                                                            F I L E D
                                                      United States Court of Appeals
                                                              Tenth Circuit
                   UNITED STATES COURT OF APPEALS
                                                             APR 21 2003
                         FOR THE TENTH CIRCUIT
                                                        PATRICK FISHER
                                                                  Clerk


PATRICIA MARTINEZ,

            Plaintiff-Appellant,

v.                                               No. 02-2182
                                       (D.C. No. CIV-01-36 BB/WWD)
MICHAEL D. MARTINEZ; PAUL                         (D. N.M.)
WEIST; JEAN SMITH; SUN STAR
ASSOCIATES; ALBUQUERQUE
COMMERCIAL REALTY, INC.;
OTHERS YET UNNAMED,
Individually, Jointly and Severally,

            Defendants-Appellees.

__________________________


PATRICIA MARTINEZ,

            Plaintiff,

v.                                              No. 02-2188
                                       (D.C. No. CIV-01-36 BB/WWD
MICHAEL D. MARTINEZ; PAUL                        (D. N.M.)
WEIST; JEAN SMITH; SUN STAR
ASSOCIATES; ALBUQUERQUE
COMMERCIAL REALTY, INC.;
OTHERS YET UNNAMED,
Individually, Jointly and Severally,

            Defendants-Appellees.
___________________________

STEPHEN McILWAIN,

                 Attorney-Appellant.


                             ORDER AND JUDGMENT           *




Before EBEL , HENRY , and MURPHY , Circuit Judges.



       After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

these appeals.     See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cases are

therefore ordered submitted without oral argument.

       These appeals stem from the district court’s dismissal, with prejudice, of

plaintiff Patricia Martinez’s claims brought under the Racketeer Influenced and

Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, as well as her

various state law claims. The district court concluded that plaintiff failed to state

a claim under RICO and failed to establish a basis for diversity jurisdiction for

the remainder of her claims. The district court then imposed sanctions on



*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

                                           -2-
plaintiff’s counsel for filing a frivolous pleading. In No. 02-2182, plaintiff

appeals the dismissal of her complaint. In No. 02-2188, plaintiff’s counsel

appeals the court’s imposition of sanctions. For the following reasons,   this court

affirms the district court’s orders dismissing plaintiff’s complaint and imposing

sanctions on plaintiff’s counsel. Insofar as the district court’s order dismissed

plaintiff’s state law claims with prejudice, however, this court vacates the order

and the case is remanded to the district court with instructions to dismiss those

claims without prejudice.


                                    I. Background

      This dispute arose from a divorce between plaintiff and defendant Michael

Martinez in 1999. On January 10, 2001, plaintiff filed a pro se complaint in

federal district court alleging violations of RICO, fraud and conspiracy to commit

fraud, intentional infliction of emotional distress, negligent misrepresentation,

and unjust enrichment, based on her belief that defendants acted together to

conceal income and other material facts from the domestic relations court.

Approximately two months later, appellant Stephen McIlwain entered his

appearance as plaintiff’s counsel. On the same day, defendants filed a motion to

dismiss plaintiff’s complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b).

      At a hearing on the motion, the district court specifically questioned

plaintiff’s counsel on the appropriateness of bringing a RICO claim on the facts

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of this particular case, at which time counsel requested leave to amend the

complaint. The court also asked counsel whether plaintiff had a diversity basis

for bringing the suit in federal court. Counsel replied:

      I believe there is, Your Honor. I think my client is no longer within
      the state, although, I guess the diversity problem–and it’s something
      that I have not explored, I’ll be quite candid with the Court as to
      the–my client’s state citizenship as of January 10th of this year.

R. Vol. II (transcript of proceeding 07/02/01) at 16. The district court granted

defendants’ motion to dismiss, telling plaintiff’s counsel, “I don’t think there is

any way you can amend, frankly, to bring this within RICO.”       Id. at 17.

Nevertheless, the court also granted plaintiff’s request to amend the complaint,

albeit with clear and specific instructions for plaintiff’s counsel to investigate

carefully the propriety of the federal claim and to address diversity of citizenship

between the parties, if necessary.

      Plaintiff filed her first amended complaint on July 23, 2001, containing

essentially the same RICO and state law claims set forth in her original complaint.

In her jurisdictional statement, plaintiff alleged that “[j]urisdiction is proper

under 28 U.S.C. 1331, 1332(a)(1) and Title 18 U.S.C. 1961-1962-1963-1964.”

R. Vol. I, doc. 31 at 1. In her description of the parties, plaintiff stated:

      1. Plaintiff Patricia Martinez was married in Bernalillo County, State
      of New Mexico, with wrongs alleged in this Complaint resulting in
      said county and state.



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       2. Upon information and belief, Defendants are individuals and/or
       business entities living in or operating in the State of New Mexico,
       during all times relevant and material to this Complaint.

Id.

       Defendants moved to dismiss the amended complaint in its entirety, arguing

that plaintiff failed to sufficiently state either a federal or a state cause of action.

Defendants also argued that plaintiff failed to sufficiently plead diversity

jurisdiction. Therefore, as an alternative basis for dismissal, defendants argued

that, because plaintiff failed to state a claim under RICO, the court lacked a

diversity basis for jurisdiction on plaintiff’s state law claims. Defendants

separately moved for sanctions against plaintiff and her counsel for filing the

amended complaint.

       In her response to the motion to dismiss, plaintiff replied generally to

defendants’ arguments on the merits of her claims, but only briefly addressed the

question of diversity jurisdiction. As to the diversity issue, she stated:

       Plaintiff has been a resident of the state of Texas since 1994 and the
       amount in controversy far exceeds $75,000.00 as alleged in the
       prayer for relief. . . . Plaintiff submits as evidence for diversity
       jurisdiction, the summons issued by Defendant Michael Martinez
       with his divorce petition to Plaintiff at her residence in State of
       Texas in 1995. See Exh. A.

R. Vol. I, doc. 51 at 5. Plaintiff did not attach the summons to the response.

       In a memorandum opinion dated May 8, 2002, the district court granted

defendants’ motion to dismiss and their motion for sanctions. Specifically, the

                                            -5-
court concluded that plaintiff’s amended complaint (1) failed to allege specific

facts stating the elements essential to her federal claim under RICO and (2) failed

to satisfactorily allege a basis for exercising diversity jurisdiction over her state

law claims. Martinez v. Martinez, 207 F. Supp. 2d 1303, 1305-08 (D. N.M.

2002). In ruling on sanctions, the court found that no reasonable or competent

counsel would have filed a RICO claim in this case. Relying additionally “on the

amended complaint’s complete failure to include any diversity-jurisdiction

allegations,” the court concluded that, “given the explicit warning provided to

Plaintiff’s counsel, and counsel’s apparent failure to comply with his

responsibility to perform minimal research on the RICO question before filing the

amended complaint, Rule 11 sanctions are in order here.”      Id. at 1309 and n.5.

      The court subsequently scheduled a hearing to determine the appropriate

sanctions to be imposed on plaintiff’s counsel and to decide whether plaintiff

should personally bear a portion of defendants’ attorney’s fees. After the hearing,

the court issued a final order on June 10, 2002, granting defendants’ motion for

sanctions against plaintiff’s counsel pursuant to Fed. R. Civ. P. 11 and the bad

faith exception to the American rule, which ordinarily disfavors awarding

attorney’s fees to a prevailing party. The court specifically found that plaintiff’s

counsel had violated Fed. R. Civ. P. 11(b), as well as the Lawyers Creed of

Professionalism of the State Bar of New Mexico, adopted by local rule in the


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federal district court, and ordered him to pay expenses, costs, and fees incurred by

defendants in contesting plaintiff’s amended complaint. Because plaintiff’s

counsel assumed full responsibility for filing the amended complaint, the

court denied defendants’ request for sanctions against plaintiff personally.

On June 12, 2002, the court issued its final order dismissing plaintiff’s case.

These appeals followed.


                                     II. No. 02-2182

       In this appeal, plaintiff argues that the district court erred in dismissing her

RICO claim pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b), and her state law

claims for lack of subject matter jurisdiction. This court reviews each of these

determinations de novo.     See Sutton v. Utah State Sch. for the Deaf & Blind,

173 F.3d 1226, 1236 (10th Cir. 1999) (failure to state a claim under

Rule 12(b)(6)); Koch v. Koch Indus., Inc.,         203 F.3d 1202, 1236 (10th Cir. 2000)

(failure to plead fraud with particularity under Rule 9(b));      US West, Inc. v.

Tristani, 182 F.3d 1202, 1206 (10th Cir. 1999) (lack of subject matter

jurisdiction).

       After a careful review of the record in this case, this court concludes that

the district court properly dismissed plaintiff’s federal RICO claim with

prejudice. The district court correctly ruled that plaintiff’s amended complaint

was deficient and failed to adequately allege elements crucial to a legitimate

                                             -7-
RICO claim, and we affirm the court’s dismissal of that cause of action for

substantially the same reasons as those set forth in the district court’s May 8,

2002, memorandum opinion.

       Moreover, the district court correctly ruled that plaintiff failed to

adequately allege a basis for exercising diversity jurisdiction over her state law

claims. Title 28 U.S.C. § 1332 confers jurisdiction in the district court over an

action between citizens of different states if the amount in controversy exceeds

$75,000.00. For purposes of diversity jurisdiction, one is a citizen of the state in

which he or she is domiciled.     Crowley v. Glaze, 710 F.2d 676, 678 (10th Cir.

1983). Domicile, in turn, is the combination of physical presence in a location

and an intent to remain there indefinitely.         Miss. Band of Choctaw Indians v.

Holyfield, 490 U.S. 30, 48 (1989). To invoke the power of the court pursuant to

§ 1332, allegations of diversity must be pleaded affirmatively. “To determine

whether a party has adequately presented facts sufficient to establish federal

diversity jurisdiction, appellate courts must look to the face of the complaint,

ignoring mere conclusory allegations of jurisdiction.”         Penteco Corp. Ltd.

Partnership–1985A v. Union Gas Sys., Inc.,           929 F.2d 1519, 1521 (10th Cir. 1991)

(citations omitted). “The party seeking the exercise of jurisdiction in [her] favor

must allege in [her] pleading the facts essential to show jurisdiction. Where the

pleadings are found wanting, an appellate court may also review the record for


                                              -8-
evidence that diversity does exist.”    Id. (quotation omitted). Because federal

courts are courts of limited jurisdiction, there is a presumption against its

existence, and the party invoking federal jurisdiction bears the burden of proof

when diversity is challenged.     Basso v. Utah Power & Light Co.,   495 F.2d 906,

909 (10th Cir. 1974).

       Under these standards, it is clear that plaintiff did not adequately establish

a basis for diversity jurisdiction in her amended complaint. As noted by the

district court, despite her passing reference to the diversity statute, 28 U.S.C.

§ 1332, plaintiff made no allegations of actual citizenship of the parties. The

allegation in her response to defendants’ motion to dismiss–that she has been

a resident of Texas since 1994–is insufficient on its face.    See Whitelock v.

Leatherman, 460 F.2d 507, 514 (10th Cir. 1972) (“[A]llegations of mere

‘residence’ may not be equated with ‘citizenship’ for the purposes of establishing

diversity.”). Moreover, plaintiff provided the district court with no evidence in

support of her argument, leaving only general and conclusory allegations of

jurisdiction. Finally, in her original complaint, plaintiff listed her address as a

post office box in Albuquerque, New Mexico, a fact which, as the district court

correctly noted, militates against a finding of diversity. Based on the record

before it, the district court correctly concluded that plaintiff failed to establish

a foundation for diversity jurisdiction over her state law claims.


                                             -9-
       On appeal, plaintiff requests this court to allow her to supplement the

record with evidence that was not before the district court, but which, she claims,

establishes a diversity basis for her suit. Pursuant to 28 U.S.C. § 1653, this court

may permit plaintiff to amend her complaint on appeal to cure defective

jurisdictional allegations.   See 28 U.S.C. § 1653 (“Defective allegations of

jurisdiction may be amended, upon terms, in the trial or appellate courts.”). As

the Supreme Court has explained, however, § 1653 “addresses only incorrect

statements about jurisdiction that actually exists, and not defects in the

jurisdictional facts themselves.”   Newman-Green, Inc. v. Alfonzo-Larrain,

490 U.S. 826, 831 (1989). In the present case, plaintiff was given an opportunity

to offer a factual basis for diversity jurisdiction in her amended complaint and in

response to defendants’ motion to dismiss, but she did not do so. Thus, “there

was not merely a defective allegation of jurisdiction, but rather there was no

tendered showing that jurisdiction in fact existed under the original or amended

complaint.” Aetna Cas. & Sur. Co. v. Hillman,     796 F.2d 770, 776 (5th Cir. 1986).

As a result, even if this court were to correct her obviously deficient allegations

of jurisdiction, it would still conclude that she had not met her burden before the

district court to specifically allege facts essential to support those allegations.

See Penteco Corp., 929 F.2d at 1521; see also Molnar v. Nat’l Broad. Co.,

231 F.2d 684, 687 (9th Cir. 1956) (“Allegations founding jurisdiction of a federal


                                          -10-
court must be precise.”). Plaintiff’s request that this court supplement the record

and revisit this evidentiary issue is no more than an attempt to retroactively create

federal subject matter jurisdiction on appeal where none existed in the district

court. Consideration of plaintiff’s extra-record material would require this court

to act in contravention of its role as a reviewing tribunal, and therefore her

motion to supplement the record is denied.          See Penteco Corp., 929 F.2d at 1523

(stating that, “[a]s an appellate court, we are in no position to make the necessary

evidentiary rulings needed” to resolve the diversity issue presented).     1



       In its May 8, 2002, memorandum opinion, the district court granted

defendants’ motion to dismiss plaintiff’s state law claims, finding that plaintiff

failed to establish a basis for diversity jurisdiction over those claims. In its final

order dated June 12, 2002, the court dismissed those state law claims with

prejudice. However, dismissal for lack of subject matter jurisdiction is not an



1
       Having reviewed the requested additions to the record, we note that, even if
this court granted plaintiff’s request, those additions–a court summons dated
June 30, 1995, an unsigned lease agreement, a purported rent check signed by a
third party, a Kansas bank statement sent to a post office box in Texas, a
Wisconsin bank statement sent to a post office box in Wisconsin, and a check
with plaintiff’s name and a Texas address on its face–are deficient. As previously
stated, diversity jurisdiction hinges on a party’s domicile, not merely his or her
residence in a state, and “domicile is established by physical presence in a place
in connection with a certain state of mind concerning’s one intent to remain
there.” Holyfield, 490 U.S. at 48. At most, these documents show plaintiff’s
tenuous ties to several states and in no way meet the level of precision and clarity
required to invoke the court’s jurisdiction.

                                             -11-
adjudication on the merits; therefore the dismissal should have been without

prejudice. See Hollander v. Sandoz Pharm. Corp.,       289 F.3d 1193, 1216 (10th

Cir.) (holding that the district court’s jurisdictional ruling that did not address

the merits of plaintiff’s claim should have been dismissed without prejudice),

cert. denied , 123 S. Ct. 697 (2002);   Hernandez v. Conriv Realty Assocs.,   182 F.3d

121, 123 (2d Cir. 1999) (“Article III deprives federal courts of the power to

dismiss a case with prejudice where federal subject matter jurisdiction does not

exist.”). In their brief on appeal, defendants argue that this court should affirm

the dismissal with prejudice as an appropriate disposition of the case in light of

plaintiff’s repeated failure to cure deficiencies in her pleadings, or as a sanction.

This court declines to do so, however, as the record does not sufficiently support

either ground. Therefore, this case is remanded to the district court with

instructions for that court to dismiss plaintiff’s state law claims without prejudice.


                                    III. No. 02-2188

       In this appeal, plaintiff’s counsel claims that sanctions against him were

unjustified, arguing in his opening brief that his actions were objectively

reasonable based on the merits of appeal No. 02-2182, and in his reply brief that

opposing counsel improperly raised the issue of diversity jurisdiction and that the

trial judge was personally biased against the plaintiff. We review a district

court’s determination to impose Rule 11 sanctions and to award attorney’s fees

                                           -12-
under the bad faith exception to the American rule for abuse of discretion.

Masunaga v. Stoltenberg (In re Rex Montis Silver Co.),     87 F.3d 435, 439

(10th Cir. 1996) (Rule 11 sanctions);   Sterling Energy, Ltd. v. Friendly Nat’l

Bank, 744 F.2d 1433, 1435-36 (10th Cir. 1984) (award of attorney’s fees under

bad faith exception).

      Based on the circumstances in this case, this court concludes that the

district court did not abuse its discretion. When dismissing plaintiff’s original

complaint, the district court specifically instructed counsel to investigate carefully

the merits of plaintiff’s RICO claim and/or some basis for diversity jurisdiction

before filing an amended complaint. As noted by the district court, however,

counsel re-filed essentially the same complaint, adding little or nothing to support

plaintiff’s conclusory allegations under RICO or the diversity statute. At the

hearing on sanctions, counsel was unable to convince the district court that his

actions were either reasonable or made in good faith. Likewise, counsel’s

arguments on appeal are without merit. We agree with the district court that

“[n]o reasonable or competent counsel who had read any Tenth Circuit cases

concerning civil RICO complaints, and the requisites thereof, could believe that

the amended complaint filed in this case stated a viable RICO claim.”    Martinez,

207 F. Supp. 2d at 1309. Counsel’s argument that defendants improperly raised

the diversity issue fails because it was plaintiff’s burden to properly allege and


                                          -13-
prove a basis for jurisdiction in the first instance, and it is the duty of a federal

court to determine the matter sua sponte even if it is not raised at all.   See Basso,

495 F.2d at 909. His argument that the trial judge was personally biased or

prejudiced in the case is unsupported by the record.


                                      IV. Conclusion

       For the foregoing reasons, the district court’s order dated June 12, 2002, is

VACATED insofar as it dismissed plaintiff’s state law claims with prejudice and

that matter is REMANDED with instructions for the district court to dismiss those

claims without prejudice. In all other respects, the orders of the United States

District Court for the District of New Mexico are AFFIRMED. Defendants’

unopposed motion to correct the record, filed October 21, 2002, is GRANTED.

All other outstanding motions are DENIED.


                                                    Entered for the Court



                                                    Michael R. Murphy
                                                    Circuit Judge




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