Thomas S. Tufts v. Edward C. Hay, Jr.

• Court: Court of Appeals for the Eleventh Circuit
• Decided: October 20, 2020
• Docket: 19-11603
• Status: Published

Opinion

USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 1 of 15

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

Nos. 19-11496 & 19-11603 ________________________

D.C. Docket No. 6:18-cv-00572-RBD-DCI

THOMAS SCOTT TUFTS, et al.,

Plaintiffs - Appellants - Cross-Appellees,

versus

EDWARD C. HAY, JR., et al.,

Defendants - Appellees - Cross-Appellants. ________________________

Appeals from the United States District Court for the Middle District of Florida ________________________

(October 20, 2020)

Before MARTIN, ROSENBAUM, and TALLMAN,∗ Circuit Judges.

MARTIN, Circuit Judge:

Thomas Tufts and the Tufts Law Firm, PLLC appeal the District Court’s

order granting a motion to dismiss this legal action on grounds of subject matter

∗The Honorable Richard C. Tallman, Circuit Judge for the United States Court of Appeals for the Ninth Circuit, sitting by designation. USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 2 of 15

jurisdiction. Edward Hay and Pitts, Hay & Hugenschmidt, P.A. also filed a second

motion to dismiss Tufts’s action against them on the additional ground that the

court lacked personal jurisdiction over them. The District Court found that

personal jurisdiction did exist, and Mr. Hay and his firm cross appeal that ruling

here. Upon careful consideration, and with the benefit of oral argument, we hold

that the District Court correctly denied the motion to dismiss for lack of personal

jurisdiction, but it erred in granting the motion to dismiss for lack of subject matter

jurisdiction. We therefore reverse the District Court’s ruling on subject matter

jurisdiction and remand this action.

I. BACKGROUND

This case arises out of a dispute between two sets of lawyers who provided

legal work for their mutual client, Biltmore Investments, Ltd. (“Biltmore”). One

set of counsel includes Mr. Hay, a North Carolina lawyer, and his North Carolina

law firm, Pitts, Hay & Hugenschmidt, P.A. (collectively “Hay” or “Hay counsel”).

Hay represented Biltmore in a Chapter 11 proceeding in the Bankruptcy Court for

the Western District of North Carolina that commenced in January 2011. The

other set of counsel includes Mr. Tufts, a Florida lawyer, and his Florida law firm,

Tufts Law Firm, PLLC (collectively “Tufts” or “Tufts counsel”). At the time

Biltmore’s bankruptcy petition was filed, Tufts represented Biltmore in various

Florida cases involving a merger transaction.

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During the bankruptcy proceeding, Hay “repeated[ly]” informed Tufts that

there was a “bench order” approving Tufts’s representation of Biltmore in all

matters. Hay also continuously represented to the North Carolina Bankruptcy

Court that Tufts was properly authorized to appear as “special counsel” for

Biltmore. In reliance upon those representations, Tufts did extensive legal work

for Biltmore. Among other things, Tufts transferred the Florida litigation to North

Carolina; served as the disbursing agent for settlement funds in the Florida

litigation; and appealed a “comfort order”1 the Bankruptcy Court issued for one of

Biltmore’s creditors.

Unbeknownst to Tufts, there was no Bankruptcy Court “bench order”

approving Tufts’s representation of Biltmore. Hay’s representations to the

Bankruptcy Court that Tufts was authorized to appear as “special counsel” were

also false. These facts ultimately came to light. Years later, at a March 18, 2015

hearing, Mr. Hay acknowledged to the Bankruptcy Court that Mr. Tufts relied on

him for advice about how to proceed with the approval of attorney’s fees, but that

Hay failed to tell Tufts he needed to apply in advance for the fees.

1 A bankruptcy court issues a comfort order to confirm that the automatic stay in bankruptcy does not apply to a specific piece of property. See 11 U.S.C. § 362(j). Once a comfort order is issued as to a creditor’s collateral, for example, that creditor can proceed against the property that secures its debt without violating the bankruptcy stay. 3 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 4 of 15

This sequence of events led to a Bankruptcy Court order disgorging Tufts of

all legal fees and costs paid to Tufts on account of the litigation over the comfort

order. When Tufts counsel did not return the funds to Biltmore as ordered, the

Bankruptcy Court held Tufts in civil contempt. As a result of the disgorgement

and contempt orders, Tufts engaged in costly litigation and settlement negotiations

in an effort to resolve these disputes. In December 2017, Biltmore’s Chapter 11

proceeding was dismissed by way of consent order.

In April of the following year, Tufts sued Hay in U.S. District Court for,

among other things, negligent misrepresentation, intentional misrepresentation, and

indemnification. After Tufts counsel amended their complaint, Hay moved to

dismiss the complaint for reasons that included lack of personal jurisdiction. The

District Court denied the motion to dismiss, finding personal jurisdiction existed

over Hay insofar as Tufts’s allegations satisfied the requirements of Florida’s long-

arm statute and constitutional due process.

Having failed in its first effort to have the Tufts action dismissed, Hay filed a

second motion to dismiss. This time Hay argued that the District Court lacked

subject matter jurisdiction under the Barton doctrine. The Barton doctrine requires

a plaintiff to “obtain leave of the bankruptcy court before initiating an action in

district court when that action is against the trustee or other bankruptcy-court-

appointed officer, for acts done in the actor’s official capacity.” Carter v. Rodgers,

4 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 5 of 15

220 F.3d 1249, 1252 (11th Cir. 2000). This time, the District Court granted Hay’s

motion to dismiss. In short, the court held that “Plaintiffs had to obtain leave from

the Bankruptcy Court before suing,” and their “failure to do so deprives this Court

of subject matter jurisdiction.”

This is Tufts’s appeal of the dismissal of its suit against Hay based on the

Barton doctrine. And this consolidated appeal also presents Hay counsel’s cross-

appeal of the order denying their motion to dismiss for lack of personal

jurisdiction.

II. STANDARD OF REVIEW

We review de novo the legal conclusions upon which a district court

dismisses a complaint for lack of subject matter jurisdiction. Houston v. Marod

Supermarkets, Inc., 733 F.3d 1323, 1328 (11th Cir. 2013). We employ de novo

review, as well, in reviewing whether a district court has personal jurisdiction over

a defendant. Oldfield v. Pueblo De Bahia Lora, S.A., 558 F.3d 1210, 1217

(11th Cir. 2009).

III. DISCUSSION

We begin by addressing the interplay of the Barton doctrine and subject

matter jurisdiction. We then consider whether the District Court properly

exercised personal jurisdiction over Hay.

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A. THE DISTRICT COURT ERRED BY DISMISSING THE ACTION FOR LACK OF SUBJECT MATTER JURISDICTION UNDER THE BARTON DOCTRINE In Barton v. Barbour, 104 U.S. 126 (1881), the Supreme Court recognized

the “general rule that before suit is brought against a receiver leave of the court by

which he was appointed must be obtained.” Id. at 128. The Supreme Court

expressed the rule in terms of jurisdiction, saying: “[i]f the court below had

entertained jurisdiction of this suit,” it would have “been an usurpation of the

powers and duties which belonged exclusively to another court.” Id. at 136.

Under what has become known as the Barton doctrine, a plaintiff “must obtain

leave of the bankruptcy court before initiating an action in district court when that

action is against the trustee or other bankruptcy-court-appointed officer, for acts

done in the actor’s official capacity.” Carter, 220 F.3d at 1252. Our Court has

applied the Barton doctrine to require leave of court before an action can be

initiated against lawyers that are “court-approved counsel” who function as the

“equivalent of court-appointed officers.” Lawrence v. Goldberg, 573 F.3d 1265,

1269–70 (11th Cir. 2009).

Here, Tufts counsel initiated their action against Hay—court-approved

counsel—and Tufts did not obtain leave of the Bankruptcy Court before doing so.

The Barton doctrine provides that “absent that leave, the district court correctly

found that it did not have subject matter jurisdiction over [the] cause of action.”

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Carter, 220 F.3d at 1253. Yet Tufts says the Barton doctrine cannot apply here,

because it cannot properly extend beyond the jurisdiction of the Bankruptcy Court.

Specifically, Tufts argues that because Biltmore’s Chapter 11 bankruptcy case has

now been dismissed, the Bankruptcy Court no longer has subject matter

jurisdiction to consider the claims in this case. Thus, Tufts counsel says they are

relieved of any obligation to seek leave from that court to bring this action.

We are persuaded by the view advocated by Tufts counsel and hold that the

Barton doctrine has no application when jurisdiction over a matter no longer exists

in the bankruptcy court. Our holding flows from Barton itself: when the

bankruptcy court lacks jurisdiction, there are no “powers and duties which

belong[]” to that court to be usurped by the district court “entertain[ing]

jurisdiction of th[e] suit.” Barton, 104 U.S. at 136. As one bankruptcy court has

noted, decisions explaining the rationale for the Barton doctrine look to “the

bankruptcy court’s jurisdiction over the bankruptcy case and the powers that flow

from that jurisdiction.” In re WRT Energy Corp., 402 B.R. 717, 722 (Bankr. W.D.

La. 2007). For example, courts have recognized that the Barton doctrine is based

on “the bankruptcy court’s exclusive in rem jurisdiction over the estate” and “the

oversight and supervisory responsibilities of bankruptcy courts.” Id. (citing In re

Crown Vantage, Inc., 421 F.3d 963, 971, 974 (9th Cir. 2005) and In re

Lowenbraun, 453 F.3d 314, 321–22 (6th Cir. 2006)). Similarly, this Court has

7 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 8 of 15

observed that a plaintiff’s claims can “fall within the scope of the Barton doctrine

because they are ‘related to’ [the] bankruptcy proceeding,” such that the

bankruptcy court has jurisdiction. Lawrence, 573 F.3d at 1270–71. As Tufts

argues, “a logical corollary to that holding” is that the Barton doctrine does not

apply once the bankruptcy court lacks jurisdiction.

As a rule, district courts have jurisdiction to refer to bankruptcy courts “all

cases under” the Bankruptcy Code and “all civil proceedings . . . arising in or

related to cases under” the Bankruptcy Code. 28 U.S.C. § 1334(a)–(b); see 28

U.S.C. § 157(a). “[T]he test for determining whether a civil proceeding is related

to bankruptcy [under section 1334(b)] is whether the outcome of the proceeding

could conceivably have an effect on the estate being administered in bankruptcy.”

In re Lemco Gypsum, Inc., 910 F.2d 784, 788 (11th Cir. 1990) (quotation marks

omitted). Thus, under this Court’s precedent, the Bankruptcy Court here was

properly vested with jurisdiction to consider this action if it could conceivably

have an effect on Biltmore’s bankruptcy estate.

The question of whether this action “could conceivably have an effect on”

Biltmore’s bankruptcy estate is an easy one here, because both parties have agreed

it cannot. During a hearing on Hay’s motion to dismiss for lack of subject matter

jurisdiction, counsel for Hay “concede[d] th[e] fact” that because “the Chapter 11

case has been dismissed,” there is “no conceivable effect . . . that this case would

8 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 9 of 15

have on the estate.” Hay confirmed this concession during oral argument before

our Court. Thus, under the “conceivable effects” test for section 1334(b), the

Bankruptcy Court did not have jurisdiction to consider Tufts’s action, and Tufts

counsel were not required to obtain leave from that court before filing this action in

the District Court.2 The Barton doctrine did not therefore deprive the District

Court of subject matter jurisdiction over this case.3 We expressly note that our

holding here creates no categorical rule that the Barton doctrine can never apply

once a bankruptcy case ends. We address this case only, and here these parties

agreed this action could have no conceivable effect on the bankruptcy estate. On

this record, the Bankruptcy Court lacked jurisdiction, and the Barton doctrine does

not apply. 4

2 This case relates to the jurisdiction of the Bankruptcy Court for the Western District of North Carolina. The Fourth Circuit, which includes North Carolina, applies a “close nexus” test in evaluating “related to” jurisdiction in the context of a Chapter 11 plan, postconfirmation. See Valley Historic Ltd. P’ship v. Bank of N.Y., 486 F.3d 831, 837 (4th Cir. 2007). In light of Hay’s concession, and because the Chapter 11 proceeding has been dismissed, our conclusion that the Bankruptcy Court lacked jurisdiction would be the same even if the “close nexus” test applied. See In re Resorts Int’l, Inc., 372 F.3d 154, 168–69 (3d Cir. 2004). 3 In light of our holding that the Barton doctrine does not apply due to lack of jurisdiction vested in the Bankruptcy Court, we decline to address Tufts’s remaining arguments for why the Barton doctrine does not apply. 4 We are aware that some of our sister circuits apply the Barton doctrine after the bankruptcy case has ended. See Muratore v. Darr, 375 F.3d 140, 147 (1st Cir. 2004); In re Linton, 136 F.3d 544, 545 (7th Cir. 1998). Indeed, we read these cases to identify important policy reasons for applying the Barton doctrine in that context. For example, the Barton doctrine “enables bankruptcy judges to monitor the work of the trustees more effectively” and, absent the Barton doctrine, “trusteeship will become a more irksome duty, and so it will be harder for courts to find competent people to appoint as trustees.” Linton, 136 F.3d at 545. This Court has also recognized these concerns in other contexts. See Lawrence, 573 F.3d at 1269. We accept as 9 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 10 of 15

B. THE DISTRICT COURT PROPERLY EXERCISED PERSONAL JURISDICTION OVER HAY

We turn now to Hay counsel’s cross-appeal of the District Court’s denial of

their motion to dismiss for lack of personal jurisdiction. As a preliminary matter,

we must decide whether this Court has subject matter jurisdiction to decide this

issue on appeal. Although neither party considered this Court’s subject matter

jurisdiction in their briefing, “it is well settled that a federal court is obligated to

inquire into subject matter jurisdiction sua sponte whenever it may be lacking.”

Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 410 (11th Cir. 1999).

This Court has “jurisdiction of appeals from all final decisions of the district

courts of the United States.” 28 U.S.C. § 1291. Upon the district court’s entry of

final judgment, this Court has jurisdiction to review its previous interlocutory

orders—like the denial of Hay’s motion to dismiss for lack of personal jurisdiction.

See Aaro, Inc. v. Daewoo Int’l (Am.) Corp., 755 F.2d 1398, 1400 (11th Cir. 1985).

However, in most cases, “the prevailing party does not have standing to appeal

because it is assumed that the judgment has caused that party no injury.” Agripost,

Inc. v. Miami-Dade Cnty. ex rel. Manager, 195 F.3d 1225, 1230 (11th Cir. 1999).

Nevertheless, we have jurisdiction to decide the personal jurisdiction issue here

because “a prevailing party is entitled to defend [a district court’s] judgment on

meritorious these policy reasons calling for application of the Barton doctrine, and our decision today does not conflict with the views of our sister circuits in this regard. 10 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 11 of 15

any ground preserved in the district court.” Worthy v. City of Phenix City, 930

F.3d 1206, 1216 (11th Cir. 2019) (quotation marks omitted). Since we have

jurisdiction over Tufts’s appeal, our jurisdiction extends to allow our consideration

of Hay’s argument that the District Court’s judgment should be affirmed on other

grounds preserved in the District Court—namely, Hay’s personal jurisdiction

defense. 5

Having resolved the matter of our own jurisdiction, we next consider

whether the District Court properly exercised personal jurisdiction over Hay. We

hold that it did. A court has personal jurisdiction over a non-resident defendant if

(1) the state’s long-arm statute provides jurisdiction, and (2) the exercise of such

jurisdiction comports with the Due Process Clause of the Fourteenth Amendment.

PVC Windoors, Inc. v. Babbitbay Beach Constr., N.V., 598 F.3d 802, 807, 811

(11th Cir. 2010).

Under Florida’s long-arm statute, specific jurisdiction over a non-resident

defendant is proper when the defendant “[c]ommit[s] a tortious act within” Florida.

Fla. Stat. § 48.193(1)(a)(2). Physical presence in Florida is not required. Internet

Sols. Corp. v. Marshall, 39 So. 3d 1201, 1208 (Fla. 2010). Instead, a tortious act

5 True, Hay cross appealed on the personal jurisdiction issue, as opposed to simply raising this alternative ground for affirmance in response to Tufts’s appeal. Nevertheless, the two appeals were consolidated, and Hay raised the personal jurisdiction defense in response to Tufts’s opening brief. As a result, Hay has adequately raised personal jurisdiction as an alternative ground for affirmance. 11 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 12 of 15

“can occur through the nonresident defendant’s telephonic, electronic, or written

communications into Florida,” so long as the cause of action arises from such

communications. Id. (quotation marks omitted). Tufts alleged that Hay counsel

made “misrepresentations” when they “made repeated reference in [their]

discussions with [Tufts] as to the purported issuance of a ‘bench order’ [they]

claimed had been issued previously, approving of [Tufts’s] representation of

[Biltmore] in all matters.” The complaint goes on to allege that “[a]t all times

pertinent to this action” Mr. Tufts was a resident of Florida and the Tufts Law Firm

was operating in Florida. We therefore draw the reasonable inference that when

Hay counsel made such misrepresentations to Tufts, those misrepresentations were

made in Florida. See Randall v. Scott, 610 F.3d 701, 705 (11th Cir. 2010) (“We

. . . draw all reasonable inferences in the plaintiff’s favor.”). Hay counsel

acknowledges that they “may have communicated with Tufts when Tufts was in

Florida.” For this reason as well, we infer that those repeated misrepresentations

were made into Florida. See Internet Sols., 39 So. 3d at 1208. And Hay’s

misrepresentations also give rise to Tufts’s causes of action, which satisfies the

requirements of Florida’s long-arm statute. See id. at 1208–09. Specifically, Tufts

counsel alleges they performed work for Biltmore in reliance on Hay’s

misrepresentations. So it was as a result of these misrepresentations that Tufts did

work they were not authorized to do. This, in turn, led to the disgorgement and

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contempt orders as well as Tufts’s time and expense in working to resolve those

disputes.

Because Tufts’s allegations satisfy the requirements of Florida’s long-arm

statute, we next consider whether the exercise of personal jurisdiction comports

with constitutional due process. See PVC Windoors, 598 F.3d at 811. A court’s

exercise of specific personal jurisdiction comports with due process when (1) the

non-resident defendant “purposefully availed himself” of the privilege of

conducting activities within the forum state, (2) the plaintiff’s claims “arise out of

or relate to” one of the defendant’s contacts within the forum state, and (3) the

exercise of personal jurisdiction is in accordance with “traditional notions of fair

play and substantial justice.” Louis Vuitton Malletier, S.A. v. Mosseri, 736 F.3d

1339, 1355 (11th Cir. 2013) (quotation marks omitted).

Hay counsel purposefully availed themselves of Florida by having minimum

contacts in Florida. 6 See id. at 1357. Hay counsel’s repeated misrepresentations

regarding the non-existent “bench order” were made to Tufts in Florida. This

6 Hay counsel contends that the District Court erred in its analysis of the purposeful availment prong because it only applied the “effects test.” Hay argues that under Louis Vuitton, the District Court should have applied both the traditional minimum contacts test and the effects test. This argument fails because our precedent does not require the application of both tests. Louis Vuitton held that in “intentional tort cases, there are two applicable tests for determining whether purposeful availment occurred”: the traditional minimum contacts test and the effects test. Louis Vuitton, 736 F.3d at 1356–57. Because both tests address the same question— whether the defendant purposefully availed itself of the forum state—only one test need be applied. See id. at 1357. Since Hay had minimum contacts in Florida, we do not apply the effects test. 13 USCA11 Case: 19-11496 Date Filed: 10/20/2020 Page: 14 of 15

“purposeful conduct created a substantial connection with the forum state” and

supports jurisdiction. Licciardello v. Lovelady, 544 F.3d 1280, 1285 (11th Cir.

2008) (quotation marks omitted).

As for the second requirement of due process, Tufts counsel’s causes of

action arise out of Hay’s contacts in Florida. See Louis Vuitton, 736 F.3d at 1355.

Hay correctly argues that our precedent requires that its contacts be the but-for

cause of Tufts’ claims. See Oldfield, 558 F.3d at 1222–23. We agree, and here

Hay counsel’s misrepresentations in Florida are the but-for cause of Tufts’s claims.

But for the misrepresentations made by Hay counsel, Tufts would not have

performed work for Biltmore they were unauthorized to perform. This in turn led

to the disgorgement and contempt orders and Tufts’s efforts to resolve those

As to the third requirement of due process, it is met because the exercise of

jurisdiction would comport with fair play and substantial justice. See Lovelady,

544 F.3d at 1288. We consider “[r]elevant factors includ[ing] the burden on the

defendant, the forum’s interest in adjudicating the dispute, the plaintiff’s interest in

obtaining convenient and effective relief and the judicial system’s interest in

resolving the dispute.” Id. Hay counsel concede that Tufts counsel have an

interest in convenience. While we acknowledge that litigating in Florida places

some burden on Hay counsel, the interest of the forum state and the judicial

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system’s interest in resolving the dispute overcome any concerns about Hay’s

burden. “Florida has a very strong interest in affording its residents a forum to

obtain relief from intentional misconduct of nonresidents causing injury in

Florida.” Id.

IV. CONCLUSION

Because the District Court erred in granting Hay’s motion to dismiss for lack

of subject matter jurisdiction, we REVERSE that ruling. As to Hay counsel’s

request that we affirm on the alternative ground that the District Court lacked

personal jurisdiction over them, their argument fails. The District Court correctly

denied Hay’s motion to dismiss for lack of personal jurisdiction. We REMAND

for further proceedings consistent with this opinion.