This matter is before the court on its own motion to determine whether the court has subject-matter jurisdiction over Count II of the Complaint (docket no. 4).
On December 6, 2011, Plaintiffs Simmons Perrine Moyer Bergman PLC ("SPMB") and Gordon F. Johnson (collectively, "Plaintiffs") filed the Complaint. Count I of the Complaint is an interpleader action brought by SPMB to determine the rights of various parties to the net proceeds of a settlement of a personal injury lawsuit. Count I names Charles Joseph Coleman, Jr. ("Joe Coleman"), Sharon A. Coleman ("Sharon Coleman"), the United States of America, the Iowa Department of Revenue and State Farm Mutual Insurance Company ("State Farm") as defendants/adverse claimants. Count II of the Complaint seeks a declaratory judgment regarding Plaintiffs' right to $233,333.33, which Plaintiffs allege they are entitled to as attorneys' fees arising out of the same personal injury action. Count II names Joe Coleman and Sharon Coleman as defendants.
On January 18, 2013, Sharon Coleman, State Farm and the United States filed motions for summary judgment. See Sharon Coleman's "Motion for Partial Summary Judgment" (docket no. 35); State Farm's "Motion for Summary Judgment" (docket no. 36); United States' "Motion for Summary Judgment" (docket no. 37). On March 6, 2013, the undersigned referred the motions for summary judgment to United States Magistrate Judge Jon S. Scoles for a report and recommendation. See March 6, 2013 Order (docket no. 54). On March 13, 2013, Judge Scoles held a hearing on the motions for summary judgment. See Minute Entry (docket no. 58). At the hearing, the parties clarified that the motions for summary judgment related only to Count I of the Complaint, at which point Judge Scoles indicated that, if the court were to grant summary judgment on Count I, the court may decline to exercise supplemental jurisdiction over Count II of the Complaint. On March 14, 2013, Judge Scoles issued a Report and Recommendation (docket no. 59), which recommended that the court grant summary judgment in favor of State Farm and the United States on Count I of the Complaint. On March 28, 2013, Plaintiffs filed a Response (docket no. 62) to the Report and Recommendation. In the Response, Plaintiffs indicated that they did not object to the Report and Recommendation but wished to "address an issue raised by . . . . Judge Scoles at the hearing." Response at 1. Specifically, Plaintiffs urged the court to exercise supplemental jurisdiction over Count II even if the court were to grant summary judgment on Count I.
On April 15, 2013, the court adopted the Report and Recommendation and granted summary judgment in favor of State Farm and the United States on Count I of the Complaint. April 15, 2013 Order Adopting Report and Recommendation (docket no. 73) at 18-19. In the April 15, 2013 Order Adopting the Report and Recommendation, the court reserved ruling on whether it has subject-matter jurisdiction over Count II. Id. at 5.
III. RELEVANT FACTUAL BACKGROUND
On November 22, 2005, Joe Coleman was in a motor vehicle accident. In October 2006, Joe Coleman and his wife, Sharon Coleman, entered into a written contingency fee agreement (the "Retainer Agreement") with Johnson, in which Johnson agreed to represent the Colemans in a lawsuit arising out of the accident and the Colemans agreed to a 40% contingency fee. SPMB joined in the representation of the Colemans under the Retainer Agreement. Thereafter, Plaintiffs, on behalf of the Colemans, filed a lawsuit against various tortfeasors in the Iowa District Court for Polk County. The Colemans ultimately settled with the tortfeasors for $1,900,000.00. As part of the settlement negotiations, Plaintiffs and the Colemans entered into two modifications to the Retainer Agreement:
(1) the forty percent (40%) contingency fee was reduced to a thirty-three and one-third percent (33.33%) contingency fee and
(2) up to $233,333.33 of the earned contingency fee could in the future be reduced to the extent needed as part of an offer to compromise to obtain a complete waiver of all applicable Internal Revenue Service liens.
Complaint at 6. Pursuant to this modification, $633,333.33 of the $1,900,000.00 settlement proceeds was designed as attorneys' fees and $400,000 was paid to Plaintiffs. The remaining $233,333.33, which is the subject of Count II, remains in SPMB's trust account.
As noted above, in its April 15, 2013 Order Adopting the Report and Recommendation, the court reserved ruling on whether it has subject-matter jurisdiction over Count II. ...