Jimmy Lee Walker III v. Norwest Corporation
108 F.3d 158 (1997)
Rule of Law:
An attorney filing a diversity action in federal court must properly plead complete diversity of citizenship for all parties, and failure to do so after proper notice can lead to Federal Rule of Civil Procedure 11 sanctions, especially when the attorney does not offer a nonfrivolous argument or comply with local rules for amendment.
Facts:
- Jimmy Lee Walker, III, had a trust fund administered by Norwest Bank South Dakota, N.A.
- Jimmy Lee Walker, III, and his legal guardian, Cynthia M. Walker, were citizens of South Dakota.
- Norwest Corporation, one of the defendants, was a Minnesota corporation.
- Many other defendants, including various individual employees and officers of Norwest or its subsidiaries, and the Beal Law Offices and George Beal, were alleged to be "residents" of South Dakota.
Procedural Posture:
- Attorney James Harrison Massey filed a complaint in the United States District Court for the District of South Dakota on behalf of Jimmy Lee Walker, III, and Cynthia Walker, alleging breach of fiduciary duty and other state law claims, asserting diversity jurisdiction.
- The complaint stated that "Plaintiff and some of the Defendants are citizens of different states" and averred that many defendants were South Dakota "residents."
- Norwest's attorney sent a letter to Massey, informing him that the complaint showed no diversity jurisdiction on its face, requesting dismissal, and warning of sanctions if not dismissed.
- Massey acknowledged the letter but made no substantive response, nor did he move to amend or dismiss the complaint.
- Norwest moved to dismiss for lack of jurisdiction under Fed. R. Civ. P. 12(b)(1) and for Rule 11 sanctions.
- Massey filed a response contending the complaint was adequate or, alternatively, that plaintiffs would amend, but he did not file a proposed amended pleading as required by local rule.
- The district court granted Norwest's motion, dismissing the case for lack of jurisdiction and sanctioning Massey under Fed. R. Civ. P. 11, ordering defendants to file an accounting of fees and expenses.
- The Walkers filed a motion for reconsideration, which the district court denied.
- Defendants filed affidavits with itemized statements of their fees and expenses.
- Massey responded, characterizing the defendants' fee statements as "shamefully over-exaggerated."
- The district court held a hearing on the fees, where Massey declined to cross-examine or present evidence, and subsequently ordered Massey to pay the full requested amounts of $2,794.52 and $2,050.75.
- The Walkers and Massey (appellants) appealed to the United States Court of Appeals for the Eighth Circuit.
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Issue:
Did the district court abuse its discretion by imposing Rule 11 sanctions on an attorney who failed to properly plead complete diversity of citizenship in a federal complaint, despite being notified of the deficiency and failing to provide a proper proposed amendment or a nonfrivolous argument for an exception?
Opinions:
Majority - John R. Gibson
No, the district court did not abuse its discretion by imposing Rule 11 sanctions on attorney Massey because he failed to properly plead complete diversity of citizenship and did not offer a nonfrivolous argument or properly seek to amend the complaint. The Court of Appeals affirmed the district court's decision, emphasizing that it is the plaintiff's burden to plead the citizenship of all parties to invoke diversity jurisdiction, requiring complete diversity where no plaintiff is a citizen of the same state as any defendant, as established in Strawbridge v. Curtiss. The original complaint's statement that "some of the Defendants are citizens of different states" was insufficient, and the allegation that many defendants were South Dakota "residents" was reasonably construed by the district court as an admission of South Dakota domicile, a concept synonymous with citizenship for diversity purposes. Massey's subsequent arguments in the district court, including the "indistinguishable and inseparable unity" theory regarding corporate and individual defendants, were contrary to well-settled law requiring complete diversity, and his offer to amend was inadequate due to non-compliance with local rules and failure to specify proposed changes. The district court was not obligated to dismiss non-diverse defendants sua sponte or to perform legal research for Massey. Furthermore, the monetary sanctions were appropriate given Massey's persistence in filing baseless pleadings and his failure to present evidence challenging the reasonableness of the fees.
Analysis:
This case strongly reinforces the strict pleading requirements for diversity jurisdiction in federal courts, particularly the long-standing rule of complete diversity. It serves as a stark reminder to attorneys of their obligations under Federal Rule of Civil Procedure 11 to conduct a reasonable inquiry into both the factual and legal basis of their claims, especially jurisdictional ones, before filing, and to promptly correct deficiencies. The court's affirmation of significant monetary sanctions underscores that a failure to do so, combined with a lack of cooperation or proper procedure (e.g., in amending pleadings), constitutes an abuse of the litigation process and will be penalized. This case will likely be cited to deter frivolous jurisdictional claims and emphasize the burden on plaintiffs' counsel to ensure proper federal jurisdiction from the outset.
