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American Realty Capital Properties Incorporated v. Holland

United States District Court, D. Arizona

October 8, 2014

American Realty Capital Properties Incorporated, Plaintiff,
v.
Jeffrey C. Holland, et al., Defendants.

ORDER

DAVID G. CAMPBELL, District Judge.

Plaintiff American Realty Capital Properties, Inc. ("ARCP") has filed a motion for relief from judgment under Federal Rule of Civil Procedure 60(b)(4). Doc. 43. Specifically, Plaintiff seeks relief from the Court's award of attorneys' fees to Defendants Jeffrey C. Holland ("Holland") and The Carlyle Group, LP ("Carlyle"). See Doc. 39. Plaintiff argues that the Court's award is void because the Court lacked subject-matter jurisdiction over the case. The Court will grant the motion.

I. Background.

On April 1, 2014, Plaintiff ARCP filed a complaint against Defendants Holland and Carlyle. Doc. 1. According to the complaint, Holland had agreed to work part-time for ARCP. Id., ¶ 32. Holland had also signed an agreement with ARCP prohibiting him from using confidential information and soliciting former clients. Id., ¶¶ 27-36. Holland then went to work for Carlyle, placing him in a position where he could potentially break his agreement with ARCP. Id., ¶¶ 37-43. Plaintiff alleged claims for breach of contract and fraud in the inducement against Holland, as well as a claim for tortious interference with contractual relations against Carlyle. Id., ¶¶ 47-63. Plaintiff asserted that this Court had subject-matter jurisdiction based on diversity of citizenship. Id., ¶ 4; see 28 U.S.C. § 1332. Plaintiff alleged that ARCP was a corporation organized in Maryland with its principal place of business in New York. Doc. 1, ¶ 1. Plaintiff alleged that Holland was a citizen of Arizona and that Carlyle was a limited partnership organized in Delaware with its principal place of business in Washington, D.C. Id., ¶¶ 2-3.

On April 2, 2014, Plaintiff moved for a temporary restraining order. Doc. 9. Plaintiff sought to restrain Holland from soliciting ARCP's clients and to restrain Holland and Carlyle from using ARCP's confidential information. Id. at 15-16. In their response to this motion, Defendants expressed concern that there was a lack of diversity of citizenship. Doc. 16 at 18-19. They noted that Carlyle is a limited partnership and that Plaintiff had not alleged the citizenship of Carlyle's partners. Id. Furthermore, they suggested dismissing Carlyle as a dispensable party. Id. At the hearing for the temporary restraining order, the Court asked Plaintiff's counsel about this issue. Doc. 27 at 22. Plaintiff's counsel responded:

I don't believe that at this point they can challenge jurisdiction based upon a - the possibility that someone is there. If that's the case, then at another stage, we can address that. But I don't have any evidence before me other than a hunch, and I don't think that's sufficient for the Court to hold off on action vis-a-vis Carlyle.

Id. Ultimately, the Court denied Plaintiff's motion for a temporary restraining order on other grounds. Doc. 23.

Plaintiff then voluntarily dismissed its action against Defendants. Doc. 24. Plaintiff later noted that a reason it had voluntarily dismissed the case was because Defendants indicated a possible lack of diversity of citizenship. Doc. 31 at 7. Subsequently, Defendants filed a motion for attorneys' fees. Doc. 28. On July 24, the Court granted in part the request for attorneys' fees. Doc. 39. On August 5, Defendants moved for an entry of final judgment on the award of attorneys' fees. Doc. 40. On August 21, Plaintiff filed this motion for relief from the Court's judgment granting attorneys' fees. Doc. 43. In their response, Defendants argue that Plaintiff's motion should be denied for three reasons: (1) Plaintiff has failed to meet the high standard to void a judgment for lack of jurisdiction under Rule 60(b)(4); (2) Res judicata bars Plaintiff's claim that the Court lacks jurisdiction; and (3) Plaintiff should be judicially estopped from arguing that the Court lacks jurisdiction.

II. Rule 60(b)(4).

Under 28 U.S.C. § 1332, Congress has "authorized the federal courts to exercise jurisdiction based on the diverse citizenship of parties." Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). Under this statute, a federal court has jurisdiction if the amount in controversy is more than $75, 000 and "each plaintiff is diverse from the citizenship of each defendant." Caterpillar, 519 U.S. at 68. If a court determines that the parties are not diverse, and there is no other basis for federal jurisdiction, the court must dismiss the case. See Fed.R.Civ.P. 12(h)(3). Indeed, the "objection that a federal court lacks subject-matter jurisdiction... may be raised by a party, or by a court on its own initiative, at any stage in the litigation, even after trial and the entry of judgment." Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006); see also Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 571 (2004) (noting that subject-matter jurisdiction challenges may be raised for the first time on appeal). A "court that lacks jurisdiction at the outset of a case lacks the authority to award attorneys' fees." Skaff v. Meridien N. Am. Beverly Hills, LLC, 506 F.3d 832, 837 (9th Cir. 2007); see also In re Knight, 207 F.3d 1115, 1117 (9th Cir. 2000).[1]

After a federal district court has entered a judgment, a party may still challenge the judgment at the district court level for lack of subject-matter jurisdiction. To do so, the party should file a motion under Federal Rule of Civil Procedure 60(b)(4). This rule provides that "[o]n motion and just terms, the court may relieve a party... from a final judgment, order, or proceeding for the [reason that] the judgment is void." Id.

The Supreme Court has addressed the appropriate legal standard under Rule 60(b)(4) only once. United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), aff'g 553 F.3d 1193 (9th Cir. 2008). The Court stated:

A judgment is not void, ' for example, simply because it is or may have been erroneous.'... Rule 60(b)(4) applies only in the rare instance where a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard. Federal courts considering Rule 60(b)(4) motions that assert a judgment is void because of a jurisdictional defect generally have reserved relief only for the exceptional case in which the court that rendered judgment lacked even an "arguable basis" for jurisdiction.

Id. at 270-71 (citing Nemaizer v. Baker, 793 F.2d 58, 65 (2d Cir. 1986); United States v. Boch Oldsmobile, Inc., 909 F.2d 657, 661-62 (1st Cir. 1990) ("[T]otal want of jurisdiction must be distinguished from an error in the exercise of jurisdiction, and... only rare ...


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