USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 1 of 26
[PUBLISH] In the United States Court of Appeals For the Eleventh Circuit
____________________
No. 20-14504 ____________________
DIANE N. RESNICK, PERRY A. RESNICK, AMERICAN WELLNESS AND HEALTH CENTERS, INC., JONATHAN S. RESNICK, Plaintiffs-Appellants, versus KRUNCHCASH, LLC, JEFFREY HACKMAN,
Defendants-Appellees. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 2 of 26
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Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 9:20-cv-80163-WPD ____________________
Before NEWSOM, MARCUS, Circuit Judges, and STORY, District Judge. * MARCUS, Circuit Judge, delivered the opinion of the Court. NEWSOM, Circuit Judge, filed a concurring opinion, in which MARCUS, Circuit Judge, and STORY, District Judge, joined.
MARCUS, Circuit Judge: This case arises from a loan deal gone awry. Plaintiffs Jona- than S. Resnick, Diane Resnick, Perry A. Resnick, The Law Offices of Jonathan S. Resnick, LLC, The Law Office of Perry A. Resnick, LLC (collectively, the “Resnicks”), and American Wellness and Health Centers, Inc. (“American Wellness”) appeal the district court’s dismissal of their constitutional and state law claims against Defendants KrunchCash, LLC (“KrunchCash”) and Jeffrey Hack- man (“Hackman”) for lack of subject matter jurisdiction.
* Honorable Richard W. Story, United States District Judge, for the Northern District of Georgia, sitting by designation. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 3 of 26
20-14504 NEWSOM, J., Concurring 3
Plaintiffs claim that Defendants violated their right to due process of law by freezing their assets in Maryland, obtaining writs of garnishment based on Maryland law without providing notice and an opportunity to be heard. They also allege violations of state law, including a charge of usury, breach of contract, and tortious interference. The district court concluded, however, that it lacked subject matter jurisdiction because, in its view, Plaintiffs’ federal claim was so utterly frivolous that it robbed the court of federal question jurisdiction. We disagree. Even if Plaintiffs’ federal claim ultimately fails on the merits, the due process claim was not so wholly insubstan- tial and frivolous as to deprive the district court of the power to adjudicate. We therefore reverse and remand for further proceed- ings consistent with this opinion. I. A. The discrete jurisdictional dispute before us begins with a convoluted factual and procedural backdrop. Jonathan and Perry Resnick are legal practitioners who reside in Florida and represent clients in personal-injury cases. Diane Resnick is Jonathan’s wife, and Perry is their son. American Wellness is a medical clinic that treats patients injured in auto accidents. KrunchCash is a company owned and run by Jeffrey Hackman, who resides in Florida. In connection with their professional practices, Plaintiffs en- tered into five “Funding Agreements” and two “Guaranty and USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 4 of 26
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Security Agreements” (the “Guaranty Agreements”) -- all seven of which are referred to as “Loan Agreements” 1 with KrunchCash. KrunchCash provided cash advances to Plaintiffs in return for a sig- nificant “use fee,” or interest rate. The fee was four percent of the loan per month. The Funding Agreements also required the Res- nicks to pay at least six months’ worth of the monthly use fee (or 24 percent of the loan), and they required American Wellness to pay at least five months (20 percent of the loan). Thus, each Fund- ing Agreement charged a maximum rate of 48 percent per annum. All the Loan Agreements contemplated confessions of judg- ment “without notice” to Plaintiffs, which Defendants could exer- cise “in any court” and “IN THE SAME OR DIFFERENT JURISDICTIONS AS OFTEN AS [KRUNCHCASH] SHALL DEEM NECESSARY.” In addition, Plaintiffs agreed to the follow- ing language in four separate Funding Agreements: THIS AGREEMENT CONTAINS A WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST LAW FIRM. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT, LAW FIRM HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND ON THE ADVICE OF
1 The Resnicks maintain that their signatures were forged on the Guaranty Agreements, so whether those Agreements even apply also remains contested. See Am. Compl. at 15 n.12 (“Upon information and belief, the Resnicks’ sig- natures on the Guaranties were forged. Plaintiffs will be further developing this issue and will be pursuing an additional claim against Defendants and their co-conspirators.”). USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 5 of 26
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SEPARATE COUNSEL, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS LAW FIRM HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES, THE STATE OF FLORIDA, AND ANY OTHER STATE, PRIOR TO ENTRY OF JUDGMENT AND SEIZURE OF LAW FIRM’S PROPERTY. (Emphasis added). KrunchCash was also given the right, “without [giving] no- tice” or “warning” to Plaintiffs, to “empower any attorney of any court of record” to obtain “confess[ed] judgment[s] . . . in favor of [KrunchCash] for any and all amounts payable to [KrunchCash].” The Guaranty Agreements also provide that the Resnicks “agree[] that its guaranty is irrevocable, continuing, absolute and uncondi- tional and shall not be discharged or impaired, and [the Resnicks] hereby irrevocably waive[] any defenses to enforcement [they] may have now or in the future.” Over time, the Resnicks’ and KrunchCash’s relationship broke down. Plaintiffs claim that KrunchCash “wrangle[d] increas- ing control over the computer systems that the Resnicks used to run their law firms” and “extort[ed]” them into making payments under the Funding Agreements. The Plaintiffs also claim that the Defendants blocked their access to their clients’ records. In re- sponse, the Resnicks sued KrunchCash on July 18, 2019, in Florida’s Fifteenth Judicial Circuit in Palm Beach County and obtained a temporary injunction, which required KrunchCash to relinquish control over the Resnicks’ computer systems. KrunchCash USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 6 of 26
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responded by filing an action in the same court to recover $13.1 million from Plaintiffs for breaching the Loan Agreements. Purportedly without notifying Plaintiffs or the Florida Cir- cuit Court, KrunchCash filed seven complaints for judgment by confession in the Circuit Court for Baltimore County, Maryland against Plaintiffs (the “Maryland Actions”) under Maryland Rule 2- 611. 2 Maryland Rule 2-611 provides: (b) Action by Court. If the court determines that (1) the complaint complies with the [procedural] re- quirements of section (a) of this Rule and (2) the pleadings and papers demonstrate a factual and legal basis for entitlement to a confessed judgment, the court shall direct the clerk to enter the judgment. Otherwise, it shall dismiss the complaint. Md. R. Civ. P. Cir. Ct. 2-611. Because they purportedly did not receive notice of these complaints, Plaintiffs did not initially appear in the Maryland Actions. The Maryland Circuit Court entered judgment for KrunchCash on December 4, 2019, and KrunchCash, in turn, sought and obtained writs of garnishment in aid of the enforcement of the judgment under Maryland Rules 2-645 and 2-645.1. Plaintiffs
2 The seven cases pending in Baltimore County are: KrunchCash, LLC v. Di- ane N. Resnick, C-03-CV-004422 (Md. Cir. Ct. November 26, 2019); KrunchCash, LLC v. Am. Wellness and Health Ctrs., Inc., C-03-CV-004423 (Md. Cir. Ct. November 26, 2019); KrunchCash, LLC v. Perry Resnick, C-03- CV-004425 (Md. Cir. Ct. November 26, 2019); and KrunchCash, LLC v. The Law Offices of Jonathan Resnick, C-03-CV-004427 (Md. Cir. Ct. November 26, 2019)). USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 7 of 26
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moved to vacate those writs in the Maryland Circuit Court in De- cember 2019. 3 Plaintiffs alleged that these writs allowed KrunchCash to freeze the personal and business accounts of the Resnicks, and that their accounts remained frozen, at least as of the operative date of their pleading (February 28, 2020). On March 2, 2020, the Maryland Circuit Court vacated all confessed judgments and writs of garnishments, although it ap- pointed a receiver over the properties and businesses of Plaintiffs The Law Offices of Jonathan S. Resnick, LLC and The Law Offices of Perry A. Resnick, LLC, as well as non-party The Law Offices of Jonathan S. Resnick, PLLC. See KrunchCash, LLC v. The Law Of- fices of Jonathan Resnick, C-03-CV-004427 (Md. Cir. Ct. March 17, 2020). The Maryland Actions are ongoing. B. While the Maryland Actions continued, Plaintiffs sued KrunchCash and Hackman in the Southern District of Florida on February 4, 2020. In their Amended Complaint, Plaintiffs allege, among other state law claims, that the Funding Agreements be- tween Plaintiffs and Defendants are usurious under Fla. Stat. §§ 687.02 et seq., and that the Maryland rules used to obtain writs of garnishment against Plaintiffs’ assets, without notice and the op- portunity to be heard, violated their rights to due process under the
3 KrunchCash, LLC v. Diane N. Resnick, C-03-CV-004422 (Md. Cir. Ct. De- cember 30, 2019); KrunchCash, LLC v. Am. Wellness and Health Ctrs., Inc., C-03-CV- 004423 (Md. Cir. Ct. December 31, 2019); KrunchCash, LLC v. Perry Resnick, C-03-CV-004425 (Md. Cir. Ct. December 31, 2019); KrunchCash, LLC v. The Law Offices of Jonathan Resnick, C-03-CV-004427 (Md. Cir. Ct. De- cember 30, 2019). USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 8 of 26
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Fourteenth Amendment to the U.S. Constitution. Plaintiffs’ due process claim was brought under 42 U.S.C. § 1983. They assert that the district court has subject matter jurisdiction under its federal question jurisdiction (28 U.S.C. § 1331), and their state law claims of usury, breach of contract, and tortious interference all fall under the court’s supplemental jurisdiction. 28 U.S.C. § 1367(a). Defendants responded by moving to dismiss, claiming, among other things, that the district court lacked subject matter jurisdiction. Defendants also moved to stay the action based on the abstention doctrine the Supreme Court articulated in Colorado River Water Conservation District v. United States. See 424 U.S. 800, 817 (1976). The district court agreed and dismissed Plaintiffs’ Amended Complaint for lack of subject matter jurisdiction because it con- cluded that Plaintiffs’ sole federal claim, arising under the Due Pro- cess Clause, was so frivolous that it denuded the court of subject matter jurisdiction. The district court reached this conclusion for three reasons. First, the court questioned whether Plaintiffs were even deprived of a constitutionally protected property interest be- cause their assets were only temporarily frozen. Second, it con- cluded that Plaintiffs’ claim of state action was “questionable at best.” Finally, the court determined that the Supreme Court’s de- cision in D.H. Overmyer v. Frick, 405 U.S. 174 (1972), foreclosed Plaintiffs’ claim that they were deprived of a constitutionally suffi- cient process. In the absence of any federal claim, the court ex- plained that it could not exercise supplemental jurisdiction over Plaintiffs’ state law claims. The district court also briefly touched on the abstention issue, but never explicitly ruled on it. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 9 of 26
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Plaintiffs timely appealed.
II. The sole issue before us is whether the district court erred in concluding that it lacked subject matter jurisdiction over Plaintiffs’ claims. We review the district court’s ruling on a motion to dismiss for lack of subject matter jurisdiction de novo, “accepting the [ ] allegations as true and construing them in the light most favorable to [the plaintiff].” Isaiah v. JPMorgan Chase Bank, 960 F.3d 1296, 1301–02 (11th Cir. 2020). We begin with the basics. The statutory grant of federal question jurisdiction provides the federal district courts with juris- diction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. “The test ordi- narily applied for determining whether a claim arises under federal law is whether a federal question appears on the face of the plain- tiff’s well-pleaded complaint.” Cmty. State Bank v. Strong, 651 F.3d 1241, 1251 (11th Cir. 2011) (citing Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152 (1908)). Furthermore, “the district court ‘shall have’ supplemental jurisdiction over both additional claims and additional parties when those claims ‘are so related to claims in the action within [the] original jurisdiction [of the court] that they form part of the same case or controversy under Article III of the United States Constitution.’” Palmer v. Hosp. Auth., 22 F.3d 1559, 1563 (11th Cir. 1994) (quoting 28 U.S.C. § 1367(a)). KrunchCash and Hackman do not dispute that if the district court has federal question jurisdiction, the court would also have supplemental jurisdiction over the state law claims. They argue instead that Plaintiffs’ due process claim does not “aris[e] under USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 10 of 26
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federal law” because, based on the facts alleged and binding prece- dent, the federal claim is so frivolous and insubstantial that it de- prives the court of subject matter jurisdiction. 4 “In determining whether the district court ha[s] subject mat- ter jurisdiction, we respect the important distinction between the lack of subject matter jurisdiction and the failure to state a claim upon which relief can be granted.” Blue Cross & Blue Shield v. Sanders, 138 F.3d 1347, 1351–52 (11th Cir. 1998). Seventy-five years ago, the Supreme Court explored this distinction in Bell v. Hood. See 327 U.S. 678 (1946). The Court explained that a com- plaint should not be dismissed for lack of subject matter jurisdiction if “the right of the [plaintiffs] to recover under their complaint will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given an- other.” Id. at 685. We explained this distinction in Blue Cross & Blue Shield v. Sanders: A federal court may dismiss a federal question claim for lack of subject matter jurisdiction only if: (1) the alleged claim under the Constitution or federal stat- utes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction; or (2) such a claim is wholly insubstantial and frivolous. 138 F.3d at 1352 (quoting Bell, 327 U.S. at 682–83) (quotation marks omitted). As Sanders suggests, the category of claims that are “wholly insubstantial and frivolous” is exceedingly narrow. See Delta Coal
4 They do not, however, argue in the alternative that the federal claim was immaterial and made solely for the purpose of obtaining jurisdiction. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 11 of 26
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Program v. Libman, 743 F.2d 852, 855 n. 4 (11th Cir. 1984) (explain- ing that “Bell limited such dismissals to occasions when the federal claim ‘clearly appears to be immaterial and made solely for the pur- pose of obtaining jurisdiction or where such a claim is wholly in- substantial and frivolous’”); Davis v. Wells Fargo, 824 F.3d 333, 349–50 (3rd Cir. 2016) (concluding that “Rule 12(b)(1) must not be expanded beyond its proper purpose,” and that Bell applies “in only narrow categories of cases”); Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 443 (6th Cir. 2012) (explaining that the “rare exception created by Bell” is “quite narrow and ordinarily reserved for ex- tremely weak claims”). 5 To strip a district court of subject matter jurisdiction, a plaintiff’s federal claim must have “no plausible foun- dation, or [ ] the court [must] conclude[] that a prior Supreme Court decision clearly forecloses the claim.” Barnett v. Bailey, 956 F.2d 1036, 1041 (11th Cir. 1992) (quoting Olivares v. Martin, 555 F.2d 1192, 1195 (5th Cir. 1977)); see also McGinnis v. Ingram Equip. Co., 918 F.2d 1491, 1494 (11th Cir. 1990) (en banc) (quotation marks and citations omitted) (“The test of federal jurisdiction is not whether the cause of action is one on which the claimant can re- cover. Rather the test is whether the cause of action alleged is so patently without merit as to justify . . . the court’s dismissal for want of jurisdiction.”). We return then to Plaintiffs’ due process claim. To bring a due process claim under section 1983, a plaintiff must establish
5 “Bell has been referred to as ‘a legal landmine’ and ‘one of the most cryptic [cases] in the recent history of [the] [Supreme] Court’s jurisprudence.’” Marine Coatings of Ala., Inc. v. United States, 792 F.2d 1565, 1569 n. 7 (11th Cir. 1986) (quoting Yazoo Cnty. Indus. Dev. Corp. v. Suthoff, 454 U.S. 1157, 1159 (1982) (Rehnquist, J., dissenting from denial of cert.)). USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 12 of 26
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“(1) a deprivation of a constitutionally-protected liberty or prop- erty interest; (2) state action; and (3) constitutionally-inadequate process.” Grayden v. Rhodes, 345 F.3d 1225, 1232 (11th Cir. 2003). In order to deprive the district court of federal question jurisdiction over this claim, the Defendants must show that Plaintiffs’ factual or legal support for at least one of these elements lacks “plausible foundation,” thus rendering the claim “wholly insubstantial and frivolous.” See Sanders, 138 F.3d at 1352 (quoting Bell, 327 U.S. at 682–83) (quotation marks omitted). We discuss each element in turn. A. Plaintiffs first argue they were deprived of their constitution- ally protected property interest in their personal and business bank accounts when KrunchCash and Hackman, using Maryland’s gar- nishment procedures, temporarily froze their funds. First, Plain- tiffs assert that their interest in these funds and in the funds of their clients is constitutionally protected. Second, they say that even a temporary or partial deprivation of property without proper notice or a hearing violates due process. Plaintiffs have, at the bare minimum, asserted a colorable argument that they were deprived of a constitutionally protected property interest. To begin with, Plaintiffs have a constitutionally protected property interest in their own funds and in their clients’ funds. See Buxton v. Plant City, 871 F.2d 1037, 1042 (11th Cir. 1989) (“Property interests protected by procedural due process ex- tend well beyond actual ownership of real estate, chattels, or money.”). The Supreme Court has made clear that a temporary deprivation of a constitutionally protected property interest is enough to support a due process claim. Conn. v. Doehr, 501 U.S. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 13 of 26
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1, 12 (1991) (“[E]ven the temporary or partial impairments to prop- erty rights that such encumbrances entail are sufficient to merit due process protection.”); Fuentes v. Shevin, 407 U.S. 67, 86 (1972) (“The Fourteenth Amendment draws no bright lines around three- day, 10-day or 50-day deprivations of property. Any significant tak- ing of property by the State is within the purview of the Due Pro- cess Clause.”); N. Ga. Finishing v. Di-Chem, Inc., 419 U.S. 601, 606 (1975) (explaining that a state garnishment statute was vulnerable to constitutional attack under the Fourteenth Amendment because the plaintiff’s “property[] was impounded and, absent a bond, put totally beyond use during the pendency of the litigation on the al- leged debt”). Defendants do not quibble with Plaintiffs’ claim that they have a protected interest in their own accounts. Instead, Defend- ants say that a temporary freeze of those accounts cannot plausibly amount to a deprivation of that interest. Specifically, Defendants argue that the cases on which Plaintiffs rely -- Connecticut v. Doehr, Fuentes v. Shevin, and Northern Georgia Finishing v. Di- Chem, Incorporated -- are all inapposite because none of them in- volved post-judgment writs of garnishment that froze assets. Although Defendants are correct about the factual circum- stances surrounding those cases, the legal conclusion that they draw from them is incorrect. Even though none of those cases in- volved post-judgment writs of garnishment, it need not, and does not, follow that Plaintiffs’ deprivation argument is so “clearly fore- close[d]” under the caselaw as to defeat the district court’s subject matter jurisdiction. As they do in their reply brief, Plaintiffs validly claim that the distinction between pre- and post-judgment depriva- tions is not relevant for a due process analysis because the relevant point in the analysis is whether deprivation occurred before or after USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 14 of 26
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notice and opportunity to be heard, not whether the deprivation occurred before or after judgment. Indeed, we have explicitly noted that “the guarantee [of due process] extends to property rights less substantial than full legal title” -- even though we ruled for the creditor in that case. See Fed. Deposit Ins. Corp. v. Morri- son, 747 F.2d 610, 614 (11th Cir. 1984). At bottom, Defendants have identified no caselaw suggest- ing that a plaintiff does not have a constitutionally protected inter- est in her property, even post-judgment. B. Next up, the Defendants say that the corollary state action requirement is wanting here. Plaintiffs’ state action argument rests largely on the Supreme Court’s decision in Lugar v. Edmondson Oil Company. See 457 U.S. 922 (1982). In Lugar, the Court held that private parties can be considered state actors when they use state procedures to deprive a party of a constitutionally protected interest. It reasoned this way: [T]he Court has consistently held that constitutional requirements of due process apply to garnishment and prejudgment attachment procedures whenever officers of the State act jointly with a creditor in se- curing the property in dispute. . . . In each of these cases state agents aided the creditor in securing the disputed property; . . . in each case the Court enter- tained and adjudicated the defendant-debtor's claim that the procedure under which the private creditor secured the disputed property violated federal consti- tutional standards of due process. Necessary to that conclusion is the holding that private use of the USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 15 of 26
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challenged state procedures with the help of state of- ficials constitutes state action for purposes of the Fourteenth Amendment. Lugar, 457 U.S. at 932–33 (emphasis added) (citations omitted); see also id. at 941 (quotation marks and citation omitted) (“To act un- der color of law does not require the accused to be an officer of the State. It is enough that he is a willful participant in joint activity with the State or its agents.”). Lugar held that the plaintiff stated a valid cause of action under section 1983 because the defendant sought the sequestration of the plaintiff’s property by obtaining an ex parte writ of attachment from a state court clerk. Id. at 942. This was enough to establish state action. Id. Plaintiffs say that the garnishment procedures in Maryland are much like the ones considered in Lugar. They allege that Mar- yland Rule 2-645 allows a judgment creditor to obtain a writ of gar- nishment by filing a request that simply contains (1) the caption of the action, (2) the amount owed under the judgment, (3) the name and last known address of each judgment debtor on whom a writ is requested, and (4) the name and address of the garnishee. Ac- cording to Plaintiffs, the process then requires the clerk, without participation from the judge, to issue a writ of garnishment, which, in turn, permits the creditor to hold the debtor’s property in her possession. Because the garnishment process in Maryland allows a debtor to use the power of the clerk of court to seize control over a creditor’s property, Plaintiffs claim that the process constitutes state action. Much like the previous element of their due process claim, Plaintiffs’ state action claim is not so specious as to defeat federal question jurisdiction. Maryland’s garnishment process is like the USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 16 of 26
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process challenged in Lugar. Defendants here used the power of the clerk of court in Maryland to obtain writs of garnishment with- out affording Plaintiffs notice or an opportunity to be heard. Defendants retort that Lugar requires Plaintiffs to directly challenge the constitutionality of Maryland’s garnishment statute to allege state action. Because Plaintiffs are not “per se” raising a constitutional challenge against the statute, Defendants claim that Plaintiffs’ state action claim cannot plausibly be sustained. Defendants’ argument fails for at least three reasons. First, even if Defendants’ Lugar argument is correct, it improperly ad- dresses the merits of Plaintiffs’ claim, rather than determining simply whether it is “clearly foreclose[d].” See Sanders, 138 F.3d at 1352. Second, Defendants have impermissibly made this argument for the first time on appeal. See Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004) (holding that arguments that were not raised at the district court on the first instance cannot be raised on appeal). Third, Plaintiffs have plausibly raised an as- applied challenge to the use of Maryland’s garnishment statute, as opposed to a facial challenge, because they claim that the Maryland rules were applied in a way that unconstitutionally deprived them of their property. See Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1255 (3d Cir. 1994) (“[T]he entry of the [con- fessed] judgment, when coupled with the seizure of the corpora- tion’s bank account, without prior notice or opportunity to be heard, does violate the Due Process Clause[.]”). While it is true the Lugar Court concluded that a creditor’s “misuse or abuse” of a state statute does not amount to state action, Lugar also held that an allegation that “the deprivation of property resulted from a state statute that was procedurally defective under the Due Process USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 17 of 26
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Clause did state a cause of action under” section 1983. 457 U.S. at 923. In short, Plaintiffs have sufficiently alleged the requisite state action. C. The final issue is whether Plaintiffs have made a non-frivo- lous case that they were denied constitutionally sufficient process. This issue turns on whether Overmyer forecloses Plaintiffs’ claim. In Overmyer, the Supreme Court considered whether a cognovit note, 6 authorized by an Ohio statute, violated the plain- tiff’s right to due process under the Fourteenth Amendment. 405 U.S. at 175. That statute authorized an attorney to obtain a con- fessed judgment without the debtor’s prior knowledge and regard- less of the debtor’s claims against the creditor. Id. at 175 n.1 (citing Ohio Rev. Code § 2323.13(D)). The plaintiff contracted with the defendant to perform a construction subcontract; the plaintiff be- came delinquent in payments; the defendant eventually renegoti- ated terms with the plaintiff and included a confession-of-judgment clause; the plaintiff eventually ceased making monthly payments; and the defendant obtained a judgment against the plaintiff with- out service or notice. Id. at 182–83. The Court concluded that the plaintiff’s due process claim was meritless because the plaintiff contractually waived its rights
6 “The cognovit is the ancient legal device by which the debtor consents in advance to the holder’s obtaining a judgment without notice or hearing, and possibly even with the appearance, on the debtor’s behalf, of an attorney des- ignated by the holder.” Overmyer, 405 U.S. at 176. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 18 of 26
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to notice and a hearing. Id. at 187. First, the Court reiterated that both notice and a hearing were subject to waiver. Id. at 185. Sec- ond, it concluded, based on the record, that the plaintiff knowingly and voluntarily waived its right to notice and a hearing. Id. at 186. Third, the Court concluded that “a cognovit clause is not, per se, violative of Fourteenth Amendment due process.” Id. at 187. But the Supreme Court explicitly cautioned that its decision in Over- myer “is not controlling precedent for other facts of other cases.” Id. at 188 (emphasis added). Plaintiffs argue that their Fourteenth Amendment claim is not “clearly foreclosed” by Overmyer for two reasons. First, they claim that they are challenging “the use of Maryland’s garnishment procedure to satisfy judgments obtained by confession” under the Fourteenth Amendment’s Due Process Clause. Plaintiffs say that their claim is distinguishable from Overmyer because in that case, the Court held only that a cognovit clause is not per se constitu- tional under the Due Process Clause. Second, Plaintiffs argue that Overmyer is also distinguishable because Plaintiffs here allege that the Loan Agreements are void under the state’s usury laws. Plaintiffs are correct on both counts. First, Plaintiffs do not challenge the same kind of statute at issue in Overmyer. In Over- myer, the plaintiff challenged an Ohio statute that allowed a party to seek a confessed judgment without notice or a hearing based on a legally valid cognovit clause. Plaintiffs here challenge the next procedural step that a party would use to satisfy the confessed judg- ment: Maryland’s garnishment procedure. It is Plaintiffs’ conten- tion that Maryland’s garnishment procedure must afford notice and the opportunity to contest judgment. In fact, at least one cir- cuit court has found a similar argument persuasive. See Jordan, 20 F.3d at 1255 (emphasis added) (“We then conclude, as did the USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 19 of 26
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district court, that entry of the judgment, when coupled with sei- zure of the [plaintiff’s] bank account, without prior notice or op- portunity to be heard, does violate the Due Process Clause of the Fourteenth Amendment to the Constitution.”). But even if that argument ultimately proves unpersuasive under Overmyer, it is not “clearly foreclose[d],” which is the exacting requirement of fri- volity a federal claim must reach before a federal court is deprived of subject matter jurisdiction over a federal question. 7 See Sanders, 138 F.3d at 1352 (emphasis added). Second, Plaintiffs’ claim is also distinguishable because Overmyer made it crystal clear that its holding was not controlling in cases that presented different factual circumstances. Plaintiffs argue that the Loan Agreements here are criminally usurious, and thus unenforceable under Florida law, which would mean that the underlying Agreements are void ab initio. See Local No. 234 of United Ass’n of Journeyman & Apprentices of Plumbing & Pipefit- ting Indus. of U.S. & Canada v. Henley & Beckwith, Inc., 66 So. 2d 818, 821 (Fla. 1953) (“[C]ourts have no right to ignore or set aside a public policy established by the legislature or the people. Indeed,
7 Defendants argue in the alternative that Plaintiffs’ due process claim is fore- closed by the Maryland Supreme Court’s decision in Billingsley v. Lincoln Na- tional Bank, where the court, relying on Overmyer, held that Maryland’s con- fessed judgment statute, when measured against the U.S. Constitution, is “constitutional on its face.” 320 A.2d 34, 39 (Md. 1974). Defendants’ counter is unpersuasive: Billingsley is not controlling because it is neither a decision from the U.S. Supreme Court or this Court. Moreover, the Maryland court had no occasion to, and did not determine whether the constitutional claim was wholly insubstantial and frivolous. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 20 of 26
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there rests upon the courts the affirmative duty of refusing to sus- tain that which by the valid statutes of the jurisdiction . . . has been declared repugnant to public policy.”). In Overmyer, by contrast, the plaintiff did not contest that it knowingly and voluntarily signed the cognovit clause. The Third Circuit heeded this exact caution from Overmyer in considering whether a plaintiff had waived its right to notice and a hearing before the seizure of its assets: Overmyer plainly decide[d] [that] a debtor can waive its due process rights to a pre-deprivation hearing and notice when it voluntarily and intelligently consents to an agreement containing a cognovit clause. Never- theless, [ ] Overmyer also indicate[d] [that] waiver is usually a question of fact. . . . The constitutional va- lidity of any particular confession of judgment proce- dure depends on the validity of the debtor’s waiver[.] . . . Accordingly, a court faced with a due process chal- lenge to a confessed judgment should always inquire whether the judgment debtor’s execution of a docu- ment permitting judgment by confession is a valid waiver of his constitutional right to pre-deprivation notice and hearing. Jordan, 20 F.3d at 1272 (3rd Cir. 1994). Overmyer stated that the facts of a case matter a whole lot. We will not ignore that instruc- tion today. Defendants seize upon Plaintiffs’ efforts to factually distin- guish Overmyer in an effort to substantively attack Plaintiffs’ usury claims. Defendants argue that the Resnicks lack standing to assert usury because Jonathan and Perry Resnick claim that their names USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 21 of 26
20-14504 Opinion of the Court 21
were forged on the Guaranty Agreements. Defendants also assert that American Wellness waived its ability to claim usury three times, citing to one of the Funding Agreements and a decision by the bankruptcy judge in the bankruptcy proceedings involving Plaintiffs. This waiver, according to Defendants, forecloses Plain- tiffs’ ability to allege usury under Florida law. Again, we remain unpersuaded. Defendants’ substantive at- tack on Plaintiffs’ factual allegations and legal arguments only un- derscores the fact that Plaintiffs’ claim is not “clearly foreclose[d]” under federal law. To be sure, it is possible that Plaintiffs have waived their due process rights in a way that forecloses their claim that the Loan Agreements are void under Florida law. But that question goes to the merits -- not jurisdiction. Plaintiffs have sufficiently pled that they were denied consti- tutionally sufficient process to establish subject matter jurisdiction. III. The district court also raised, but ultimately did not rule on, whether it should abstain under Colorado River from deciding the case while the dispute in Maryland proceeds. Defendants agree that the district court’s abstention analysis is dicta in their opening brief, but still they ask us alternatively to dismiss Plaintiffs’ claims on abstention grounds. We decline Defendants’ invitation to reach the question. The district court did not specifically rule on the abstention issue in the first instance, and so we will not reach it either. Cf. Schu- mann v. Collier Anesthesia, P.A., 803 F.3d 1199, 1203, 1213 (11th Cir. 2015) (remanding to the district court to give it the first oppor- tunity to apply a newly adopted legal rule); Danley v. Allen, 480 F.3d 1090, 1092 (11th Cir. 2007) (per curiam) (“While this Court USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 22 of 26
22 Opinion of the Court 20-14504
certainly could review the record and applicable case law and ren- der a reasoned decision on the qualified immunity issue, this is the responsibility of the district court in the first instance.”); Nyland v. Moore, 216 F.3d 1264, 1266 (11th Cir. 2000) (per curiam) (observ- ing, in the context of a petition brought under 28 U.S.C. § 2254, that “[i]f there is an issue that the district court did not decide in the first instance, it is not properly before this Court and we remand for the district court’s consideration”). Like the merits of Plaintiffs’ due process claim, the district court can address abstention on re- mand. *** Congress has given the federal courts original jurisdiction over claims that “aris[e] under” federal law, see 28 U.S.C. § 1331, and Plaintiffs have filed such a claim -- one that does not fall under the exceedingly narrow realm of claims that are “wholly insubstan- tial and frivolous.” See Sanders, 138 F.3d at 1352 (quoting Bell, 327 U.S. at 682–83) (quotation marks omitted). Because of this, and because “we respect the important distinction between the lack of subject matter jurisdiction and the failure to state a claim upon which relief can be granted,” we conclude that the district court erred in holding it lacked subject matter jurisdiction over Plaintiffs’ claims. See id. at 1351–52. REVERSED and REMANDED. USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 23 of 26
20-14504 NEWSOM, J., Concurring 1
NEWSOM, Circuit Judge, joined by MARCUS, Circuit Judge, and STORY, District Judge, Concurring: I concur in the Court’s judgment and join its opinion in full. I write separately simply to flag an issue that has bothered me since law school. In particular, I wish to express my skepticism of the rule, which underlies our resolution of this appeal, that a plaintiff’s lawsuit “may sometimes be dismissed for want of jurisdiction”— i.e., on the ground that the court lacks the authority even to con- sider it—where the claim it alleges under the Constitution or fed- eral law is “wholly insubstantial and frivolous.” Bell v. Hood, 327 U.S. 678, 682–83 (1946) (emphasis added). The Court here is of course bound by Bell, and it dutifully— and correctly—applies Bell’s “wholly insubstantial and frivolous” standard in holding that the district court erroneously dismissed the plaintiffs’ complaint for lack of jurisdiction. See Maj. Op. at 9– 21. With respect to the wisdom of Bell, the Court goes about as far as it can, echoing then-Justice Rehnquist’s critique of Bell as “‘a le- gal landmine’ and ‘one of the most cryptic [cases] in the recent his- tory of [the] [Supreme] Court’s jurisprudence,’” and emphasizing just how “narrow” the “wholly insubstantial and frivolous” cate- gory must be. Id. at 11 & n.5 (quoting Yazoo Cnty. Indus. Dev. Corp. v. Suthoff, 454 U.S. 1157, 1159 (1982) (Rehnquist, J., dissent- ing from the denial of certiorari)). Speaking for myself, I’ll say what the Court—which speaks for all of us and is hemmed in by vertical stare decisis—really can’t: To the extent that the Supreme Court in Bell preserved the understanding that a “wholly insubstantial USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 24 of 26
2 NEWSOM, J., Concurring 20-14504
and frivolous” claim somehow fails even to invoke the federal courts’ subject-matter jurisdiction, it was wrong. The federal-question statute gives federal courts jurisdiction over “all civil actions arising under the Constitution, laws, or trea- ties of the United States.” 28 U.S.C. § 1331 (emphasis added). As the Supreme Court acknowledged in Bell itself, a district court has “arising under” federal-question jurisdiction within the meaning of § 1331 if the plaintiff’s right to recover under his complaint “will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given another.” 327 U.S. at 685. And as the Bell Court further acknowledged, “[j]urisdiction . . . is not defeated . . . by the possibility that the aver- ments [in a plaintiff’s complaint] might fail to state a cause of action on which [he] could actually recover.” Id. at 682. The reason, the Court explained, is that there is an important difference between the merits of a plaintiff’s claim and a court’s jurisdiction to entertain that claim: “[I]t is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction.” Id. Even while recognizing this fundamental distinction be- tween jurisdiction and the merits, though, the Bell Court pro- ceeded, in the same breath, to acknowledge two “previously carved out exceptions” in which the demerits of a plaintiff’s claim could trigger a jurisdictional failure—including, as relevant here, where the plaintiff’s claim “is wholly insubstantial and frivolous.” USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 25 of 26
Id. at 682–83. In so doing, the Court obliterated the very distinction that it had purported to recognize. That was a mistake. In fairness, the Bell Court seemed to do what it did with some reservation, saying that “[t]he accuracy of calling these dis- missals jurisdictional”—i.e., dismissals for insubstantiality and friv- olousness—“has been questioned.” Id. at 683. And in the interven- ing years, the Supreme Court has continued to indicate some doubt about the propriety of the “wholly insubstantial and frivolous” standard as a jurisdictional rule. See Hagans v. Lavine, 415 U.S. 528, 538 (1974) (calling “[t]he substantiality doctrine as a statement of jurisdictional principles” affecting a court’s authority to entertain a case “‘more ancient than analytically sound’” (quoting Rosado v. Wyman, 397 U.S. 397, 404 (1970))); cf. Shapiro v. McManus, 577 U.S. 39, 45–46 (2015) (similar). Commentators have likewise criti- cized the notion that a court’s subject-matter jurisdiction should turn on a merits-based substantiality inquiry. See, e.g., Richard Matasar, Rediscovering “One Constitutional Case”: Procedural Rules and the Rejection of the Gibbs Test for Supplemental Juris- diction, 71 Calif. L. Rev. 1399, 1417–25 (1983). The Supreme Court should bury the “wholly insubstantial and frivolous” gloss once and for all. Not only does it blur what should be a clear line between a court’s jurisdiction—i.e., its power—to entertain a plaintiff’s claim and the merits of that claim, USCA11 Case: 20-14504 Date Filed: 05/20/2022 Page: 26 of 26
4 NEWSOM, J., Concurring 20-14504
it is analytically unsustainable. 1 Under it, courts must draw razor- fine distinctions between claims that are really weak and those that are really, really weak—between those that are meritless, and thus sufficiently un-nonserious to invoke the court’s jurisdiction and to withstand a Rule 12(b)(1) motion (even if a Rule 12(b)(6) dismissal is immediately around the corner), and those that are frivolous, and thus fail even to implicate the judicial power. Needless to say, that distinction is so slippery as to border on illusory. See, e.g., Frivo- lous, Black’s Law Dictionary (11th ed. 2019) (defining “frivolous” to mean “[l]acking a legal basis or legal merit”). In my view, a plaintiff’s complaint either pleads a federal claim on its face—in which case § 1331 “arising under” jurisdiction exists—or it doesn’t. Courts should get out of the business of peer- ing through a plaintiff’s allegations to test their bona fides as a means of assessing subject-matter jurisdiction. If it turns out, as it sometimes will, that a plaintiff’s contention is a loser—even an ob- vious loser—then the court should simply take jurisdiction and dis- miss it on the merits for failure to state a claim.
1 It also contradicts the Supreme Court’s more recent teaching that courts should avoid “jurisdictionalizing” issues that are more properly understood as running to the merits. See, e.g., Boechler, P.C. v. Comm’r, 142 S. Ct. 1493, 1497 (2022) (“[W]e have endeavored to bring some discipline to use of the ju- risdictional label.” (quotation omitted)); cf. also Target Media Partners v. Spe- cialty Mktg. Corp., 881 F.3d 1279, 1292 (11th Cir. 2018) (Newsom, J., concur- ring) (observing that the Rooker-Feldman doctrine tends to unduly “jurisdic- tionalize” ordinary preclusion rules).