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Adam Joseph Resources (M) SDN. BHD. v. CNA Metals Ltd.

United States Court of Appeals, Fifth Circuit

March 26, 2019

ADAM JOSEPH RESOURCES (M) SDN. BHD., Plaintiff - Appellant
v.
CNA METALS LIMITED, Defendant-Appellee BROWN SIMS, Movant - Appellant

          Appeal from the United States District Court for the Southern District of Texas

          Before JOLLY, DENNIS, and HIGGINSON, Circuit Judges.

          E. GRADY JOLLY, CIRCUIT JUDGE

         Brown Sims, a Houston law firm, was allegedly cheated out of its attorney's fee by its client, Adam Joseph Resources (AJR) acting through collusion with the opposing party, CNA Metals and its attorneys. Brown Sims had successfully represented AJR-on a contingency fee basis-throughout a two year arbitration proceeding under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the Convention"), which Congress has implemented at 9 U.S.C. § 201, et seq.[1] After Brown Sims obtained a favorable result for AJR, its wayward client got in bed with CNA and its attorneys to consummate a settlement just between themselves. These machinations made each of the adversaries better off by cutting out Brown Sims's contingent fee interest. Of course, neither Brown Sims nor the district court was aware of the agreement. Upon being advised of the settlement executed between the parties, the district court, in a well-considered opinion, dismissed the case as moot, further finding it was without subject matter jurisdiction over Brown Sims's attempts to intervene and protect its interest. Because we hold that it now appears that the district court possessed jurisdiction under the Convention, we reverse the dismissal of the case and remand for the district court to grant Brown Sims's renewed motion to intervene and consider Brown Sims's claims on the merits.

         I.

         AJR, a Malaysian business, brought a complaint in the Southern District of Texas against CNA Metals, a Texas corporation, invoking federal diversity jurisdiction and alleging several breach of contract claims governed by Texas law. CNA answered that AJR's claims were within the scope of an arbitration agreement and moved the district court to compel arbitration pursuant to the Convention. The district court granted the motion to compel, referred the matter to arbitration, and stayed the proceedings pending the outcome of arbitration.

         The arbitration went on for two years and was conducted by the American Arbitration Association, which applied Texas law to the dispute. AJR prevailed in the arbitration and was awarded $503, 943.56. The arbitrator certified that the final award was made pursuant to the Convention.

         Throughout this two-year arbitration, AJR was represented by James Koecher of the Houston law firm, Brown Sims, P.C. Brown Sims and AJR entered into a retention agreement, governed by Texas law, in which AJR assigned Brown Sims a 37% interest in any recovery against CNA. CNA was represented by Ronald Cohen of the Houston firm Cohen & Small, P.C.

         On the day the arbitral award was issued, Cohen died unexpectedly, a death unbeknownst to Brown Sims or the district court. After Cohen's death, CNA hired Mahendru, P.C., a Houston firm that had handled other arbitrations between CNA and AJR, to take over for Cohen & Small. Mahendru contacted the arbitration case manager to request reconsideration of the award. The case manager refused because the arbitration had concluded and the award was final.

         At this point, Brown Sims moved the district court to lift the stay and enter a final judgment confirming the arbitral award. Meanwhile, without the involvement, or even knowledge, of Brown Sims, AJR and CNA began negotiating a settlement that would benefit both parties by cutting out Brown Sims and its fee. AJR and CNA agreed to settle the outstanding $503, 943.56 arbitral award for $395, 000. In the absence of Brown Sims's interest, AJR obtained a larger recovery ($395, 000 as opposed to $317, 500) and CNA reduced its liability by approximately $109, 000.[2] CNA's counsel, Mahendru worked with AJR's Malaysian counsel to negotiate, draft, and execute the settlement. On December 8, 2016, CNA fully performed its obligation under the settlement agreement by wiring $395, 000 to AJR's Malaysian counsel's bank account. Neither Mahendru nor AJR informed Brown Sims or the district court of this settlement.

         Still unaware of Cohen's death or the December 8 settlement, the district court continued with the confirmation proceedings. Both Brown Sims and Mahendru knew of Cohen's death but failed to inform the district court. On December 13, in the absence of an answer or response in opposition to AJR's motion to confirm the arbitral award, the district court entered final judgment for AJR in the amount of $503, 943.56. Brown Sims emailed the final judgment to CNA and demanded its client be paid.

         CNA then moved the district court under Rule 60(b)(5) to set aside the final judgment because the settlement between CNA and AJR released the previously entered judgment. Brown Sims, "represent[ing] its own interest in the final arbitral award and Final Judgment, an interest that had always been litigated in the name of AJR" filed a Rule 60(b)(6) motion for relief from judgment. In this motion, Brown Sims asked the district court to reform the final judgment confirming the arbitral award to reflect that CNA was liable to AJR for $315, 776.54 and to Brown Sims directly for its assigned interest in the award, $188, 167.02 (reflecting costs). Brown Sims also moved to intervene under Rule 24. Shortly after, Brown Sims withdrew its Rule 24 motion out of fear of destroying the court's diversity jurisdiction, but nevertheless continued to pursue its interest in the final judgment in the name of AJR. Thus, as relevant to this appeal, pending before the district court was CNA's Rule 60(b)(5) motion to set aside the final judgment and Brown Sims's Rule 60(b)(6) motion for relief from judgment.[3]

         The district court first denied AJR/Brown Sims's Rule 60(b)(6) motion for lack of subject matter jurisdiction, then granted CNA's Rule 60(b)(5) motion to set aside the final judgment as satisfied by the settlement agreement, proceeded to vacate its earlier final judgment confirming the arbitral award, and dismissed the entire action without prejudice as moot. The district court construed AJR/Brown Sims's Rule 60(b)(6) motion as an attempt to intervene and assert a new claim in Brown Sims's name against CNA because Brown Sims was "inherently conflicted with its client." It held that it could not exercise supplemental jurisdiction over Brown Sims's claim because original jurisdiction was founded solely upon diversity and allowing Brown Sims to intervene would shatter diversity. The court further held that this case did not present a "typical attorney-client fee dispute" because Brown Sims sought to "effectively adjudge Brown Sims's claim not only against its client but also against the non-diverse Defendant"; and the court did not have supplemental jurisdiction to do so because jurisdiction over Brown Sims's claim was founded solely upon diversity, which was lacking between Brown Sims and CNA.

         Finally, the district court found that its lack of subject matter jurisdiction over Brown Sims's claim coupled with the settlement agreement between AJR and CNA meant there was no active case or controversy, rendering the case moot. Although it acknowledged that Brown Sims may have a viable claim to recover its interest because it was "cheat[ed]" out of its attorney's fees, the district court held that it was compelled to dismiss Brown Sims's claims for lack of jurisdiction and vacate its final judgment confirming the arbitral award.

         After the court vacated its final judgment, Brown Sims filed a renewed Rule 24 motion to intervene and a Rule 59(e) motion to alter or amend the judgment both asserting that, aside from diversity jurisdiction, the district court had subject matter jurisdiction under the Convention. In its complaint in intervention against CNA, Brown Sims requested the district court hold CNA liable for its contingency fee interest in the award and the costs arising from CNA and its attorneys' actions. Although the district court again acknowledged that it "cannot help but feel contempt" for AJR who "betrayed its attorneys by settling the case behind their back to cheat them out of legal fees that they had earned," it denied the motions for lack of subject matter jurisdiction over Brown Sims's claim against CNA. Brown Sims now appeals: (1) the district court's denial (for lack of jurisdiction) of its Rule 60(b)(6) motion for relief from the final judgment; (2) the district court's grant of CNA's Rule 60(b)(5) motion to set aside the final judgment; and (3) the district court's denial of Brown Sims's renewed Rule 24 motion to intervene.

         II.

         On appeal, Brown Sims argues that the district court erred in finding that it was without subject matter jurisdiction to consider its claim against CNA. Brown Sims points to three potential sources of subject matter jurisdiction: (1) jurisdiction arising directly under the Convention, (2) jurisdiction arising from the supplemental jurisdiction statute, and (3) jurisdiction ancillary to the court's diversity jurisdiction. Brown Sims further argues that the district court erred in denying its Rule 24 motion to intervene of right. Finally, Brown Sims argues that not only should this court hold that the case is not moot, but that this court should also render judgment for it against CNA in the amount of $188, 167.02, which represents its interest in the final arbitral award plus the costs of this appeal.

         CNA responds that the district court was right in all respects. First, there is no federal subject matter jurisdiction because the parties are not diverse and the claim does not arise under federal law. Second, the court correctly denied Brown Sims's motion to intervene because it did not possess subject matter jurisdiction over the claim that Brown Sims attempted to assert in intervention. Finally, the district court correctly concluded that the case was moot because the parties properly before the court no longer had a case or controversy, or, in the alternative, this court should not directly render judgment for Brown Sims but instead remand to the district court to determine whether the settlement was a proper satisfaction of the judgment thereby mooting the case and entitling CNA to Rule 60(b)(5) relief. We first turn to consider the court's holding that it did not possess subject matter jurisdiction to consider Brown Sims's claim against CNA.[4]

         III.

...


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