemingly `inflexible' jurisdictional requirement, however, is a strong interest in the finality of judgments." Id. (internal citation omitted). A district court's express or implicit determination that it has jurisdiction is open to direct review, but it is res judicata when collaterally attacked. Id.
In an effort to balance the competing policies of observing limits on federal jurisdiction and respecting the finality of judgments, "this court has established a high bar for collaterally vacating a judgment for lack of subject-matter jurisdiction." Id. Namely, the judgment must be void in order to be vacated for lack of subject-matter jurisdiction on collateral review:
A void judgment is to be distinguished from an erroneous one, in that the latter is subject only to direct attack. A void judgment is one which, from its inception, was a complete nullity and without legal effect. . . . While absence of subject matter jurisdiction may make a judgment void, such total want of jurisdiction must be distinguished from an error in the exercise of jurisdiction . . . [which] will not render the judgment void. Only in the rare instance of a clear usurpation of power will a judgment be rendered void.
Id. (internal marks omitted) (quoting Lubben v. Selective Serv. Sys. Local Bd. No. 27, 453 F.2d 645, 649 (1st Cir.1972)). Under this standard, if the record supports an "arguable basis" for concluding that subject-matter jurisdiction existed, a final judgment cannot be collaterally attacked as void. Id. at 411.
The district court implicitly found it had jurisdiction to enter the settlement judgment. We will therefore treat Baella-Silva's collateral attack on the settlement judgment in this appeal as we would treat an appeal from the denial of a motion for relief from a void judgment pursuant to Federal Rule of Civil Procedure 60(b)(4). See id. at 409. Accordingly, we will...
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