John A. Hill and Susan M. Hill v. Baxter Healthcare Corporation, Fujisawa Usa, Inc., American Pharmaceutical Partners, Inc., Appeal Of: Neal Lewis

Citation: 405 F.3d 572Docket: 04-3080

Court: Court of Appeals for the Seventh Circuit; May 17, 2005; Federal Appellate Court

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In the case of John A. Hill and Susan M. Hill v. Baxter Healthcare Corporation et al., the United States Court of Appeals for the Seventh Circuit addressed the authority of a federal trial judge to adjudicate an attorney lien dispute after a settlement in a related case. The plaintiffs, John and Susan Hill, had filed a lawsuit against manufacturers of Heparin, alleging that its use caused Mr. Hill to lose three limbs after surgery. The suit was initiated shortly after they terminated their attorney, Neal Lewis, who subsequently claimed a lien for his work on the case, alleging breach of contract and tortious interference by the new attorney, David Fitzpatrick.

After the federal case settled in June 2004, Lewis filed a lien action in Indiana state court seeking compensation from the settlement. The federal district court dismissed the plaintiffs' claims with prejudice but did not retain jurisdiction over the settlement enforcement. Following the settlement, Lewis notified the defendants of his lien and requested they withhold payment. In response, the plaintiffs filed a petition in federal court to quash the lien, citing Lewis's noncompliance with the Illinois Attorneys Lien Act, although they did not formally serve Lewis or include him as a party in the dismissed case. 

The district court subsequently granted the plaintiffs' petition to quash the lien, ordering the defendants to pay settlement proceeds to the court, declaring Lewis's lien void for payments received after Fujisawa's payment. However, the court did not provide specific authority for its ruling. This decision raised questions about the federal court's jurisdiction and authority to resolve the attorney lien issue post-settlement.

On July 23, Lewis requested leave to file a "non-party motion to dismiss petition and vacate order," arguing that the district court lacked both subject matter and personal jurisdiction when it granted the plaintiffs' petition to quash the attorney's lien. In response, on July 26, the plaintiffs filed a motion seeking an injunction against Lewis, preventing him from initiating any lien-related actions against the defendant pharmaceutical companies, and also restraining the Indiana state court from accepting any such actions. On August 3, Lewis sought to be joined as an indispensable party under Federal Rule of Civil Procedure 19(b) and requested that the court declare its July 15 order void due to lack of jurisdiction and dismiss the plaintiffs' petition for lack of subject matter jurisdiction.

A hearing on these motions and the plaintiffs' request for injunctive relief took place on August 6, resulting in three summary orders against Lewis. The court then instructed the parties to draft an order for the plaintiffs' requested injunction, but they could not agree, leading the plaintiffs to submit a proposed order on August 10. Lewis objected to this proposal on August 11, claiming it would eliminate his lien claim, and subsequently filed a notice of appeal regarding the orders from August 6.

On August 12, the district court issued an order, under the All Writs Act, enjoining Lewis from pursuing his lien and prohibiting the Indiana court from adjudicating the matter, while retaining jurisdiction over the settlement funds. On appeal, Lewis contended that the district court acted without jurisdiction in its orders from July 15, August 6, and August 12, and that it improperly denied his motion for relief under Rule 60(b)(4). The appeal asserts that the case concluded on June 29 when Judge Pallmeyer dismissed it with prejudice, terminating federal jurisdiction. The court's subsequent orders were deemed void due to this lack of jurisdiction, thus justifying the need to vacate them under Rule 60(b)(4).

Plaintiffs present three arguments challenging the district court's actions. First, they contend that the case was not concluded on June 29 due to their timely motion for reconsideration under Federal Rule of Civil Procedure 59(e), which could allow further proceedings. However, their petition to quash the lien did not qualify as a Rule 59(e) motion, as it did not seek to amend or reconsider the June 29 decision. Second, plaintiffs assert that the district court had supplemental jurisdiction to address the lien dispute under 28 U.S.C. 1367, claiming the lien action attacked the settlement agreement. However, courts do not automatically have supplemental jurisdiction over agreements linked to federal case dismissals unless they explicitly incorporate the settlement or reserve authority to enforce it. The court found that Judge Pallmeyer's order neither explicitly retained jurisdiction nor incorporated the settlement terms into the judgment, which would have allowed for enforcement. The June 29 order confirmed that all claims against the defendants were fully resolved through settlement agreements reached in good faith, and did not retain jurisdiction, contrasting with a subsequent order on July 15 that did retain jurisdiction for distribution purposes. Consequently, the court could not exercise supplemental jurisdiction over the lien dispute.

The plaintiffs argued that the district court could resolve the lien dispute under the All Writs Act, which allows federal courts to issue necessary writs to aid their jurisdiction. However, the All Writs Act does not establish jurisdiction; it only provides supplemental jurisdiction when a valid jurisdiction already exists. The district court required an independent basis for federal jurisdiction to address the plaintiffs' motion to quash the lien, which it lacked. Although the original suit initiated diversity jurisdiction, the lien dispute involved parties from Indiana, thus lacking diversity, and the matter was purely a state law issue without a federal question. Consequently, the district court's orders from July 15, August 6, and August 12 were vacated, and the case was remanded with instructions to dismiss the lien quash requests, awarding costs to Mr. Lewis. The court opted not to address the question of personal jurisdiction over Lewis since the lack of subject matter jurisdiction was sufficient for their ruling. The dispute now primarily concerns the interests of the Hills and attorneys Fitzgerald and Lewis regarding attorney fees from settlement proceeds, with the defendants being excused from further involvement. The district judge is expected to determine the appropriate handling of the settlement proceeds in consultation with the interested parties.