                                                                 F I L E D
                                                           United States Court of Appeals
                                                                   Tenth Circuit
                 UNITED STATES COURT OF APPEALS
                                                                  JUL 11 2003
                        FOR THE TENTH CIRCUIT
                                                             PATRICK FISHER
                                                                       Clerk

NAOMI OLSEN; TOM OLSEN,

            Plaintiffs-Appellants,

v.                                            No. 01-2366 & 02-2288
                                         (D.C. Nos. CIV-01-762 PK/DJS &
WILLIAM AEBERSOLD, individually                CIV-01-762-MV/DJS)
and doing business as Gable                          (D. N.M.)
Properties; MIKE MORGAN, doing
business as agent/employee/other for
William Aebersold; FARMERS
INSURANCE GROUP; FIRE
INSURANCE EXCHANGE; ROBERT
BABCOCK, individually and as an
agent/employee/other and/or business
partner and/or associate of Ann Kantor
and/or Albert O. Engel; ANN
KANTOR, individually and as an
agent/employee/other and/or business
partner and/or associate of Robert
Babcock and/or Albert O. Engel;
ALBERT ENGEL, individually and as
an agent/employee/other and/or
business partner and/or associate of
Robert Babcock and/or Ann Kantor
and doing business as Triple A.
Machine Shop, Inc., a California
corporation,

            Defendants-Appellees.
                            ORDER AND JUDGMENT


Before MURPHY , ANDERSON , and HARTZ , 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. 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is not binding precedent, except under the doctrines of law of the case, res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.

       In case No. 01-2366, plaintiffs Naomi and Tom Olsen, appearing pro se,

appeal the district court’s dismissal of their lawsuit for failure to state a claim.

See 28 U.S.C. § 1915(e)(2)(B)(ii). In case No. 02-2288, plaintiffs appeal the

district court’s award of attorney fees to defendant Fire Insurance Exchange.

Because the district court lacked subject-matter jurisdiction over plaintiffs’ suit,

we vacate its dismissal on the merits and remand the case with directions to




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dismiss the action without prejudice. We also remand the fee award for further

consideration.

                                Case No. 01-2366

      Plaintiffs’ complaint alleged the following facts: Plaintiffs leased from

defendant Aebersold a house in California, which they later discovered was

contaminated with mold and fungus. As a result of the contamination, they and

their children suffered damage to their health and property. When they contacted

the County of Siskiyou Health Department, they were informed that the house was

uninhabitable and should be condemned. They also contacted the California

Department of Public Health and the Environmental Protection Agency, but these

agencies were prevented from doing their jobs by defendant Triple A Machine

Shop (plaintiff Tom Olsen’s former employer), by defendants Kantor and Engle

(the machine shop owners), and by defendant Babcock (the machine shop’s

attorney). These defendants conspired to make misrepresentations to the county,

state, and federal agencies regarding Triple A Machine Shop’s attempt to

terminate Tom Olsen’s employment-related disability benefits, and as a result of

these misrepresentations, the agencies did not condemn or repair the house.

Defendant Farmers Insurance also failed to honor its promise to compensate

plaintiffs for their damages.




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      Plaintiffs relocated to New Mexico and brought this action in the federal

district court, which granted them leave to proceed     in forma pauperis.   See

28 U.S.C. § 1915(a)(1). Plaintiffs’ complaint invoked the court’s jurisdiction

under 28 U.S.C. §§ 1331, 1343(a)(3), and 1343(a)(4), which all relate to federal-

question jurisdiction. (The district court correctly noted the absence of diversity

jurisdiction.) The complaint contained a civil rights claim under 42 U.S.C.

§ 1983, and numerous state-law claims.

      All defendants filed motions to dismiss. One defendant moved to dismiss

the action for lack of subject-matter jurisdiction, based on the absence of a

substantial federal question. Although the district court’s order discussed the

subject-matter-jurisdiction challenge and agreed that there was no viable federal

claim, it did not dismiss the lawsuit for lack of jurisdiction. Instead, based on

plaintiffs’ failure to allege that defendants acted under color of state law or that

defendants deprived plaintiffs of a federal right, the court dismissed the § 1983

claim with prejudice under the authority of 28 U.S.C. § 1915(e)(2)(B)(ii).         See R.,

doc. 37 at 2-3. The court also dismissed the claims against defendants Babcock,

Engel, and Triple A Machine Shop for lack of personal jurisdiction; granted

defendant Fire Insurance Exchange’s motion to dismiss Farmer’s Insurance Group

as a service mark; and declined to exercise supplemental jurisdiction over

plaintiffs’ state-law claims.


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       We need not discuss these rulings because we conclude that the district

court lacked jurisdiction over plaintiffs’ lawsuit. The Supreme Court held in

Steel Co. v. Citizens for a Better Environment     , 523 U.S. 83, 94 (1998), that the

existence of subject-matter jurisdiction is a threshold inquiry which must precede

any merits-based determination. This requirement is “inflexible and without

exception.” Id. at 95 (internal quotation marks omitted). If the district court

lacked jurisdiction, it had no authority to rule on the merits of plaintiffs’ claims.

Id. at 101-02 (“For a court to pronounce upon [the merits] when it has no

jurisdiction to do so is . . . for a court to act ultra vires”). Further, if the district

court lacked subject-matter jurisdiction over plaintiffs’ action, our jurisdiction on

appeal is limited to “correcting the error of the lower court in entertaining the

suit.” Id. at 95 (internal quotation marks omitted).

       To support the exercise of federal-question jurisdiction, plaintiffs must

present a “substantial” federal claim.    Hagans v. Lavine , 415 U.S. 528, 536-38

(1974). The court lacks subject-matter jurisdiction “when the claim is so

insubstantial, implausible, foreclosed by prior decisions of this Court, or

otherwise completely devoid of merit as not to involve a federal controversy.”

Steel Co. , 523 U.S. at 89 (internal quotation marks omitted);      see Hagans , 415

U.S. at 536-38.




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       Here, although plaintiffs purported to bring a claim under § 1983, they did

not identify a federal right that defendants invaded, nor did they allege facts

showing that defendants acted under color of state law. Based on the plain

language of the statute and Supreme Court precedent, both these elements are

essential to a § 1983 claim.       See Polk County v. Dodson , 454 U.S. 312, 315

(1981) (requirement that defendants act “under color of state law” is jurisdictional

for a § 1983 claim) (quoting statute);      Baker v. McCollan , 443 U.S. 137, 140

(1979) (deprivation of a right “secured by the Constitution and [federal] laws” is

a “threshold requirement of § 1983”) (internal quotation marks omitted). Hence,

Plaintiff’s § 1983 claim did not support the district court’s exercise of federal

jurisdiction over their lawsuit.      See, e.g. , Harline v. DEA , 148 F.3d 1199 (10th

Cir. 1998) (physician’s due process claim did not present a substantial federal

question because it was foreclosed by Supreme Court decisions).

       Because the district court lacked jurisdiction over plaintiffs’ lawsuit, it

lacked authority to dismiss their § 1983 claim “with prejudice,” which is a

dismissal on the merits.    See Steel Co. , 523 U.S. at 94-96. Therefore the case

must be remanded with directions to the district court to dismiss plaintiffs’

lawsuit “without prejudice” for lack of subject-matter jurisdiction.

       Plaintiffs argue that their lawsuit should be reinstated because the district

court failed to observe certain procedural safeguards before dismissing it. The


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record belies this argument, however, showing that the district court afforded

plaintiffs all the protections they seek except the opportunity to amend their

complaint. The district court denied plaintiffs leave to amend upon finding that it

would be futile. As plaintiffs have not demonstrated that they could have

amended the complaint to state a viable federal claim, they have not shown that

the district court abused its discretion in denying leave to amend.

      Plaintiffs also argue that if New Mexico was not the proper venue for their

lawsuit, the district court should have transferred the action to the federal court in

California instead of dismissing it. The district court had no such duty, however,

because the California federal court would also have lacked subject-matter

jurisdiction over plaintiffs’ complaint.

      Finally, plaintiffs have filed a series of pleadings raising issues regarding

plaintiff Tom Olsen’s disability status. Because his disability status was not an

issue in the lawsuit under review, we deny these motions as being outside the

scope of the appeal.   See Parker v. Champion , 148 F.3d 1219, 1222 (10th Cir.

1998) (“Although we construe pro se pleadings liberally, we will not rewrite a

[complaint] to include claims that were never presented.”) (citation omitted).

                                  Case No. 02-2288

      After the district court dismissed plaintiffs’ lawsuit, defendant Fire

Insurance Exchange sought an award of costs and attorney fees. In January 2002


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the clerk of the district court assessed $85.80 in costs against plaintiffs. In

October 2002 the district court awarded the requested attorney fees upon finding

that plaintiffs’ federal action was groundless and that plaintiffs had sufficient

experience with pro se federal litigation to recognize the obvious jurisdictional

and procedural defects. Plaintiffs have appealed the attorney fees award.

       In awarding attorney fees, the district court cited 42 U.S.C. § 1988, which

authorizes an award of fees to the “prevailing party” in a civil rights action. It is

unclear, however, whether attorney fees can be awarded under            § 1988 when the

district court lacks jurisdiction over the underlying civil rights claim.     Compare

Branson v. Nott , 62 F.3d 287, 292-93 (9th Cir. 1995) (fee cannot be awarded)

with Citizens for a Better Environment v. Steel Co.       , 230 F.3d 923 (7th Cir. 2000)

(fee can be awarded). On the other hand, the district court may have inherent

authority to award such fees as a sanction.         See Chambers v. NASCO, Inc. , 501

U.S. 32, 43-48 (1991) (describing court’s inherent powers, including the power to

assess attorney fees against a party who has acted in bad faith). In light of our

determination that the district court lacked subject-matter jurisdiction, we remand

for reconsideration by the court of its fee award.

       We have also considered whether the costs award may stand despite the

district court’s lack of jurisdiction over the lawsuit. The district court is

authorized by statute to award “just costs” when a case is dismissed for lack of


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subject-matter jurisdiction.   See 28 U.S.C. § 1919. As plaintiffs have not argued

that the $85.80 costs award was unjust, we affirm the award.

       All outstanding motions are DENIED. We VACATE the district court’s

merits-based dismissal and attorney fees award, and REMAND the case with

directions to dismiss plaintiffs’ lawsuit without prejudice for lack of subject-

matter jurisdiction, and to reconsider the attorney-fee award.



                                        Entered for the Court



                                        Harris L Hartz
                                        Circuit Judge




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