Jimmy Lee Walker III v. Norwest Corporation

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No. 96-2383
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Jimmy Lee Walker, III, by his *
legal guardian Cynthia M. *
Walker; *
*
Plaintiff - Appellant, *
*
Cynthia M. Walker; James *
Harrison Massey, *
*
Appellants, *
*
v. *
*
Norwest Corporation, a *
Minnesota Corporation and *
Fiduciary of Jimmy Lee Walker, *
III; Norwest Bank, South *
Dakota; Norwest Investment * Appeal from the United States
Management & Trust, a Sioux * District Court for the
Falls, South Dakota, based * District of South Dakota.
subsidiary of Norwest *
Corporation and as Fiduciary *
of Jimmy Lee Walker, III; *
Richard Kovacevich, *
individually and as Chief *
Executive Officer of Norwest *
Corporation, and Fiduciary of *
Jimmy Lee Walker, III; Gary *
Olson, individually, and as *
President, Chairman, and Chief *
Executive Officers of Norwest *
Bank South Dakota, N.A., *
Regional Office, and as *
Fiduciary of Jimmy Lee Walker, *
III; Kirk Dean, individually, *
and as President of Norwest *
Bank South Dakota, N.A., Rapid *
City location and as Fiduciary *
of Jimmy Lee Walker, III; *
Dennis Hoffman, individually *
and as President of Norwest *
Investment Management & Trust, *
and Fiduciary of Jimmy Lee *
Walker, III; Tom Naasz, *
individually, and as Vice *
President of Norwest Investment *
Management & Trust; and as *
Fiduciary of Jimmy Lee Walker, *
III; and as Co-Trustee and *
Fiduciary of Jimmy Lee Walker, *
III; Beal Law Offices, as a law *
firm, partnership, corporation, *
or other public or private *
entity, and Fiduciary of Jimmy *
Lee Walker, III; George Beal, *
individually, and as partner, *
owner, employee, agent, *
authorized representative, or *
other of Beal Law Offices; as *
officer, attorney, agent, *
employee, authorized *
representative or other of *
Norwest Bank South Dakota N.A.; *
Norwest Investment Management & *
Trust; and Norwest Corporation; *
and as attorney, agent *
Fiduciary of Jimmy Lee Walker, *
III, *
*
Defendants - Appellees. *
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Submitted: December 9, 1996
Filed: February 28, 1997
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Before McMILLIAN, JOHN R. GIBSON, and MAGILL, Circuit Judges.
___________
JOHN R. GIBSON, Circuit Judge.
Jimmy Lee Walker, III, his guardian, Cynthia Walker, and their
attorney, James Harrison Massey, appeal from the district court's1 award
of sanctions against Massey for filing a diversity case in which he failed
to plead complete diversity of citizenship, and indeed, pleaded facts which
tended to show there was not complete
The Honorable Richard H. Battey, Chief Judge, United States
District Court for the District of South Dakota.
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diversity. The Walkers and Massey contend that the district court erred
in awarding sanctions at all, in determining the amount of sanctions, and
in not allowing the Walkers to amend their complaint. We affirm.
Massey filed a complaint in the district court for the District of
South Dakota on behalf of the Walkers, alleging breach of fiduciary duty
and other state law causes of action in connection with the administration
of a trust fund held for Jimmy Lee Walker at Norwest Bank South Dakota,
N.A. The complaint stated that jurisdiction was based on diversity, since
"the Plaintiff and some of the Defendants are citizens of different
states." (Emphasis added). The Walkers are both South Dakotans. The
complaint averred that one of the defendants, Norwest Corporation, was a
Minnesota corporation. The complaint did not allege the other defendants'2
citizenship precisely, but stated that many of them were South Dakota
"residents." The individual defendants included employees of Norwest or
its subsidiary corporations and a South Dakota lawyer who represented
Norwest. The corporate defendants were Norwest subsidiaries. The Walkers
also joined a South Dakota law firm that represented Norwest. All the
individuals were named in their individual, as well as official,
capacities.
Upon receiving the complaint, the attorney for Norwest Corporation
and its subsidiaries and officers wrote Mr. Massey informing him that his
complaint showed on its face that there was no diversity jurisdiction. The
letter asked Massey to dismiss the complaint, and warned that if he did
not, Norwest would seek sanctions, including attorneys' fees. Massey's
only answer was a
The defendants are: Norwest Corporation, Richard Kovacevich,
Norwest Bank South Dakota, N.A., Gary Olson, Kirk Dean, Norwest
Investment Management & Trust, Dennis Hoffman, Tom Naasz, Beal Law
Offices, and George Beal. The individual defendants were sued
individually and as trustees or corporate agents.
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letter that acknowledged Norwest's correspondence, but made no substantive
response to the deficiency counsel had pointed out.
After Massey failed to offer any explanation for his defective
complaint or to move to amend or dismiss it, Norwest moved to dismiss and
for an award of sanctions, as it had promised to do. Massey filed a
response contending that the complaint was adequate as filed. In the
alternative, the response stated that if the complaint was not adequate,
plaintiffs would amend it; however, the plaintiffs did not specify how they
proposed to amend the complaint. Under Local Rule 15.1 of the District of
South Dakota, a party moving to amend his pleadings must file a copy of the
proposed amended pleading with his motion. Massey filed no proposed
amended pleading.
With his response to the motion to dismiss, Massey filed a brief
presenting a theory that the citizenship of Norwest Corporation determined
the citizenship of all the other defendants, notwithstanding that all the
individual defendants were named in their individual capacities. The brief
contended that the complaint therefore successfully alleged diversity
jurisdiction: "This life-sustaining arterial linkage between these said
Defendants and Norwest Corporation in essence and in reality creates an
indistinguishable and inseparable unity of existence and identity."
The district court granted the Fed. R. Civ. P. 12(b)(1) motion to
dismiss for lack of jurisdiction and sanctioned attorney Massey under Fed.
R. Civ. P. 11. Order of January 9, 1996. The court held that there was
no diversity jurisdiction because there was not complete diversity among
plaintiffs and defendants, since plaintiffs were South Dakotans and
numerous defendants were alleged to be South Dakota "residents." The court
ordered the defendants to file an accounting of their fees and expenses
incurred in defending against the suit.
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The Walkers then filed a motion for reconsideration which stated:
Other Defendants [in addition to Norwest Corporation, its
subsidiaries, and Kovacevich] named to Plaintiff's Complaint,
may or may not be citizens of the State of South Dakota. It is
Plaintiff's position that with regard to the issue of federal
jurisdiction, this fact alone should not be determinative in
this case.
(Emphasis added). The court denied the motion for reconsideration. Order
of January 22, 1996.
As the district court had ordered, the defendants filed statements
of their fees and expenses, in the form of affidavits with attached
itemizations of work performed and costs incurred. One law firm represented
Norwest Corporation, its subsidiaries, and the individuals who worked for
Norwest and its subsidiaries. That firm had $2,794.52 in fees and
expenses. Another firm represented the lawyer, George Beal, and his law
firm. That firm had $2,050.75 in fees and expenses.
Massey responded to the affidavits in a filing characterizing the
defendants' statements of expenses as "so shamefully over-exaggerated and
over-inflated so as to shock the conscience of ethical minded legal
practitioners."
The court held a hearing on the fees issue, and Massey declined to
cross-examine the attorneys or to put on any evidence. The court ordered
Massey to pay the two sets of defendants the full amount each had
requested, $2,794.52 and $2,050.75, respectively. Order of May 6, 1996.
The Walkers and Massey appeal.
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I.
They first argue that the district court abused its discretion in
determining that Massey had filed a complaint that was not warranted by
existing law or a nonfrivolous argument for the extension, modification,
or reversal of existing law or the establishment of new law. They contend
that their allegations that the defendants were South Dakota residents were
not determinative of the defendants' citizenship, since they could be
living in South Dakota without intent to stay there. See Sheehan v.
Gustafson, 967 F.2d 1214, 1215 (8th Cir. 1992). They contend that Rule 11
does not require the kind of "complicated, in-depth, and possibly
impossible inquiry" that would have been necessary to determine the
defendants' citizenship before filing a complaint based on diversity of
citizenship.
We review the district court's decision in a Rule 11 proceeding for
abuse of discretion. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 399-
405 (1990). A district court necessarily abuses its discretion if it bases
its ruling on an erroneous view of the law. Id. at 405.
It was the Walkers' burden to plead the citizenship of the parties
in attempting to invoke diversity jurisdiction. See Sanders v. Clemco
Indus., 823 F.2d 214, 216 (8th Cir. 1987). They failed to carry that
burden, since they did not allege the domicile3 of the individual
defendants or the place of incorporation and principal place of business
of all the corporate defendants. See id.
3
"For purposes of diversity jurisdiction, the terms 'domicile'
and 'citizenship' are synonymous." Sheehan v. Gustafson, 967 F.2d
1214, 1215 (8th Cir. 1992) (quoting Yeldell v. Tutt, 913 F.2d 533,
537 (8th Cir. 1990)).
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However, the district court construed the allegation that the
individuals were South Dakota residents as an admission that they were
domiciled in South Dakota. The Walkers and Massey did not complain of this
inference or argue in the district court that the defendants alleged to
reside in South Dakota did not intend to remain there indefinitely.
Instead, they responded to the motion to dismiss with an unelaborated
statement that their complaint "as filed, does state appropriate grounds
for federal jurisdiction." In their motion for reconsideration of the
court's order, they stated that it was immaterial whether some of the
defendants were South Dakota citizens, as long as some defendants were
citizens of another state. It is, to say the least, well settled that
federal diversity jurisdiction requires complete diversity, so that no
defendant is a citizen of the same state as any plaintiff. See Strawbridge
v. Curtiss, 7 U.S. 267 (1806); Owen Equip. & Erection Co. v. Kroger, 437
U.S. 365, 373-74 (1978). Having pursued this untenable theory before the
district court, the Walkers and Massey cannot change their theory on appeal
and fault the district court for deciding the case on the theory they
presented to it.
Furthermore, even though it is the Walkers' burden to plead, and if
necessary, prove diversity, Sheehan, 967 F.2d at 1215, they did not allege
that all of the defendants are domiciled in a state other than South
Dakota. Instead, they argue that finding out the defendants' citizenship
would be more trouble than they should be expected to take. This is a
burden that plaintiffs desiring to invoke diversity jurisdiction have
assumed since the days of Chief Justice Marshall. See Strawbridge v.
Curtiss, 7 U.S. at 267. The fact that the Walkers did not allege the
citizenship of the defendants convinces us that the district court did not
abuse its discretion in determining that Rule 11 sanctions were
appropriate.
II.
The Walkers and Massey next contend that the district court
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abused its discretion in awarding monetary sanctions, since dismissal of
the complaint would have been adequate. They argue that the award of
monetary sanctions in this case would discourage "novel legal arguments."
Their legal argument in the district court was contrary to the established
statutory requirements for diversity. See 28 U.S.C. § 1332(a)(1) (1994).
They also argue that the district court should have inquired into Massey's
financial circumstances, and that if it had done so, it would have found
that he "is presently experiencing financial hardships and is unable to pay
this sanction." Not only did Massey fail to argue this point to the
district court, but there is no record evidence to support the argument
before this court. Finally, they argue that the defendants have no need
for compensation for their fees and expenses, since they are "multi-
billion/million dollar defendants." There is no record evidence of the
defendants' financial condition, but there is evidence that they incurred
fees and expenses because of the Walkers' lawsuit. We see no abuse of
discretion in awarding monetary sanctions.
III.
The Walkers and Massey contend that the district court abused its
discretion in denying their request to amend their complaint. Although the
Walkers did ask for leave to amend their complaint in their response to the
motion to dismiss, they did not comply with the local rule requiring them
to file a copy of the proposed pleading. Nor did they give any hint of how
they wished to change their complaint. They did not indicate a desire to
dismiss any of the defendants before the district court dismissed their
complaint. The district court has no obligation to dismiss non-diverse
defendants sua sponte. See Vild v. Visconsi, 956 F.2d 560, 570 (6th Cir.),
cert. denied, 506 U.S. 832 (1992). After the dismissal and denial of the
motion to reconsider, the district court held a hearing on the amount of
attorneys' fees to be awarded. At that hearing, Massey began to reargue
the merits of
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the dismissal. The court stated that some of the individual defendants
were South Dakota residents. Mr. Massey replied: "I think an appropriate
step for the Court to have taken would have been to dismiss those
individuals that the Court considered that it could not bring into the
diversity statute through pendent jurisdiction which is within the
discretion of the Court." Massey still had not alleged a citizenship for
many of the defendants and did not identify which defendants should be
dismissed to create diversity jurisdiction. The district court is not
obliged to do Massey's research for him, especially at such a late date.4
There was no abuse of discretion.
IV.
The Walkers and Massey argue that the district court erred in not
requiring defendants' counsel to put on further evidence in support of
their accountings after Massey objected to them. The accountings were
fully supported by evidence in the form of affidavits and itemized
statements. The district court held a hearing on the fees issue, and
Massey elected not to cross-examine defendants' counsel. The district
court's order was supported by adequate evidence.
V.
The Walkers and Massey argue that the district court erred in
awarding the full amount of fees and expenses defendants requested, since
the defendants' counsel did more work than was justified. Massey was
persistent in filing baseless and uninformed pleadings, motion papers, and
briefs, which drove up the defendants' fees. The district court did not
abuse its discretion in entering
Although it is possible for this court to dismiss nondiverse
parties on appeal, see Newman-Green, Inc. v. Alfonzo-Larrain, 490
U.S. 826, 836-37 (1989), the Walkers have not asked us to do so and
therefore the issue has not been briefed.
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sanctions for the full amount of expenses and fees claimed.
VI.
Finally, we must rule on the appellees' motions to strike portions
of Massey's and the Walkers' brief. The brief does contain extended
narrative pertaining to matters outside the record and irrelevant to any
issues on appeal before this court. We therefore grant the appellees'
motion to strike from the appellants' brief factual assertions not
accompanied by citations to the record, including the entirety of the
sections titled "Relevant History of James Harrison Massey" and "History
of the Case Before the District Court."
We affirm the district court's entry of Rule 11 sanctions in the
amounts provided.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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