United States Court of Appeals, Third Circuit

727 F.
2d 71
RUBIN, Jack B.
v.
BUCKMAN, Esq., Melvin J., Individually, and Melvin J.
Buckman, Esq., t/a Mesirov, Gelman, Jaffe, Cramer
& Jamieson, a Partnership.
Appeal of Melvin J. BUCKMAN, Esq., individually, and
Melvin
J. Buckman, Esq., t/a Mesirov, Gelman, Jaffe,
Cramer & Jamieson.
No. 83-1285.
United States Court of Appeals,

Third Circuit.
Argued Dec. 13, 1983.
Decided Feb. 7, 1984.
Thomas N. O'Neill, Jr., Jeffrey R. Lerman (argued), Montgomery,

McCracken, Walker & Rhoads, Philadelphia, Pa., for appellants.
Steven M. Kramer, Robert J. Vedatsky (argued), Philadelphia, Pa., for
appellee.
Before SEITZ, Chief Judge, and GARTH and BECKER, Circuit Judges.
OPINION OF THE COURT
SEITZ, Chief Judge.
This is an appeal from an order of the district court vacating a previously

granted summary judgment in defendants' favor and dismissing the action for
want of subject matter jurisdiction. This court has jurisdiction under 28 U.S.C.
Sec. 1291.
Plaintiff Rubin filed an attorney malpractice action against Melvin Buckman

and the law firm of which he was a member. Jurisdiction was based on
diversity of citizenship, Rubin alleging in his complaint that he was a citizen of

Hong Kong. Defendants' answer stated that they lacked sufficient information
to know whether this allegation was true. Under Fed.R.Civ.P. 8(b), such an
answer has the effect of a denial, and thus plaintiff's citizenship was placed in
issue. Defendants also stated, as an affirmative defense, that subject matter
jurisdiction did not exist.
3
The district court proceeded directly to the merits and granted defendants'
motion for summary judgment. Plaintiff then filed a motion to reconsider,
alleging for the first time that diversity did not exist. In a memorandum
accompanying the motion, plaintiff claimed that he was not a citizen of Hong
Kong, but was either a U.S. citizen with no U.S. domicile, or was a New Jersey
domiciliary. Under either alternative, subject matter jurisdiction would be
lacking, since a U.S. citizen with no U.S. domicile cannot sue in diversity, and
if plaintiff was a New Jersey resident his citizenship would not have been
diverse from all defendants.
In an opinion granting plaintiff's motion, the district court found that plaintiff or
his attorneys had either intentionally deceived the court, "so as to be in a
position to nullify any adverse judgment," or had been reckless, and in either
event had committed "a flagrant violation" of Fed.R.Civ.P. 11. The district
judge vacated the order granting summary judgment and dismissed the lawsuit.
Defendants' motion to reinstate the summary judgment, or in the alternative for
further discovery into whether diversity existed when the complaint was filed,
was denied. This appeal followed.
Defendants first contend that the district court erred by not holding that
plaintiff was bound by his original allegation of Hong Kong citizenship.
Defendants do not dispute that ordinarily a court must dismiss an action
whenever it appears that subject matter jurisdiction is lacking. Fed.R.Civ.P.
12(h)(3). However, they argue that plaintiff should be estopped from denying
his original allegation because it was not made in good faith, citing Di Frischia
v. New York Central Railroad Co., 279 F.2d 141 (3d Cir.1960). In that case,
the parties stipulated that diversity existed, but after the statute of limitations
had run, the defendant railroad challenged diversity and the district court
dismissed the action on that ground before trial. A panel of this court reversed,
holding that the railroad could not amend its answer to put diversity in issue,
and that "a defendant may not play fast and loose with the judicial machinery
and deceive the courts." 279 F.2d at 144.
The district judge held that Di Frischia was distinguishable because in that case
the parties' stipulation made diversity the law of the case, while here the
jurisdiction issue "had never been squarely decided by the court." We need not
decide whether Di Frischia is distinguishable, because subsequent decisions of
the Supreme Court have made it clear that subject matter jurisdiction can never
be created by estoppel, even as a sanction for conduct such as that here or in Di
Frischia. See, e.g., Insurance Corp. of Ireland v. Compagnie des Bauxites de
Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982);
Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 377 n. 21, 98 S.Ct.
2396, 2404 n. 21, 57 L.Ed.2d 274 (1978).1 Thus, "[a]lthough we tend to agree
that the Di Frischia rule is preferable to the present practice, we do not regard
ourselves as free to adopt it." Eisler v. Stritzler, 535 F.2d 148, 152 (1st
Cir.1976). Di Frischia can no longer be regarded as the law of this circuit.2
7
Defendants urge in the alternative that the district court erred by not allowing
them to take further discovery on plaintiff's citizenship and domicile to
determine whether diversity actually existed when the complaint was filed.
Once the action has been decided on the merits, it seems unfair to defendants to
let plaintiffs escape from an adverse judgment on the basis of the new
allegations in plaintiff's motion for reconsideration. We see no reason to take
plaintiff's new jurisdictional averments at face value, given the Rule 11
violation contained in his complaint, and the district court's conclusion, which
we fully share, that "[o]ne would have to be naive indeed" to believe that
plaintiff's counsel learned of the existence of a jurisdictional defect only after
the entry of an adverse judgment on the merits.
The district judge denied appellants' request for further discovery on

jurisdiction, holding that they knew or should have known that plaintiff's
statement that he was a Hong Kong citizen was inaccurate, since plaintiff stated
in his deposition that he has a U.S. passport. However, diversity could still exist
depending on whether plaintiff had a U.S. domicile when the complaint was
filed, and if so, where. Indeed, defendants point out that in the same
memorandum of law in which plaintiff stated that he had either no U.S.
domicile or a New Jersey domicile, he also stated that he was purchasing a
townhouse in Phoenix, Arizona. If plaintiff was an Arizona domiciliary when
the complaint was filed, then diversity might exist. Under the circumstances,
we believe that the district judge should have allowed defendants an
opportunity to elicit evidence showing that diversity did exist. The precise
scope of discovery and the nature of further proceedings is left to the sound
exercise of the district judge's discretion. Cf. Tanzymore v. Bethlehem Steel
Corp., 457 F.2d 1320, 1324 (3d Cir.1972).
A final contention involves defendants' request for a sanction in the form of

attorney's fees for services incurred in the district court. See Fed.R.Civ.P. 11.
The district judge determined that an appropriate sanction was an award of

$650 in costs, holding that attorney's fees were not justified because defendants
knew or should have known that diversity did not exist. However, there was no
finding that defendants' denial to the jurisdictional averment for want of
information was made in bad faith, and we cannot say that defendants are
unreasonable in continuing to pursue the possibility that diversity may have
existed when the complaint was filed. On remand the district court should
again consider defendants' request for attorney's fees. If either party's bad faith
is determinative of whether attorney's fees should be awarded, then the parties
should be given an opportunity to present appropriate submissions on that
issue.
10
The order of the district court dated December 10, 1982 will be vacated to the
extent that it vacates the order granting summary judgment for defendants, and
the case will be remanded to the district court for further proceedings consistent
with this opinion. The costs awarded by the district court are not challenged on
appeal.
11
GARTH, Circuit Judge, concurring.
12
I am in complete agreement with the Court's opinion, which holds that

DiFrischia v. New York Central R.R. Co., 279 F.2d 141 (3d Cir.1960), is not
the law of this Circuit, thus rejecting any suggestion that federal subject matter
jurisdiction can be created by estoppel. I write separately only to stress the fact
that our holding here is not in derogation of this Court's Internal Operating
Procedures (IOP).
Third Circuit IOP 8(c) provides:
13
It is the tradition of this court that reported panel decisions are binding on
subsequent panels. Thus, no subsequent panel overrules a published opinion of
a previous panel. Court in banc consideration is required to overrule a published
opinion of this court.
14
Where, however, a holding of this Court is overruled or rejected by the

Supreme Court, IOP 8(c) does not require in banc consideration in order to
align this Court's jurisprudence with Supreme Court teaching. Here, the
Supreme Court has been consistent and explicit in ruling that federal subject
matter jurisdiction can never be created by the litigants, and indeed may be
challenged even by the party who originally invoked it.
15
This rule has been in force since the infancy of the federal court system, see
Capron v. Van Noorden, 6 U.S. (2 Cranch) 126, 2 L.Ed. 229 (1804); see also
American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702
(1951), and as the Court's opinion acknowledges, has now been emphasized by
recent expressions of the Supreme Court in Insurance Corp. of Ireland v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104,
72 L.Ed.2d 492 (1982), and Owen Equipment & Erection Co. v. Kroger, 437
U.S. 365, 377 n. 21, 98 S.Ct. 2396, 2404 n. 21, 57 L.Ed.2d 274 (1978).
16
Because the rule in DiFrischia is obviously in conflict with Supreme Court

precedent, I agree that it must be overruled, and that our action in rejecting
DiFrischia may be accomplished without the necessity of an in banc hearing.
See, e.g., West v. Keve, 721 F.2d 91 (3d Cir.1983); Halderman v. Pennhurst
State School & Hospital, 673 F.2d 628, 643 (3d Cir.1982) (sur petition for
rehearing) (both cases noting that the Supreme Court had overruled the Third
Circuit appealability rule requiring quantification of attorney's fees in satisfying
28 U.S.C. Sec. 1291 finality). I therefore join in the Court's opinion.
Decisions of the U.S. Supreme Court prior to Di Frischia also cast serious
doubt, to say the least, on the soundness of the outcome in that case. See
American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 541542, 95 L.Ed. 702 (1951); Mansfield, Coldwater & Lake Michigan Ry. v.
Swan, 111 U.S. 379, 4 S.Ct. 510, 28 L.Ed. 462 (1884)
No issue of the res judicata effect of the judgment of a court lacking subject
matter jurisdiction is presented by this case. Cf. Insurance Corp. of Ireland v.
Compagnie des Bauxites de Guinee, 456 U.S. at 702 n. 9, 102 S.Ct. at 2104 n. 9
(1982); Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 60
S.Ct. 317, 84 L.Ed. 329 (1940)

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United States Court of Appeals, Third Circuit

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727 F.

United States Court of Appeals,

Thomas N. O'Neill, Jr., Jeffrey R. Lerman (argued), Montgomery,

This is an appeal from an order of the district court vacating a previously

Plaintiff Rubin filed an attorney malpractice action against Melvin Buckman

diversity of citizenship, Rubin alleging in his complaint that he was a citizen of

The district judge denied appellants' request for further discovery on

A final contention involves defendants' request for a sanction in the form of

The district judge determined that an appropriate sanction was an award of

GARTH, Circuit Judge, concurring.

I am in complete agreement with the Court's opinion, which holds that

Where, however, a holding of this Court is overruled or rejected by the

Because the rule in DiFrischia is obviously in conflict with Supreme Court

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