Snell v. Cleveland, Inc.

• Decision Date: 04 December 2002
• Docket Number: No. 01-35957.,01-35957.
• Citation: 316 F.3d 822
• Parties: Donald L. SNELL, Plaintiff-Appellant, v. CLEVELAND, INC., Defendant-Appellee, and Patricia Faber; John Does; Jane Does, Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 822

316 F.3d 822

Donald L. SNELL, Plaintiff-Appellant, v. CLEVELAND, INC., Defendant-Appellee, and Patricia Faber; John Does;

Jane Does, Defendants.

No. 01-35957.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 7, 2002.

Filed December 4, 2002.

Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins, Great Falls, MT, for the appellant.

No appearance for the appellee.

Appeal from the United States District Court for the District of Montana; Sam E. Haddon, District Judge, Presiding. D.C. No. CV-00-00009-SEH.

Before TROTT, T.G. NELSON and THOMAS, Circuit Judges.

OPINION

PER CURIAM:

This case presents the question of whether a district court may, sua sponte, vacate a final judgment in a prior case not pending before the court because diversity jurisdiction, though it existed, was inadequately pled. We conclude that it cannot, and reverse.

I

Donald Snell filed this diversity tort action, captioned CV-00-00009 (hereinafter referred to as "the closed tort action"), in the United States District Court for the District of Montana. He named four parties as defendants: Cleveland, Inc.; Nicholas Faber, in his capacity as the sole shareholder of Cleveland, Inc.; and Nicholas and Patricia Faber, as the record landowners of the bar and adjoining property on which the accident underlying the case occurred. According to the allegations in the complaint, Snell — then nineteen years old — spent the evening drinking and harassing other customers at defendant Cleveland, Inc.'s tavern in Blaine County, Montana. Snell's debauch came to an abrupt end when he left the bar and fell off a forty-foot drop near the bar's parking lot, suffering significant physical injuries. Snell sought damages in tort from the defendants.

The complaint inadequately alleged the facts necessary to establish diversity jurisdiction. Mantin v. Broad. Music, Inc., 244 F.2d 204, 206 (9th Cir.1957) (noting that an allegation of residency cannot be regarded as an allegation of citizenship for the purpose of diversity jurisdiction). It alleged that Donald Snell resided in North Dakota, not that he was a citizen of that state (which he was). It also alleged that Cleveland, Inc. was a Montana corporation, but not that it was incorporated in Montana and that its principal place of business is Montana (which it was and is currently). It did not contain any allegations as to the citizenship of the Fabers, both of whom are citizens of Montana. In short, the parties were diverse, but the complaint improperly pled the necessary facts to establish their diversity. Neither the parties, nor the judge assigned to the case, noticed the pleading defect.

The case was originally assigned to United States District Judge Paul G. Hatfield, but the parties consented to proceed before a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). The parties reached a settlement of the claims. Based on the settlement, the magistrate judge dismissed the claims against the Fabers with prejudice, and a confession of judgment was entered against Cleveland, Inc., in the amount of $750,000. In return for a covenant not to execute the judgment, Cleveland, Inc. assigned its claims against its insurer, Acceptance Insurance Co., to Snell. Acceptance Insurance Co. had refused to tender a defense of Cleveland Inc. in the suit. The file was then closed.

A year later, based on the assignment of claims, Snell filed a separate suit against Acceptance Insurance Co., captioned DV-00-00148 (hereinafter referred to as "the new insurance lawsuit"). Although filed in the same division of the District of Montana, it was assigned to a different district court judge than the judge who sat on the closed tort action. At a hearing on cross-motions for summary judgment, the judge in the new insurance lawsuit, informed the parties — apparently out of the blue — that he had discovered jurisdictional pleading defects in the closed tort action. The court correctly pointed out that the complaint in the closed tort action had alleged the residency, but not the citizenship, of the individual parties and was therefore inadequate to establish diversity jurisdiction. What the court did next is the subject of this appeal.

Brushing aside the fact that none of the parties or the judge assigned to the closed tort action had raised the jurisdictional pleading defect, that all the parties to the closed tort action were not present, that no question existed that the parties actually were diverse, that another judge had presided over the case, and that a final judgment had been entered, the district court sua sponte vacated the judgment in the closed tort action and dismissed not just the complaint but the entire action.¹ Montana's three-year statute of limitations for tort actions had already run on the claims alleged in the closed tort action. Mont. Code Ann. § 27-2-204. Thus, although the dismissal was without prejudice on its face, it precluded all further action in the closed tort action.² Snell timely appealed the district court's vacation of the previous judgment and its dismissal of the closed tort action.³

We review de novo a district court's assumption of jurisdiction. Cf. Carriger v. Lewis, 971 F.2d 329, 332(9th Cir.1992) (en banc) (assumption of jurisdiction under Fed.R.Civ.P. 60(b)). We also review de novo an order dismissing an action for lack of subject matter jurisdiction. McGraw v. United States, 281 F.3d 997, 1001 (9th Cir.2002), amended by 298 F.3d 754 (9th Cir.2002). We review the district court's sua sponte dismissal of an action for an abuse of discretion. Denton v. Hernandez, 504 U.S. 25, 33, 112 S.Ct. 1728, 118 L.Ed.2d 340 (1992).

II

Neither the Federal Rules of Civil Procedure nor case law provides any basis for the district court's action in this case. Under the Federal Rules, a court may amend or vacate a prior judgment "[o]n motion and upon such terms as are just." Fed.R.Civ.P. 60(b) (emphasis added). The rule states, in relevant part:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or other wise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding, or to grant relief to a defendant not actually personally notified as provided in Title 28, U.S.C., § 1655, or to set aside a judgment for fraud upon the court.

Fed.R.Civ.P. 60(b).

Under the rule, a court may entertain an independent action by a party to set aside or modify a prior judgment. Id.; Houck ex rel. United States v. Folding Carton Admin. Comm., 881 F.2d 494, 505 (7th Cir.1989) (discussing the standing requirements of an independent action to set aside a judgment). Both provisions necessitate action by a party in order to trigger district court action. No such action occurred in this case.

The only provisions of Fed.R.Civ.P. 60 that allow for sua sponte action by a court involve extremely minor and extremely dire circumstances. Subsection (a) allows a district court to correct "[c]lerical mistakes in judgments, orders or other parts of the record ... at any time of its own initiative." Fed.R.Civ.P. 60(a). Subsection (b) states that the Rule does not limit a court's ability "to set aside a judgment for fraud upon the court." Fed.R.Civ.P. 60(b). Neither subsection applies in this case. The judgment contained no clerical error and the plaintiff's failure to plead the facts necessary to establish diversity jurisdiction was certainly not a fraud upon the court.

Federal Rule of Civil Procedure 12(h)(3)⁴ provides that a court may raise the question of subject matter jurisdiction, sua sponte, at any time during the pendency of the action, even on appeal. Summers v. Interstate Tractor & Equip. Co., 466 F.2d 42, 49-50 (9th Cir.1972). However, that rule only applies to an action pending before the court. It provides no support for extension of this authority to prior, closed cases, in which a court has entered a final judgment. Rule 12(h)(3) does not provide a jurisdictional grant over cases that are not before the court. Thus, the Federal Rules provide no grounds for the district court's actions in this case; indeed, by identifying precise and limited circumstances in which a court may act upon a judgment sua sponte, they undermine it.

Case law further undermines any basis for the district court's actions. "[T]he social interest in expedition and finality in litigation" weighs strongly against collateral attacks on final judgments. Bell v. Eastman Kodak Co., 214 F.3d 798, 800-01 (7th Cir.2000). Although a judgment may be dismissed on direct review, it may not be attacked for lack of subject matter jurisdiction in a collateral proceeding. Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 377-78, 60 S.Ct. 317, 84 L.Ed. 329 (1940); Stoll v. Gottlieb, 305 U.S. 165, 171-72, 59 S.Ct. 134, 83 L.Ed. 104 (1938). Case law makes it clear that the presumption of jurisdiction over the...