Terri L. Zausa v. Jack Zausa

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued October 3, 2018
Decided November 1, 2018
Before
DANIEL A. MANION, Circuit Judge
DAVID F. HAMILTON, Circuit Judge
MICHAEL B. BRENNAN, Circuit Judge
No. 18-1896
TERRI L. ZAUSA,
Plaintiff,
v.
JACK ZAUSA,
Defendant,
v.
MICHAEL PELLIN,
Third-Party Defendant-Appellee.
Appeal of MAURICE JAMES SALEM,
Attorney for Terri L. Zausa,
Appeal from the United States District
Court for the Northern District of
Indiana, Hammond Division.
No. 2:17 CV 352
James T. Moody,
Judge.
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1

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No. 18-1896 Page 2
O R D E R
Attorney Maurice James Salem believes that if he files a lawsuit in an Illinois
federal district court, which dismisses the case for lack of federal subject-matter
jurisdiction, he can cure the jurisdictional problem by filing the same case in a federal
district court in a different state. Specifically, he posits that in this case, because the
named plaintiff and a named defendant are citizens of the same state (Illinois), but an
improperly named “third-party respondent” is domiciled in another state (Indiana),
there is complete diversity as long as the lawsuit is not in Illinois federal court. This
theory is not only confounding, it is frivolous.
Salem filed suit on behalf of his client Terri Zausa, against her former husband
Jack Zausa, “to enforce a foreign [Illinois] judgment” against him in federal court.1
Although she is the plaintiff, she filed a “third party complaint” against Michael Pellin,
a debtor of Jack’s, from whom Terri seeks payment of Jack’s debt. Terri first brought her
claims in the Northern District of Illinois. Judge St. Eve dismissed the case for want of
subject-matter jurisdiction because the plaintiff (Terri) and a defendant (Jack) are both,
admittedly, citizens of Illinois. Salem responded by filing the same lawsuit in the U.S.
District Court for the Northern District of Indiana. Judge Moody of that court ultimately
sanctioned him under Federal Rule of Civil Procedure 11 because moving the venue of
the lawsuit did nothing to alter the citizenship of the parties. Salem appeals the entry of
sanctions. Because the district court did not abuse its discretion, we affirm in all
respects.
I. Background
Terri Zausa obtained a multi-million-dollar judgment against Jack in Illinois state
court before this became a federal case. Jack has not been able to pay. Jack’s former
business partner, Michael Pellin, allegedly owes him roughly $1.8 million for Jack’s
share of their business, which Pellin purchased in 1990. In recent years, Pellin has not
met the schedule of payments he owes Jack. Although Jack and Pellin executed a release
from the purchase agreement in 2004, Terri says that there was no consideration given
1 There are any number of problems, apart from jurisdiction, with the way
Terri has gone about trying to enforce the judgment against Jack, but the underlying
enforcement efforts are beyond the scope of this Order.

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No. 18-1896 Page 3
for the release, which was solely “for tax purpose[s].” And Pellin purportedly
continued to make payments to Jack until 2010. Terri now attempts to collect directly
from Pellin to satisfy Jack’s debt to her.
Terri’s first crack at collecting from Pellin began when attorney Salem
represented her in filing an enforcement action in the Northern District of Illinois. Judge
St. Eve dismissed Terri’s claims against Pellin with prejudice for lack of standing
because Terri was not a party to Jack and Pellin’s agreements. Since Terri, the original
creditor, and Jack, the original debtor, were not completely diverse, Judge St. Eve
dismissed the case without prejudice for lack of subject-matter jurisdiction.
Salem then brought another lawsuit against Jack on Terri’s behalf, this time in
the Northern District of Indiana. The complaint also named Pellin as “Third-Party
Respondent.” Contrary to Judge St. Eve’s conclusion, Salem stated that federal
jurisdiction existed “by reason of complete diversity of citizenship” because Terri and
Jack Zausa are Illinois residents and Pellin is an Indiana resident.
Pellin moved to dismiss the complaint for lack of subject-matter jurisdiction. He
pointed to the previous litigation in front of Judge St. Eve and her explanation that
complete diversity did not exist because, although Terri was attempting to discover
Indiana-citizen Pellin’s assets, her ex-husband (an Illinois citizen) was the judgment
debtor.
The jurisdictional theory Salem presented to Judge Moody was:
[I]n Indiana, there is complete diversity jurisdiction because neither
Defendant Jack Zausa, nor Plaintiff Terri Zausa are domiciled in Indiana. In
other words, Pellin, the only citizen of Indiana is the party of interest that
does not share the state of Indiana with any other party. Compared to
Illinois where Defendant Jack Zausa, another party of interest, shares the
state with Plaintiff. However, the issue is not whether there is complete
diversity jurisdiction in Illinois, because we are not in Illinois, the issue is
whether there is complete diversity jurisdiction in Indiana.
(Emphasis in original). Unpersuaded, Judge Moody granted Pellin’s motion to dismiss,
citing Terri’s (Salem’s) attempt to establish federal jurisdiction “with a skewed logic that

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No. 18-1896 Page 4
is nearly impossible to follow.” He also noted that Terri, as plaintiff, could not sue
Pellin as a “Third-Party Respondent.” Because Judge St. Eve had already explained the
substantial defects in Terri’s lawsuit, and Salem then maintained the absurd approach
to jurisdiction, Judge Moody ordered Salem to show cause why he should not be
sanctioned under Federal Rule of Civil Procedure 11(b)(1) or (2). He also cautioned the
plaintiff to refrain from asserting any more baseless jurisdictional theories.
In response to the show-cause order, Salem reiterated his incorrect
understanding of diversity jurisdiction. He argued “as long as the parties with interest
are not in the same state, then complete diversity jurisdiction exists.” Judge Moody
concluded that there was no credible explanation for Salem’s conduct and granted all
parties leave to move for attorney’s fees. Salem moved for reconsideration and asserted
yet again that diversity jurisdiction existed. This time he attempted to explain in greater
detail that moving the case to federal court in Indiana had solved the jurisdictional
problem.
After the motion for reconsideration was denied, Pellin petitioned for
reimbursement of the attorney fees that he had incurred. Salem opposed the motion by
maintaining—for the fourth time—that diversity jurisdiction existed. He also asked
Judge Moody to defer the issue of sanctions to the Northern District of Illinois, where he
had filed a third lawsuit against Pellin that apparently was moving forward.
Judge Moody rejected Salem’s arguments, and in bold-face type declared one
final time: “[C]omplete diversity means that no plaintiff may be from the same state as
any defendant.” The judge ordered Salem to pay all of Pellin’s attorney’s fees. Judge
Moody reasoned that sanctions were proper under either Rule 11(b)(1) or (2). He found
that Salem filed the complaint with either “an unreasonable lack of legal basis” or “an
intent to harass” Pellin and increase his litigation costs. Judge Moody also declined to
defer the issue of sanctions to the Northern District of Illinois because that court would
have no jurisdiction to rule on sanctionable conduct occurring in this case. Salem filed a
motion for reconsideration, insisting Terri was not really suing “defendant” Jack, so it
did not matter that the two of them were domiciled in the same state. Judge Moody
denied the motion because it presented nothing new, and he renounced any further
efforts “on this frivolous matter.”

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No. 18-1896 Page 5
Salem now appeals the district court’s order awarding attorney fees against him
and the order denying his second motion for reconsideration.
II. Analysis
Salem requests we vacate Judge Moody’s orders imposing sanctions and denying
reconsideration, as well as the dismissal of the complaint for lack of subject-matter
jurisdiction. But Salem did not list the latter order in his notice of appeal and did not
timely appeal it, so we have no power to review it. See Bowles v. Russell, 551 U.S. 205,
214 (2007). Thus, we need only determine whether Judge Moody abused his discretion
in imposing sanctions and denying the motion for reconsideration. See Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 403 (1990); Lightspeed Media Corp. v. Smith, 830 F.3d 500,
505 (7th Cir. 2016).
Salem contends the district court erred in sanctioning him because he correctly
based federal jurisdiction on diversity of citizenship. He says the district court should
have considered only Pellin’s Indiana citizenship in determining whether diversity
existed because Defendant Jack Zausa is a “non-essential party.” Alternatively, Salem
argues the district court should have realigned the parties to preserve jurisdiction since
both Terri and Jack Zausa want “to get money from Pellin.”2 Pellin counters that Salem
did not raise either point in the district court, which would mean he waived these
arguments. See Coleman v. Hardy, 690 F.3d 811, 818–19 (7th Cir. 2012).
Salem’s contentions are better viewed as restatements of his consistently
confused theory of diversity jurisdiction, rather than “new” arguments. And, waiver
aside, Salem’s arguments are frivolous and sanctionable, just as Judge Moody
concluded. No matter how Salem phrases it, his core assertion is that federal subject-
matter jurisdiction over a given case exists or does not depending on the state in which
the federal court sits. He habitually misunderstands the tenets of diversity jurisdiction
2 This ignores Judge St. Eve’s point, in dismissing Terri’s breach of contract
claim, that Terri has no standing to sue Pellin because he is not indebted to her.

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No. 18-1896 Page 6
and confuses jurisdiction with venue.3 He was so told, by both Judge St. Eve and Judge
Moody, yet in this appeal he persisted with this faulty assertion.
This persistence in asserting frivolous arguments warrants sanctions against an
attorney. A district court may sanction a lawyer who submits frivolous legal arguments
not warranted “by existing law or by a nonfrivolous argument for extending,
modifying, or reversing existing law or for establishing new law.” F ED. R. C IV. P.
11(b)(2); see Berwick Grain Co., Inc. v. Ill. Dep’t of Agric., 217 F.3d 502, 504 (7th Cir. 2000).
A “frivolous” argument is one that is baseless or made without a reasonable inquiry
into the facts and law. Berwick Grain Co., Inc., 217 F.3d at 504. A district judge may also
sanction a lawyer or party who presents a pleading to the court “for any improper
purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of
litigation.” F ED. R. C IV. P. 11(b)(1). Consistently asserting a theory—as attorney Salem
did here—directly contrary to federal statute (28 U.S.C. § 1332) as interpreted by all
federal case law is frivolous.
Salem’s other arguments also lack merit. Although Terri and Jack share an
interest in tapping Pellin for the money, it does not follow that the court must realign
them as parties on the same side to create complete diversity. See Am. Motorists Ins. Co.
v. Trane Co., 657 F.2d 146, 150–51 (7th Cir. 1981). Jack owes Terri money, so they are
therefore “in open conflict” with respect to her attempts to collect. See id.; Kruger v.
Cartwright, 996 F.2d 928, 931, 932 n.5 (7th Cir. 1993). Salem’s continued obstinance about
how the parties’ interests relate is either a failure to see or a refusal to accept reality. See
Serritella v. Markum, 119 F.3d 506, 512–13 (7th Cir. 1997).
Salem also argues that, even if the district court lacked diversity jurisdiction,
upholding sanctions against him would chill litigation of novel issues. He hypothesizes
this “may be a case of first impression,” and raises policy concerns about frustrating
creative advocacy and inefficiently sparking satellite litigation over sanctions. This is
not a case of first impression. The Supreme Court and every federal circuit and federal
district court have repeatedly explained: “A case falls within the federal district court's
‘original’ diversity ‘jurisdiction’ only if diversity of citizenship among the parties is
3 In his reply brief, he states, “Judge St. Eve directed Appellant to go to the
proper jurisdiction, which Appellant believed to be Indiana.” (Emphasis added.)

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No. 18-1896 Page 7
complete, i.e., only if there is no plaintiff and no defendant who are citizens of the same
State.” E.g., Wisc. Dep’t of Corr. v. Schacht, 524 U.S. 381, 388 (1998) (italics in original).
Salem did not encounter a unique set of circumstances, nor has he proposed a novel
legal theory; he brought a wrong-headed enforcement action replete with standing and
subject-matter jurisdiction defects.
Finally, Salem argues that Judge Moody erred by declining Salem’s request to
“defer the issue of sanction[s] to the U.S. District Court in Illinois where there is another
action commenced against Pellin.” Salem does not develop this third point, nor does he
cite any on-point legal authority supporting his contention. The argument is
underdeveloped and conclusory, see Puffer v. Allstate Ins. Co., 675 F.3d 709, 718 (7th Cir.
2012), but in any case, it is also frivolous. The third lawsuit to which Salem refers was
filed on behalf of Jack as plaintiff and against Pellin as defendant, to directly collect
Pellin’s debt to Jack. Accordingly, it seems that the parties are completely diverse, and
Jack has standing to collect his own debts. Salem, therefore, is wrong to infer that the
possible sustainability of that lawsuit validates the jurisdictional theory behind Terri’s
two previous cases, just because they all relate to the same debts.
Salem also contests the denial of his motion to reconsider the order that he pay
Pellin’s attorney’s fees. As the discussion above demonstrates, the district court was
well within its discretion to sanction Salem for repeatedly presenting frivolous
jurisdictional arguments. It had even greater discretion not to reconsider that ruling,
especially in light of Salem’s inability to coherently argue that the court erred. See Cent.
States, Se. & Sw. Areas Pension Fund v. Hunt Truck Lines, Inc., 204 F.3d 736, 743 (7th Cir.
2000) (“Since the judge was not wrong on the merits, he had nothing to correct.”).
Now that this court and two federal district courts have explained to Salem the
fundamental flaws in his jurisdictional theories, we presume Salem has been educated
on the matter and will not make the same error again.
AFFIRMED

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