First Circuit Says Plaintiff Cannot Collaterally Attack Settlement Judgment on Ground that District Court Lacked Subject Matter Jurisdiction

Per Baella-Silva v. Hulsey, 454 F.3d 5 (1st Cir. June 30, 2006):

Because the parties settled the underlying dispute, the district court did not explicitly rule on the jurisdictional issues raised in Baella-Silva's motion to remand. By incorporating the settlement completely into a final judgment, however, the district court assumed it had jurisdiction to enter the settlement judgment. In the settlement judgment, the parties acknowledged and agreed to that jurisdiction as well as the court's continuing jurisdiction to enforce the agreement. The parties did not bring a direct appeal challenging the district court's jurisdiction or any other aspect of the settlement judgment within the time period provided for appeal. See Lipman v. Dye, 294 F.3d 17, 20 (1st Cir.2002) (noting that "[w]ithout appeal, the court's prior Settlement Order of Dismissal became final thus barring any further attempt to reopen the case in ordinary course"). Now, as part of his appeal of the sanctions order, Baella-Silva attempts to collaterally attack the jurisdictional basis for the settlement judgment, asserting a lack of complete diversity.

"It has long been settled that a lack of complete diversity between the parties deprives the federal courts of jurisdiction over the lawsuit." Casas Office Machs., Inc. v. Mita Copystar Am., Inc., 42 F.3d 668, 673 (1st Cir.1994) (internal marks omitted). Furthermore, "[a] court without subject-matter jurisdiction may not acquire it by consent of the parties." Fafel v. DiPaola, 399 F.3d 403, 410 (1st Cir.2005). "Weighing against this seemingly 'inflexible' jurisdictional requirement, however, is a strong interest in the finality of judgments." Id. (internal citation omitted). A district court's express or implicit determination that it has jurisdiction is open to direct review, but it is res judicata when collaterally attacked. Id.

In an effort to balance the competing policies of observing limits on federal jurisdiction and respecting the finality of judgments, "this court has established a high bar for collaterally vacating a judgment for lack of subject-matter jurisdiction." Id. Namely, the judgment must be void in order to be vacated for lack of subject-matter jurisdiction on collateral review: A void judgment is to be distinguished from an erroneous one, in that the latter is subject only to direct attack. A void judgment is one which, from its inception, was a complete nullity and without legal effect.... While absence of subject matter jurisdiction may make a judgment void, such total want of jurisdiction must be distinguished from an error in the exercise of jurisdiction ... [which] will not render the judgment void. Only in the rare instance of a clear usurpation of power will a judgment be rendered void. Id. (internal marks omitted) (quoting Lubben v. Selective Serv. Sys. Local Bd. No. 27, 453 F.2d 645, 649 (1st Cir.1972)). Under this standard, if the record supports an "arguable basis" for concluding that subject-matter jurisdiction existed, a final judgment cannot be collaterally attacked as void. Id. at 411.

The district court implicitly found it had jurisdiction to enter the settlement judgment. We will therefore treat Baella-Silva's collateral attack on the settlement judgment in this appeal as we would treat an appeal from the denial of a motion for relief from a void judgment pursuant to Federal Rule of Civil Procedure 60(b)(4). See id. at 409. Accordingly, we will independently examine the record to determine whether there is an arguable basis for concluding that subject-matter jurisdiction existed or whether the judgment is void as a clear usurpation of power. See id. at 410 (applying de novo review).

Our review of the record convinces us that there is an arguable basis for concluding that subject matter jurisdiction existed to enter the settlement judgment. The complaint indicates that the citizenship of the parties is not completely diverse because Palmas del Sol and its partners are citizens of Puerto Rico, as is Baella-Silva. The notice of removal, however, avers that complete diversity exists and specifically asserts that the nondiverse parties listed on the complaint are not real parties in interest but were in fact fraudulently joined in an effort to preclude removal to federal court.