Bessie Jeanne Worthy lived, and eventually died, in Texas. As her health failed, she sought caretaking assistance from her nephew Larry. In exchange, Worthy gave Larry her power of attorney, and agreed to compensate him. After she passed away, a Texas probate court appointed Larry as Trustee of the Bessie Jeanne Worthy Revocable Trust and Administrator of her Estate. Other beneficiaries began to review Larry’s use of Worthy’s assets, and discovered that he had misused funds, so they asked a Texas Probate Court to remove Larry as Executor of the Estate, and filed a breach of fiduciary duty suit against him. The Mitchell Law Firm agreed to represent Larry in that litigation in his individual capacity, as Administrator of the Estate, and as Trustee of the Trust. After losing at trial, Mitchell (on behalf of Larry) filed a motion in Texas Probate Court seeking authorization to withdraw funds from the Estate and transfer them to the Trust, for the payment of attorney’s fees. This motion was denied.

Mitchell then filed the underlying Federal suit against the Trust, invoking the court’s diversity jurisdiction. Mitchell later amended its complaint to add the Estate as a defendant, which destroyed diversity because the Estate (like Mitchell) is a citizen of Texas. Mitchell, however, omitted any allegation of the Estate’s citizenship, and, to make matters worse, misleadingly stated that both the Trust and the Estate could be served with summons by serving its administrator, Mr. Larry Hodge, at his California address, hence suggesting that diversity might exist where it plainly did not.  “From there the facts get even more unsettling. Gregory Mitchell (the principal of the Mitchell Law Firm) referred Larry to a new lawyer to handle the fee litigation. That much certainly made sense, given that Mitchell and Larry were adversaries. But who did Mitchell choose as Larry’s new lawyer? Mitchell’s officemate, Joyce Lindauer. Larry apparently informed Lindauer that he did not contest Mitchell’s fees, and that she was to execute an agreed judgment to pay them. The two officemates – Mitchell and Lindauer – unsurprisingly reached an agreed judgment in which the Trust would pay Mitchell’s requested damages. Lindauer testified that she did this without ever knowing about the litigation to remove Hodge or of the County Court’s prior denials of Mitchell’s request to pay the attorney’s fees from the Estate account. The district court was also in the dark, so it accepted the agreement, and the Trust paid the judgment.”

In the meantime, the beneficiaries again applied to remove Larry in Texas.  This time the Texas State Court agreed, and appointed one of the beneficiaries as his successor Administrator and Trustee. In his new capacity, the beneficiary filed a Rule 60 motion in Federal Court, which was granted. The previous judgment was set aside, summary judgment was granted in favor of the Trust and the Estate, and Mitchell was directed to return the funds.

The U.S. Fifth Circuit affirmed.

“Where, as here, the district court lacked subject-matter jurisdiction, the only function remaining to the court is that of announcing the fact and dismissing the cause. That is equally true when a party notices the jurisdictional defect before judgment, when a party notices it after judgment in Rule 60(b)(4) proceedings, and when no party notices it.”

As to the argument that the Court lacked jurisdiction to order Mitchell to repay the money: “It would be quite something if a party could invoke federal jurisdiction under false pretenses and then invoke the limitations of federal jurisdiction to keep tens of thousands of dollars in ill-gotten gains.”

 

Mitchell Law Firm v. Bessie Jeanne Worthy Revocable Trust, No.20-10492, 2021 WL 3508720 (5th Cir. Aug. 10, 2021).