SOUTHERN-OWNERS INS. CO. v. TOMAC OF FLORIDA, INC.

• Decision Date: 04 February 2010
• Docket Number: Civil Action No. 09-cv-1697.
• Citation: 687 F. Supp.2d 665
• Parties: SOUTHERN-OWNERS INSURANCE COMPANY, Plaintiff, v. TOMAC OF FLORIDA, INC., Defendant.
• Court: U.S. District Court — Southern District of Texas

687 F.Supp.2d 665

SOUTHERN-OWNERS INSURANCE COMPANY, Plaintiff, v. TOMAC OF FLORIDA, INC., Defendant.

Civil Action No. 09-cv-1697.

United States District Court, S.D. Texas, Houston Division.

February 4, 2010.

Adam Charles Gallegos, Robert D. Ramage, Dykema Gossett PLLC, Dallas, TX, for Plaintiff.

William Robert Anderson, III, Anderson Lehrman et. al., Corpus Christi, TX, for Defendant.

MEMORANDUM AND ORDER

KEITH P. ELLISON, District Judge.

Pending before the Court is Defendant Tomac of Florida, Inc.'s ("Defendant") Motion for Attorneys' Fees (Doc. No. 18). For the following reasons, the Court finds that Defendant's Motion should be denied.

I. BACKGROUND

Plaintiff Southern-Owners Insurance Company ("Plaintiff") is the general liability insurance provider for Defendant, a Florida-based corporation. On February 19, 2009, Daniel Mendez, along with eight other plaintiffs, filed a collective action against Defendant in the United States District Court for the Southern District of Texas, seeking damages under the Fair Labor Standards Act. In this suit (the "Mendez Suit"), Mendez and the other plaintiffs allege that Defendant and five other parties failed to properly compensate them and other employees for overtime work. (Pl. Compl., Doc. No. 1, ¶ 8.) Subsequently, Defendant submitted a claim to Plaintiff under its insurance policy, seeking defense and indemnification with respect to the Mendez Suit. (Id. ¶ 9.) Plaintiff then tendered an initial defense to Defendant, but alleges that it validly reserved the right under the insurance policy to revoke that defense. (Id. ¶ 10.)

Plaintiff then brought this action seeking a declaration that it has no obligation to defend and indemnify Defendant with respect to the claims in the Mendez Suit. It also sought an award of attorneys' fees and costs incurred in bringing this action, and reimbursement of payments made in tendering Defendant's defense in the Mendez Suit. Defendant then moved to dismiss this action, alleging that this Court lacked subject matter jurisdiction over Plaintiff's action. (Doc. No. 7.) Defendant also moved to dismiss Plaintiff's request for attorneys' fees on the grounds that it failed to state a claim upon which relief could be granted. (Id.) The Court granted Defendant's motion to dismiss, holding that it lacked subject matter jurisdiction to hear the case because it did not meet the amount in controversy requirement for diversity jurisdiction. (Doc. No. 17.) The Court did not reach the question of attorneys' fees in its order. Defendant now moves to recover its attorneys' fees and costs incurred in defending this suit under Texas and Florida law.

II. DISMISSAL FOR LACK OF SUJECT MATTER JURISDICTION AND ATTORNEYS' FEE AWARDS

As a preliminary matter, and although the parties did not raise this issue in their briefs, this Court must determine whether it has the authority to award fees under state statutory provisions when it lacks diversity jurisdiction over this case. It is well settled that a district court may not adjudicate the merits of a claim once it has determined that it lacks subject matter jurisdiction. See, e.g., Stanley v. CIA, 639 F.2d 1146, 1157 (5th Cir.1981). In some instances, however, an award of fees has been found to be collateral to the merits of a case, and therefore within a court's jurisdiction even if the court cannot consider the underlying merits of the claim. See, e.g., Willy v. Coastal Corp., 503 U.S. 131, 139, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992) (holding that a district court acts within the scope valid federal procedures in imposing Federal Rule of Civil Procedure 11 sanctions after it has been determined that it lacks subject matter jurisdiction over a case); Ratliff v. Stewart, 508 F.3d 225, 231 (5th Cir.2007) (holding that a request for attorneys' fees under 28 U.S.C. Section 1927, like that under Rule 11, falls under the court's collateral jurisdiction); Moore v. Permanente Medical Group, Inc., 981 F.2d 443, 445 (9th Cir.1992) (holding that the award of fees pursuant to 28 U.S.C. Section 1447(c) is collateral to the decision to remand a case back to state court for want of jurisdiction). These cases, however, address a federal court's authority to award attorneys' fees pursuant to the power and authority explicitly granted to it under federal laws. A district court's authority to award fees pursuant to Rule 11 or Sections 1919 and 1447(c) of the United States Code, even where it has no jurisdiction over the underlying claim, is far clearer than in this case, where Defendant seeks to enforce state statutory fee provisions against Plaintiff in federal court.¹ Because the court has concluded that it lacks diversity jurisdiction over Plaintiff's action, its authority to enforce state statutes affecting substantive rights in connection with the dismissed action is subject to question.

It is abundantly clear that, when a court is validly exercising diversity jurisdiction, it can and should award attorneys' fees pursuant to state substantive law. However, few courts have directly addressed the precise question of whether a court may do the same in cases where it lacks lawful diversity jurisdiction. One district court in the Ninth Circuit reasoned that "where attorney's fees are not sought as a sanction pursuant to Rule 11, the general rule is that a district court lacks jurisdiction to award attorney's fees where it lacks subject matter jurisdiction over the underlying action." Archer v. Silver State Helicopters, LLC, 2007 WL 4258237, at *1 (S.D.Cal. Dec. 3, 2007) (citing cases); see also Skaff v. Meridien North America Beverly Hills, LLC, 506 F.3d 832, 837 (9th Cir.2007) (stating that "a court that lacks jurisdiction at the outset of a case lacks the authority to award attorneys' fees"); Ass'n for Retarded Citizens v. Thorne, 68 F.3d 547, 552 (2d Cir.1995) (holding that defendant cannot obtain awards of fees under 42 U.S.C. Section 1988 if the district court lacks subject matter jurisdiction). The exception to this general rule is when the fee statute itself contains an independent grant of jurisdiction. Id. In Archer, the court faced the precise issue now before this Court, and concluded that the court lacked the authority to award fees pursuant to state statutes when the underlying action was dismissed for want of diversity jurisdiction. Id. at *4. Similarly, the Fifth Circuit has held that a district court that dismisses an ERISA action for lack of subject matter jurisdiction also lacks jurisdiction to entertain a request for fees under the same provision. Cliburn v. Police Jury Ass'n of Louisiana, Inc., 165 F.3d 315, 316 (5th Cir.1999).

The logical extension of this reasoning is that, if this Court lacks jurisdiction to hear claims brought under Florida or Texas law, it also lacks jurisdiction to entertain a request for fees pursuant to those laws as well. Outside of the exercise of valid diversity jurisdiction, state laws have no bearing upon the authority of federal courts, and therefore cannot bestow fee-shifting power. See 28 U.S.C. § 1652. Indeed, it is presumably partly due to this fact that 28 U.S.C. Section 1447(c) has been so readily relied upon to allow federal courts to award fees even in cases where they lack subject matter jurisdiction and must remand a case back to state court.² Accordingly, this Court must conclude that, because it is without jurisdictional authority to enforce state laws against the parties in this case, it cannot award fees pursuant to state statutory provisions.

Nonetheless, a few courts have found that a district court sitting in diversity can award attorneys' fees to a "prevailing party" under applicable state law, despite a dismissal for lack of subject matter jurisdiction. Kona Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877, 887-88 (9th Cir.2000); cf. Anderson v. Melwani, 179 F.3d 763, 765-66 (9th Cir.1999) (awarding contractual attorneys' fees despite dismissal of plaintiff's action for lack of subject matter jurisdiction). First, those cases can be readily distinguished from this one because they were dismissed on entirely different grounds. Moreover, the weight and precedential value of Kona has been called into question by subsequent courts. See Archer, 2007 WL 4258237, at *3. Finally, the rule as articulated in Kona allows one party to collect fees under state law for "permanently defeating a lawsuit," even when the judgment is on procedural grounds. Kona, 229 F.3d at 888. As framed by the Kona court, then, this rule is more germane to a determination of whether a party is, as a matter of law, a "prevailing party", rather than to the determination of whether a court has the authority to award these fees at all. Indeed, Kona is not the first court to collapse jurisdictional analysis with "prevailing party" analysis to arrive at the conclusion that it has the authority to award fees. See Citizens for a Better Environment v. Steel Co., 230 F.3d 923 (7th Cir.2000), cert. denied, 532 U.S. 994, 121 S.Ct. 1653, 149 L.Ed.2d 636 (2001) (holding that a district court's lack of jurisdiction over the merits of an environmental organization's action under the Emergency Planning and Community Right-To-Know Act, due to lack of a redressable injury, did not preclude jurisdiction over the defendant's subsequent request for attorneys' fees, since a dismissal for want of jurisdiction foreclosed plaintiffs claim and rendered Defendant a "prevailing party"). In this Court's view, "prevailing party" analysis is separate from the jurisdictional inquiry, and becomes relevant only if a court first determines that it has the authority and jurisdiction to award fees.³ Regardless, Defendant in this case has not in fact permanently defeated any of the claims against it, as Plaintiff is currently pursuing its action in state court and could obtain a favorable judgment against Defendant there. (Pl. Resp., Doc. No. 19, at 5.) As such, even under the rule as constructed by the Kona ...