Federal courts are courts of limited jurisdiction. Marbury v. Madison (circa 1803) is perhaps the most famous example of this principle. But the limits of federal jurisdiction are regularly tested in our courts today. One recent Fourth Circuit decision is an example of the court exploring the role of federalism in federal jurisdiction, in what is known as the "Rooker-Feldman doctrine."

The Rooker-Feldman doctrine prevents district courts from exercising jurisdiction over suits that are, in essence, appeals from state court judgments. The doctrine gets its name from 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 brought suit in federal district court alleging that the judgment against them in state court contravened the Constitution. The U.S. Supreme Court held that the district court could not entertain the claim, because it would "be an exercise of appellate jurisdiction[.]"  Rooker, 236 U.S. at 416. The Supreme Court reiterated its holding in Feldman, stating "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.

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 Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). This takes us to the Fourth Circuit's recent decision in a convoluted factual situation from a state court case in South Carolina. Hulsey v. Cisa, ___ F.3d ___, No. 18-2014, 2020 WL 253018 (4^th Cir. Jan. 17, 2020).

In April 2006, Lawton Limehouse Sr. and Lawton Limehouse Jr. filed separate defamation complaints against Paul Hulsey and Hulsey Law Group, LLC (together, "Hulsey") in South Carolina state court, both of which resulted in an entry of default against Hulsey. The defamation cases alleged that statements by Hulsey caused significant monetary losses for the Sr. and Jr. Limehouses. Hulsey was not permitted to conduct discovery in either of the defamation cases, due to the default. Both defamation cases preceded to jury trials, during which Hulsey was denied the opportunity to present evidence, and both reached verdicts. The South Carolina Supreme Court considered the two defamation cases together in a consolidated appeal, and held that the state trial court lacked jurisdiction over the lawsuits due to a procedural defect. The verdicts were vacated, and the cases remanded. The South Carolina Supreme Court noted that the trial court was correct to preclude Hulsey from conducting discovery or presenting evidence following the default.

On remand, Hulsey conducted discovery in Limehouse Sr.'s defamation case, and obtained evidence of a large tax levy against the Limehouses' businesses. Hulsey argued at the new trial that the tax levy was the true cause of the Limehouses' monetary losses, and not Hulsey's allegedly defamatory statements. The jury returned a verdict for Hulsey. While Limehouse Sr. appealed the verdict, Hulsey and Limehouse Jr. conducted discovery in Limehouse Jr.'s defamation case. Before Limehouse Jr.'s case could be tried or Limehouse Sr.'s appeal could be decided, the parties settled and both cases were dismissed.

One year later, on Nov. 15, 2017, Hulsey filed suit in the United States District Court for the District of South Carolina against the Limehouses Sr. and Jr., their businesses, their attorney and law firm from the defamation suits, and two witnesses who testified at the default and damage trials. Hulsey alleged that the defamation lawsuits were a sham, and that the defendants had concealed crucial evidence—the tax levy—in addition to allegedly committing perjury, mail fraud, fabrication of evidence, and threats of violence among other fraudulent and extortionate conduct. Hulsey further alleged that these acts by the Limehouses and their associates constituted a pattern of racketeering.

The district court dismissed the complaint on motions by defendants, interpreting the allegations as a veiled attack on the state court orders denying Hulsey discovery in the defamation lawsuits. Because the district court interpreted Hulsey's allegations as attempting to "undermine" the South Carolina Supreme Court's ruling that Hulsey was not entitled to discover the tax levy in the state court proceedings, the new complaint ran afoul of the Rooker-Feldman doctrine.

The Fourth Circuit held that Hulsey's district court action was not within the narrow scope of the Rooker-Feldman doctrine. Though the relief Hulsey sought in the district court action involved behavior during the state court cases, Hulsey was not seeking relief from the state court decision itself. Even if the denial of discovery in the defamation suits aided the Limehouses' alleged fraudulent concealment of evidence, that fact did not make the state court's discovery ruling the cause of Hulsey's alleged injury. Hulsey's district court case invites review of events that transpired during the state court suits, but does not specifically request review, reversal, or modification of the state court judgment. The Fourth Circuit noted that Hulsey's claims may still encounter legal hurdles, including preclusion, but the district court has jurisdiction to hear the claims.

Defendants pointed to language from Feldman and argued that Hulsey's fraud claims were "inextricably intertwined" with the arguments Hulsey made and lost before the South Carolina state courts, and should therefore be barred by the Rooker-Feldman doctrine. The Fourth Circuit responded by acknowledging the phrase "inextricably intertwined" arose from Feldman, but held that it does not create an additional legal test for determining whether the doctrine applies. Instead, it states the conclusion that if the federal claim seeks redress for injury caused by the state court decision, the federal claim is by definition "inextricably intertwined" with the state court decision and thereby outside federal jurisdiction. Whether facts or claims are "inextricably intertwined" does not confer application of the Rooker-Feldman doctrine: instead, where the Rooker-Feldman doctrine applies, the claims are "inextricably intertwined."

The court also noted that Hulsey did not lose in state court: Hulsey won Limehouse Sr.'s suit and settled both suits while Limehouse Sr.'s suit was pending on appeal. Hulsey therefore could not be seeking an appeal of an unfavorable state court decision.

The Fourth Circuit continues to patrol the boundary of federal jurisdiction. And federalism continues to play a prominent role in defining that boundary.

Michael W. Mitchell is an attorney with Smith Anderson in Raleigh, North Carolina. He is co-chair of the firm's Business Litigation team, as well as the Intellectual Property Litigation practice. Grace A. Gregson is an attorney in the firm's Real Estate Development and Litigation groups.