Paul Hulsey v. Frank Cisa ( 2020 )

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.
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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
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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,
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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.
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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
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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
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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
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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
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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
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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
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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
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