Paul Hulsey v. Frank Cisa

947 F.3d 246

• Court: Court of Appeals for the Fourth Circuit
• Decided: January 17, 2020
• Docket: 18-2014
• Status: Published

Opinion

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 18-2014

PAUL H. HULSEY; HULSEY LAW GROUP LLC,

Plaintiffs - Appellants

v.

FRANK M. CISA; CISA & DODDS LLP; PINNACLE BANK, Successor in Interest to Southcoast Community Bank; ROBERT A. DANIEL, JR.; LAWTON LIMEHOUSE, SR.; LAWTON LIMEHOUSE, JR.; WLL LLC; RICHARD B. HOMES; L&L SERVICES LLC; RICHARD B. HOMES, CPA, LLC,

Defendants - Appellees.

Appeal from the United States District Court for the District of South Carolina, at Charleston. Patrick Michael Duffy, Senior District Judge. (2:17-cv-03095-PMD)

Argued: October 29, 2019 Decided: January 17, 2020

Before KING, FLOYD, and RUSHING, Circuit Judges.

Reversed and remanded by published opinion. Judge Rushing wrote the opinion, in which Judge King and Judge Floyd joined.

ARGUED: Phillip Russel Myles, Samuel Fraser Reid, III, MCDOWELL KNIGHT ROEDDER & SLEDGE LLC, Mobile, Alabama, for Appellants. Marcus Angelo Manos, NEXSEN PRUET, LLC, Columbia, South Carolina, for Appellees. ON BRIEF: G. Robert Blakey, NOTRE DAME LAW SCHOOL, Paradise Valley, Arizona, for Appellants. Cherie K. Durand, HULSEY LAW GROUP, LLC, Mt. Pleasant, South Carolina, for Appellant Paul H. Hulsey. Michael B. McCall, II, EARHART OVERSTREET LLC, Charleston, South Carolina, for Appellees Frank M. Cisa and Cisa & Dodds, LLP. Joseph C. Wilson, IV, PIERCE, SLOAN, WILSON, KENNEDY & EARLY LLC, Charleston, South Carolina, for Appellee Lawton Limehouse, Jr. Russell G. Hines, Stephen L. Brown, YOUNG CLEMENT RIVERS, LLP, Charleston, South Carolina, for Appellees Richard B. Homes and Richard B. Homes, CPA, LLC. Justin Kahn, KAHN LAW FIRM, Charleston, South Carolina, for Appellees Lawton Limehouse, Sr., WLL LLC, and L&L Services LLC.

2 RUSHING, Circuit Judge:

In this case, we decide whether the district court properly applied the Rooker-

Feldman doctrine to dismiss this federal action alleging misconduct by litigants in two

lawsuits previously tried in state court. We reverse and remand, concluding that the

Rooker-Feldman doctrine does not apply.

I.

We begin with the state lawsuits that form the basis for the federal claims. In April

2006, Lawton Limehouse, Sr., and his son, Lawton Limehouse, Jr., filed separate

defamation complaints against Paul Hulsey and Hulsey Law Group, LLC, (collectively,

Hulsey) in South Carolina state court. Hulsey removed the two suits to the United States

District Court for the District of South Carolina. The Limehouses each moved to remand,

and the district court granted their motions on July 20, 2006. After remand, Hulsey failed

to file a timely answer to either complaint, causing the South Carolina court to enter orders

of default against him in both cases.

Limehouse, Sr.’s claim proceeded to a jury trial to determine damages and, because

Hulsey had defaulted, the court denied him discovery or the chance to present evidence at

the trial. The jury returned a substantial verdict in favor of Limehouse, Sr., and Hulsey

appealed. The South Carolina Court of Appeals affirmed, but the South Carolina Supreme

Court granted Hulsey’s petition for a writ of certiorari. While the appeal of Limehouse,

Sr.’s verdict ascended through the courts, Limehouse, Jr.’s claim proceeded to a jury trial.

The jury returned a substantial default damages verdict in favor of Limehouse, Jr. Hulsey

was also denied discovery or the opportunity to present evidence in that case. The South

3 Carolina Supreme Court certified an appeal in Limehouse, Jr.’s case and considered the

two defamation cases together in a consolidated appeal. See Limehouse v. Hulsey, 744

S.E.2d 566 (S.C. 2013).

The South Carolina Supreme Court held that the state trial court lacked jurisdiction

over the lawsuits because of a procedural defect in the handling of the July 20, 2006 remand

order. See Limehouse, 744 S.E.2d at 575. The court vacated the verdicts and remanded

the cases with orders for proceedings to recommence in the trial court from the point at

which the clerk of court received a certified copy of the remand order. Although the South

Carolina Supreme Court vacated the default damages verdicts, the court nevertheless noted

that the trial court had been correct to preclude Hulsey from conducting discovery or

presenting evidence after the default. See id. at 579.

On remand, Limehouse, Sr.’s case entered discovery, during which Hulsey obtained

evidence of a large tax levy against the Limehouses’ businesses. The case proceeded to a

trial on the merits in which Hulsey fully participated. At trial, Hulsey argued that the tax

levy, not his allegedly defamatory statements, was the cause of the Limehouses’ monetary

losses. This time, the jury returned a verdict for Hulsey, and Limehouse, Sr., appealed.

While Limehouse, Sr.’s appeal was pending, the parties conducted discovery in

Limehouse, Jr.’s case. But before Limehouse, Jr.’s case could go to trial or Limehouse,

Sr.’s appeal could be resolved, Hulsey agreed to settle both suits. By August 24, 2016,

both cases had been dismissed pursuant to the settlement agreement.

A year later, on November 15, 2017, Hulsey filed the instant suit in the United States

District Court for the District of South Carolina, naming as defendants the Limehouses,

4 their businesses, the attorney and law firm who represented the Limehouses in the

defamation suits, and two witnesses (and associated businesses) who testified at the default

damages trials. Hulsey alleged that the defamation lawsuits were a sham and that the

defendants had concealed crucial evidence, most notably the tax levy, in order to obtain

verdicts against him. The complaint alleged perjury, mail fraud, fabrication of evidence,

and threats of violence, among other fraudulent and extortionate conduct. Hulsey further

alleged that these acts cohered into a pattern of racketeering such that the defendants had

violated the Racketeer Influenced and Corrupt Organizations Act (RICO).

The district court dismissed the complaint on the defendants’ motions. The court

interpreted Hulsey’s allegation that the defendants had concealed evidence as a veiled

attack on the state-court orders denying Hulsey discovery in the default damages trials. As

the district court saw it, Hulsey’s complaint essentially argued “that the state court should

have allowed [Hulsey] to discover the [tax] levy sooner, and that [the fraudulent scheme]

was enabled by the state court’s decision to deny [Hulsey] the opportunity to pursue

discovery [during] default.” Hulsey v. Cisa, No. 2:17-3095-PMD, 2018 WL 6650360, at

*3 (D.S.C. Aug. 2, 2018). The district court reasoned that Hulsey’s complaint sought to

“undermine” the South Carolina Supreme Court’s ruling that Hulsey was not entitled to

discover the tax levy in the state-court default proceedings and therefore the complaint ran

afoul of the Rooker-Feldman doctrine. The district court dismissed the complaint for lack

of subject-matter jurisdiction.

Hulsey now appeals, arguing that the Rooker-Feldman doctrine does not bar his

claims. The defendants disagree and also raise a raft of alternative bases for affirmance.

5 We review the district court’s dismissal de novo. See Davani v. Virginia Dep’t of Transp.,

434 F.3d 712, 715 (4th Cir. 2006).

II.

Among the federal courts, only the Supreme Court possesses the authority to

exercise appellate jurisdiction over state-court judgments. Congress vested such authority

in the Supreme Court in 28 U.S.C. § 1257(a). See Exxon Mobil Corp. v. Saudi Basic Indus.

Corp., 544 U.S. 280, 291–292 (2005). By contrast, Congress has given federal district

courts original jurisdiction over various actions but has not “authorize[d] district courts to

exercise appellate jurisdiction over state-court judgments.” Verizon Maryland, Inc. v. Pub.

Serv. Comm’n of Maryland, 535 U.S. 635, 644 n.3 (2002); see, e.g., 28 U.S.C. §§ 1330–

1369. The Rooker-Feldman doctrine takes its name from the only two cases in which the

Supreme Court has applied these principles to foreclose district court jurisdiction over suits

that were, in essence, appeals from state-court judgments: Rooker v. Fidelity Trust Co., 263

U.S. 413 (1923), and D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983).

In Rooker, the plaintiffs, having lost in state court, brought suit in federal district

court, alleging that the state-court judgment contravened the Constitution and asking the

district court to declare the judgment “null and void.” Rooker, 263 U.S. at 414. The

Supreme Court held that the district court could not entertain such a claim because “[t]o do

so would be an exercise of appellate jurisdiction” and “[t]he jurisdiction possessed by the

District Courts is strictly original.” Id. at 416. In Feldman, the plaintiffs sued a state court

for refusing to waive a bar admission rule that required applicants to have graduated from

an approved law school. 460 U.S. at 463. The plaintiffs alleged that the state court’s

6 decision violated federal law, and they sought an injunction requiring the state court to

admit the plaintiffs to the bar or permit them to sit for the bar examination. See id. at 468–

469. The Supreme Court held that the district court lacked jurisdiction over the complaints

to the extent the plaintiffs sought review of the state court’s denial of their petitions for

waiver. Reiterating its reasoning from Rooker, the Supreme Court held that “a United

States District Court has no authority to review final judgments of a state court in judicial

proceedings.” Feldman, 460 U.S. at 482.

Since Feldman, the Supreme Court has repeatedly emphasized that the Rooker-

Feldman doctrine is “confined to cases of the kind from which the doctrine acquired its

name: cases brought by state-court losers complaining of injuries caused by state-court

judgments rendered before the district court proceedings commenced and inviting district

court review and rejection of those judgments.” Exxon, 544 U.S. at 284; see Lance v.

Dennis, 546 U.S. 459, 460, 464 (2006) (per curiam); Skinner v. Switzer, 562 U.S. 521, 532

(2011). In other words, the doctrine simply precludes federal district courts from

exercising what would be, in substance, appellate jurisdiction over final state-court

judgments. See Thana v. Bd. of License Comm’rs, 827 F.3d 314, 319 (4th Cir. 2016) (“The

doctrine goes no further than necessary to effectuate Congress’ allocation of subject matter

jurisdiction between the district courts and the Supreme Court.”).

This case does not fall within the Rooker-Feldman doctrine’s narrow scope, for

multiple independent reasons. First and foremost, Hulsey is not complaining of an injury

caused by a state-court judgment. See Exxon, 544 U.S. at 284. In the federal complaint,

Hulsey sought damages, disgorgement, and injunctive relief against the Limehouses and

7 their co-defendants for alleged RICO violations, fraud, and abuse of process, among other

allegations. Hulsey does not “seek[] redress for an injury caused by the state-court decision

itself,” Davani, 434 F.3d at 718 (emphasis added), but rather for injuries caused by the

defendants’ allegedly fraudulent conduct in prosecuting the defamation suits against him

in state court. Even if the denial of discovery in the default proceedings may have aided

the defendants’ alleged fraudulent concealment of evidence, that does not make the state

court’s discovery ruling the cause of Hulsey’s injury. A plaintiff’s injury at the hands of a

third party may be “ratified, acquiesced in, or left unpunished by” a state-court decision

without being “produced by” the state-court judgment. Hoblock v. Albany Cty. Bd. of

Elections, 422 F.3d 77, 88 (2d Cir. 2005). Such is the case here. According to the

complaint, Hulsey’s injuries were caused by the defendants’ fraud, which was merely

enabled by the state court’s discovery ruling. The defendants’ alleged use of the courts as

a tool to defraud does not make the state court’s ruling the cause of Hulsey’s injury.

Further, this is not a case in which “the process for appealing a state court judgment

to the Supreme Court under 28 U.S.C. § 1257(a) has been sidetracked by an action filed in

district court specifically to review that state court judgment.” Thana, 827 F.3d at 320. As

an initial matter, Hulsey did not lose in state court, so Hulsey could not be seeking “an

appeal of an unfavorable state-court decision.” Lance, 546 U.S. at 466; see Exxon, 544

U.S. at 284 (holding that the Rooker-Feldman doctrine is confined to cases “brought by

state-court losers”). Hulsey prevailed in Limehouse, Sr.’s suit and then, while that case

was pending on appeal, Hulsey settled both Limehouse, Sr.’s and Limehouse, Jr.’s suits.

The defendants argue that Hulsey qualifies as a state-court loser because the state courts

8 denied him discovery in the default damages trials, but those interlocutory orders were

subsequently nullified when the South Carolina Supreme Court ordered new trials in which

Hulsey had the opportunity to conduct discovery and fully participate. The discovery

rulings thus were not “final state-court judgments” against Hulsey over which Hulsey

sought the district court to “exercis[e] appellate jurisdiction.” Lance, 546 U.S. at 463.

Nor does Hulsey’s federal lawsuit “invit[e] district court review and rejection” of a

state-court judgment, as would typify an appeal. Exxon, 544 U.S. at 284. This criterion is

not satisfied by mere overlap between state-court litigation and the plaintiff’s claim; the

federal action must be filed “specifically to review th[e] state court judgment.” Thana, 827

F.3d at 320. Hulsey’s complaint does not seek, implicitly or explicitly, reversal or

modification of the South Carolina court’s judgment in the defamation cases, which he

ultimately settled.

On this point, the district court reasoned that “the crux” of Hulsey’s RICO claim

was that the defendants fraudulently concealed the tax levy against their businesses and

Hulsey’s only avenue for learning of the levy was discovery, which he was denied by the

South Carolina courts. Hulsey, 2018 WL 6650360, at *3. The district court thus was

concerned that adjudicating Hulsey’s complaint would “undermine” the South Carolina

Supreme Court’s ruling that Hulsey was not entitled to discover the tax levy in the state-

court default proceedings. Id. But Section 1257 does not “stop a district court from

exercising subject-matter jurisdiction simply because a party attempts to litigate in federal

court a matter previously litigated in state court.” Exxon, 544 U.S. at 293. Rather, “[i]f a

federal plaintiff presents some independent claim, albeit one that denies a legal conclusion

9 that a state court has reached in a case to which he was a party, then there is jurisdiction

and state law determines whether the defendant prevails under principles of preclusion.”

Id. (internal quotation marks and alterations omitted). Here, Hulsey has presented

independent claims about the defendants’ alleged misconduct in instituting and pursuing

the defamation suits against him. That Hulsey previously may have presented to the state

court some of the arguments in his federal complaint does not strip the district court of

jurisdiction. Because the fraud claims in Hulsey’s complaint do not challenge the South

Carolina court’s decision regarding the defamation claims litigated in state court, it is “not

an impediment to the exercise of federal jurisdiction that the ‘same or a related question’

was earlier aired between the parties in state court.” Skinner, 562 U.S. at 532 (quoting

Exxon, 544 U.S. at 292–293). Hulsey’s claims may encounter legal barriers, including

preclusion, but the district court has jurisdiction to adjudicate those barriers because

Hulsey’s complaint asserts claims independent from the state-court decision.

The defendants argue that Hulsey’s claims of fraud are, at a minimum, “inextricably

intertwined” with the arguments Hulsey made and lost before the South Carolina courts

and therefore the Rooker-Feldman doctrine should apply. The phrase “inextricably

intertwined” comes from the Supreme Court’s decision in Feldman. There, the Court

explained that a litigant may seek to overturn a state-court judgment by reiterating the same

arguments the litigant pursued in the state court or by attacking the state-court judgment

on grounds not previously raised but “inextricably intertwined” with the state-court

judgment. See Feldman, 460 U.S. at 482 n.16. In either case, the federal court “is in

essence being called upon to review the state court decision,” which a district court may

10 not do. Id.; see id. at 486–487 (holding plaintiffs’ claims that the state court acted

arbitrarily and capriciously in denying plaintiffs’ petitions for waiver were inextricably

intertwined with the state-court judgment denying their petitions). We have explained that

“Feldman’s ‘inextricably intertwined’ language does not create an additional legal test for

determining when claims challenging a state-court decision are barred.” Davani, 434 F.3d

at 719. Rather, it “merely states a conclusion: if the state-court loser seeks redress in the

federal district court for the injury caused by the state-court decision, his federal claim is,

by definition, ‘inextricably intertwined’ with the state-court decision, and is therefore

outside of the jurisdiction of the federal district court.” Id. Because Hulsey is not a state-

court loser complaining of an injury caused by a state-court judgment and specifically

seeking district court review and rejection of that judgment, his federal claims are not

barred by the Rooker-Feldman doctrine. See Exxon, 544 U.S. at 284.

III.

The defendants urge us to consider numerous alternative grounds for affirming the

district court’s judgment dismissing this case. “It is the general rule, of course, that a

federal appellate court does not consider an issue not passed upon below.” Singleton v.

Wulff, 428 U.S. 106, 120 (1976). Evaluating the alternative grounds presented by the

defendants would require extensive analysis of issues never addressed by the district court,

which is better positioned to consider them in the first instance. In keeping with our general

practice, we decline to resolve these arguments as an initial matter on appeal but remand

the case to the district court for further proceedings consistent with this opinion. See

11 Goldfarb v. Mayor and City Council of Baltimore, 791 F.3d 500, 515 (4th Cir. 2015);

French v. Assurance Co. of America, 448 F.3d 693, 707 (4th Cir. 2006).

REVERSED AND REMANDED