California Department of Water Resources v. Powerex Corp.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CALIFORNIA DEPARTMENT OF WATER 

RESOURCES,

Plaintiff-Appellee, No. 06-15285

v.

 D.C. No.

CV-05-00518-GEB

POWEREX CORP., a Canadian

Corporation, dba POWEREX ENERGY OPINION

CORP.,

Defendant-Appellant.



Appeal from the United States District Court

for the Eastern District of California

Garland E. Burrell, District Judge, Presiding

Argued and Submitted

December 4, 2007—San Francisco, California

Filed July 22, 2008

Before: Robert E. Cowen,* Michael Daly Hawkins and

N. Randy Smith, Circuit Judges.

Opinion by Judge Hawkins

*The Honorable Robert E. Cowen, Senior United States Circuit Judge

for the Third Circuit, sitting by designation.

8969

8972 CALIFORNIA DEP’T OF WATER v. POWEREX

COUNSEL

David C. Frederick (briefed and argued), Kellogg, Huber,

Hansen, Todd, Evans and Figel, Washington, D.C., for the

defendant-appellant.

CALIFORNIA DEP’T OF WATER v. POWEREX 8973

Annadel A. Almendras (briefed and argued) and Song J. Hill

(briefed), Office of the Attorney General of the State of Cali-

fornia, San Francisco, California, for the plaintiff-appellee.

Mark B. Stern (briefed and argued) and Alisa B. Klein

(briefed), United States Department of Justice, Washington,

D.C., for the United States as amicus curiae.

Roy T. Englert, Jr. (briefed), Robbins, Russell, Englert,

Orseck and Untereiner, Washington, D.C., for the Province of

British Columbia as amicus curiae.

Margaret K. Pfeiffer (briefed), Sullivan and Cromwell, Wash-

ington, D.C., for the Government of Canada as amicus curiae.

OPINION

HAWKINS, Circuit Judge:

In this second look, we re-examine whether Powerex, a

Canadian corporation that markets and distributes electric

power, is a “foreign state” within the meaning of the Foreign

Sovereign Immunities Act of 1976 (“FSIA”). 28 U.S.C.

§ 1603(a), (b). Four years ago, we held that it was not, but the

Supreme Court vacated that decision without resolving the

issue. California v. NRG Energy Inc., 391 F.3d 1011, 1026

(9th Cir. 2004), vacated sub nom. Powerex Corp. v. Reliant

Energy Servs., Inc., 127 S. Ct. 2411 (2007).

To reach that question, we must first consider whether 28

U.S.C. § 1447(d) deprives us of the authority to review a dis-

trict court’s decision to decline an exercise of supplemental

jurisdiction and remand to state court. Holding that it does

not, we also must decide whether a writ of mandamus is the

only means of obtaining review of a 28 U.S.C. § 1367(c)

remand, or whether an appeal under 28 U.S.C. § 1291 will

suffice.

8974 CALIFORNIA DEP’T OF WATER v. POWEREX

I. General Facts and Procedural Background

This is one of many cases arising out of the 2000-2001 Cal-

ifornia energy crisis.1 By February 2001, the state’s

deregulated energy markets had experienced “a rapid, unfore-

seen shortage of electric power and energy available in the

state and rapid and substantial increases in wholesale energy

costs and retail energy rates.” Cal. Water Code § 80000(a).

This caused rolling blackouts throughout California and “con-

stitute[d] an immediate peril to the health, safety, life, and

property” of Californians. Id.

In response, the California Legislature turned to the state’s

Department of Water Resources (“DWR”), giving it a man-

date: “do those things necessary and authorized” under the

Water Code “to make power available directly or indirectly to

electric consumers in California.” Cal. Water Code § 80012.

To fulfill this responsibility, DWR was empowered to con-

tract with any person or entity for the purchase of power. Id.

§ 80100. According to DWR’s Amended Complaint, between

January 17, 2001,2 and December 31, 2001, DWR and

Powerex transacted thousands of “out of market” purchases

and “numerous exchange transactions.”3

1

See, e.g., Port of Seattle v. FERC, 499 F.3d 1016 (9th Cir. 2007); Pub.

Utils. Comm’n of Cal. v. FERC, 474 F.3d 587 (9th Cir. 2006); Pub. Util.

Dist. No. 1 of Snohomish County v. FERC, 471 F.3d 1053 (9th Cir. 2006);

Pac. Gas & Elec. Co. v. FERC, 464 F.3d 861 (9th Cir. 2006); Bonneville

Power Admin. v. FERC, 422 F.3d 908 (9th Cir. 2005); California ex rel.

Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004).

2

From mid-January 2001 until February 1, 2001, DWR was authorized

to purchase power under statutorily-granted emergency authority. Cal.

Water Code § 200 (2001) (repealed 2002).

3

According to DWR’s Amended Complaint, an “exchange transaction”

is one in which “an out-of-market supplier agrees to deliver a requested

amount of electricity to a counter-party in return for the counter-party’s

promise to provide an equal or greater volume of power in the future.”

Allegedly, Powerex frequently insisted on receiving 2.5 megawatts of

power for every megawatt it provided.

CALIFORNIA DEP’T OF WATER v. POWEREX 8975

In February 2005, DWR filed suit against Powerex in Cali-

fornia state court, alleging Powerex had “manipulated the

California energy markets through Enron-style gaming and

trading strategies.” More specifically,

Powerex was aware of and participated in the market

manipulation and market gaming that resulted in the

California Energy Crisis. The manipulation and

gaming activity tended to tighten the supply of elec-

tricity in the California energy markets. The tighten-

ing of supply was part of a larger plan that allowed

marketers, including Powerex, to give the appear-

ance of a shortage of supply in the markets . . . .

Alleging various violations of state contract law, the com-

plaint sought a declaration that all these transactions were

void, rescission of all transactions, restoration of all money

and benefits that unjustly enriched Powerex, and compensa-

tory damages.

In response, Powerex removed the case to federal court, cit-

ing the Federal Power Act, 16 U.S.C. § 825p, and FSIA, 28

U.S.C. § 1441(d). DWR moved to remand the case back to

state court, and Powerex moved to dismiss. The district court

denied the motion to remand, finding that DWR’s complaint

was artfully plead and that it presented a substantial federal

question. Turning to the merits, the court then dismissed the

case because the “Plaintiff’s claims require the determination

of the fair price of the electricity that was delivered under the

contracts,” which placed the action squarely within the Fed-

eral Energy Regulatory Commission’s exclusive jurisdiction.

DWR responded with an amended complaint requesting

only declaratory relief stating that the transactions between

the parties were void. No longer seeking rescission, restitu-

8976 CALIFORNIA DEP’T OF WATER v. POWEREX

tion, or damages, DWR moved to remand anew under 28

U.S.C. § 1447(c)4 and 28 U.S.C. § 1367(c).

This time, the district court found that the Amended Com-

plaint presented only state law contract issues. The district

court also found Powerex’s FSIA argument squarely fore-

closed by our decision in California v. NRG Energy Inc., 391

F.3d 1011 (9th Cir. 2004), in which we determined Powerex

was not a “foreign state.”

Because the Amended Complaint did not present a federal

question, the district court had the discretion to decline sup-

plemental jurisdiction. See 28 U.S.C. § 1367(c)(3). Recogniz-

ing that all the claims over which it had original jurisdiction

had been dismissed, the court remanded the case to the Cali-

fornia court because the Eleventh Amendment and the “values

of economy, convenience, fairness, and comity” all weighed

in favor of dismissing the state law claims as well. See Acri

v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir. 1997)

(en banc) (citing United Mine Workers of Am. v. Gibbs, 383

U.S. 715, 726-27 (1966)).

On appeal, Powerex argues that the district court erred by

finding that the corporation is not a “foreign state,” and that

DWR’s Amended Complaint in fact presents claims that

“arise under” the Federal Power Act.

II. Jurisdiction

We confront two jurisdictional issues. As a threshold mat-

ter, we must address DWR’s contention that 28 U.S.C.

§ 1447(d) bars us from exercising jurisdiction. If that hurdle

4

In relevant part, § 1447(c) states: “A motion to remand the case on the

basis of any defect other than lack of subject matter jurisdiction must be

made within 30 days after the filing of the notice of removal under section

1446(a). If at any time before final judgment it appears that the district

court lacks subject matter jurisdiction, the case shall be remanded.”

CALIFORNIA DEP’T OF WATER v. POWEREX 8977

can be leapt, we then must decide whether Powerex can con-

test the district court’s remand order by way of an appeal

under 28 U.S.C. § 1291, or whether a writ of mandamus is the

exclusive remedy.

A. 28 U.S.C. § 1447(d)

At argument, DWR asserted that 28 U.S.C. § 1447(d) pre-

cludes this court from reviewing the remand order. That stat-

ute provides:

An order remanding a case to the State court from

which it was removed is not reviewable on appeal or

otherwise, except that an order remanding a case to

the State court from which it was removed pursuant

to section 1443 of this title [pertaining to certain

civil rights cases] shall be reviewable by appeal or

otherwise.

[1] Although this language appears comprehensive, the

Supreme Court has explained that the provision does not pro-

hibit review of all types of remands. Rather, Ҥ 1447(d) must

be read in pari materia with § 1447(c), so that only remands

based on grounds specified in § 1447(c) are immune from

review under § 1447(d).” Things Remembered, Inc. v.

Petrarca, 516 U.S. 124, 127 (1995) (citing Thermtron Prods.,

Inc. v. Hermansdorfer, 423 U.S. 336, 345-46 (1976)). Thus,

only remands based on defects in removal procedure or on

lack of subject-matter jurisdiction escape our review. Id. at

127-28.

[2] Here the district court clearly identified 28 U.S.C.

§ 1367(c) as the source of its authority to remand, and explic-

itly stated that it was declining to exercise supplemental juris-

diction. In this circuit, “a district court’s order remanding

pendent state claims on discretionary grounds [is] not pursu-

ant to § 1447(c),” and thus a “district court’s discretionary

remand of pendent state claims is a reviewable order.” Lee v.

8978 CALIFORNIA DEP’T OF WATER v. POWEREX

City of Beaumont, 12 F.3d 933, 935 (9th Cir. 1993) (internal

quotation marks omitted); see also Niehaus v. Greyhound

Lines, Inc., 173 F.3d 1207, 1210-11 (9th Cir. 1999); Executive

Software N. Am., Inc. v. U.S. Dist. Court, 24 F.3d 1545, 1549

(9th Cir. 1994).

As DWR notes, the Federal Circuit has come to the oppo-

site conclusion, holding that “a remand based on declining

supplemental jurisdiction must be considered within the class

of remands described in § 1447(c) and thus barred from

appellate review by § 1447(d).” HIF BIO, Inc. v. Yung Shin

Pharm. Indus. Co., 508 F.3d 659, 667 (Fed. Cir. 2007). That

decision, which split with several circuits, id. at 665, found

support in the Supreme Court’s recent statement that “[i]t is

far from clear . . . that when discretionary supplemental juris-

diction is declined the remand is not based on lack of subject-

matter jurisdiction for purposes of § 1447(c) and § 1447(d).”

Powerex Corp. v. Reliant Energy Servs., Inc., 127 S. Ct. 2411,

2418-19 (2007).

[3] The Federal Circuit’s disagreement does not give a

three-judge panel in this circuit license to overrule the bind-

ing, authoritative decision of a prior three-judge panel. See

Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en

banc). Similarly, that the question remains unanswered by the

Supreme Court does not relax our obligation to abide by stare

decisis. In light of clear precedent, then, we hold that review

of a district court’s decision to decline an exercise of supple-

mental jurisdiction is not barred by § 1447(d).

B. Appeal or Mandamus

[4] Having decided that we are not statutorily precluded

from examining the district court’s remand order, we now

consider whether a discretionary decision to decline supple-

mental jurisdiction under 28 U.S.C. § 1367(c) must be chal-

lenged in a petition for writ of mandamus (“mandamus

petition”), or pursuant to an appeal under 28 U.S.C. § 1291.

CALIFORNIA DEP’T OF WATER v. POWEREX 8979

Although our precedents have held that a mandamus petition

is the exclusive procedure, we believe that intervening

Supreme Court authority is clearly irreconcilable with such a

rule, and we therefore take the unusual step of departing from

our earlier decisions.

In both its Notice of Appeal and its brief, Powerex identi-

fies 28 U.S.C. § 1291 as the basis for our jurisdiction.

Although neither party addresses the mandamus issue, we

have an obligation to satisfy ourselves that jurisdiction prop-

erly lies. Snodgrass v. Provident Life & Accident Ins. Co., 147

F.3d 1163, 1165 (9th Cir. 1998) (per curiam).

The distinction between mandamus and appellate review is

greater than a simple difference in filing requirements. It is

considerably more difficult to obtain a writ of mandamus, for

a petitioner will not succeed simply by identifying a lower

court’s legal error. See Bauman v. U.S. Dist. Court, 557 F.2d

650, 654-55 (9th Cir. 1977) (five-factor balancing test to

guide appellate court’s mandamus analysis, including whether

“district court’s order is clearly erroneous as a matter of

law”); see also In re Morgan, 506 F.3d 705, 712-13 (9th Cir.

2007) (applying Bauman test).

For example, if we were to hold that the district court erro-

neously concluded that Powerex was not a “foreign state,” we

would reverse the court on an appeal, but it does not necessar-

ily follow that we would issue a writ of mandamus if we

thought the district court’s decision was not clearly erroneous,

see In re Morgan, 506 F.3d at 713, or an “important issue of

first impression,” San Jose Mercury News, Inc. v. U.S. Dist.

Court, 187 F.3d 1096, 1100 (9th Cir. 1999).

Generally, when a district court remands to state court after

exercising its discretion to decline supplemental state law

claims, an aggrieved party must seek mandamus relief.5 This

5

Our discussion oversimplifies our jurisprudence. In reality, this circuit

developed a test that distinguishes between remands based solely on “ju-

8980 CALIFORNIA DEP’T OF WATER v. POWEREX

rule was first announced in Survival Systems Division of the

Whittaker Corp. v. U.S. District Court, 825 F.3d 1416, 1418

(9th Cir. 1987), and has been reaffirmed in subsequent cases,

see, e.g., Executive Software N. Am., Inc. v. U.S. Dist. Ct., 24

F.3d 1545, 1549-50 (9th Cir. 1994); Lee, 12 F.3d at 935-36.

Under our precedents, Powerex’s § 1291 appeal would fail,

and we would have to decide whether to treat the appeal as

a mandamus petition. See Lee, 12 F.3d at 936.

[5] We believe, however, that an intervening Supreme

Court decision, Quackenbush v. Allstate Insurance Co., 517

U.S. 706 (1996), is clearly irreconcilable with our earlier

cases. A review of the pre-Quackenbush case law will illumi-

nate our thinking.

Our rule proscribing § 1291 review of remand orders that

follow declines of supplemental jurisdiction traces its roots

back to the Supreme Court’s decision in Thermtron Products,

Inc. v. Hermansdorfer, 423 U.S. 336 (1976). The Thermtron

Court was confronted with a remand to state court of a

properly-removed case. Similar to the analysis we present

today, the Court conducted a two-step jurisdictional inquiry.

First, it announced the rule, discussed above, that 28 U.S.C.

§ 1447(c) and § 1447(d) must be read in pari materia, and the

Court found that the remand at issue was not based on the

grounds listed in § 1447(c) and thus not immune from review.

Thermtron, 423 U.S. at 351-52.

risdictional decisions,” which could only be reviewed by way of a manda-

mus petition, and remands that followed “substantive decisions,” which

could be appealed. See, e.g., Lee, 12 F.3d at 935-36 (explaining that an

exception to the general mandamus requirement “occurs where the district

court bases the remand order on a substantive decision”); Price, 829 F.2d

at 874 (holding that remand order was only reviewable by way of a man-

damus petition because “the remand order did not result from a determina-

tion on the merits of a non-jurisdictional issue”). For the purpose of this

appeal and our holding, however, the simplified discussion suffices.

CALIFORNIA DEP’T OF WATER v. POWEREX 8981

Second, the Themtron court determined that the defendant

had properly chosen to petition for a writ of mandamus

instead of pursuing an appeal. Id. at 352. The Court explained

that “because an order remanding a removed action does not

represent a final judgment reviewable by appeal, [t]he remedy

in such a case is by mandamus to compel action.” Id. at 352-

53 (internal quotation marks omitted; alteration in original).

In this part of the jurisdictional analysis, Thermtron appeared

to announce a bright-line rule: remand orders that fall outside

the scope of § 1447(d) are reviewable only by a mandamus peti-

tion.6

The situation became more complicated, however, with the

Supreme Court’s subsequent decision in Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S.

1 (1983). Moses H. Cone dealt not with a remand order, but

with a district court’s stay of a case pending the outcome of

a concurrent state court suit. 460 U.S. at 4. Because the state

and federal actions presented an identical issue, the district

court concluded that the Supreme Court’s decision in Colo-

rado River Water Conservation District v. United States, 424

U.S. 800 (1976), counseled deference to the state proceeding.

Moses H. Cone, 460 U.S. at 4, 7.

The stay was appealed to the Court of Appeals under 28

U.S.C. § 1291. That statute provides, in relevant part, that

“[t]he courts of appeals . . . shall have jurisdiction of appeals

from all final decisions of the district courts of the United

States.” One of the questions before the Supreme Court was

whether a Colorado River based stay was a “final decision”

for purposes of § 1291. Moses H. Cone, 460 U.S. at 8-9.

6

By holding that a mandamus petition was the proper means for chal-

lenging a remand order, Thermtron effectively held that there is no juris-

diction under 28 U.S.C. § 1291. As the Supreme Court explained in a later

decision, “a court of appeals has no occasion to engage in extraordinary

review by mandamus ‘in aid of [its] jurisdictio[n],’ 28 U.S.C. § 1651,

when it can exercise the same review by a contemporaneous ordinary

appeal.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S.

1, 8 n.6 (1983) (alterations in original).

8982 CALIFORNIA DEP’T OF WATER v. POWEREX

Citing two separate rationales, Moses H. Cone found the

stay “final” within the meaning of § 1291. As explained in

Idlewild Bon Voyage Liquor Corp. v. Epstein, a district court

order that places the parties “effectively out of court” is final

and appealable. 370 U.S. 713, 715 n.2 (1962) (per curiam)

(internal quotation marks omitted). Moses H. Cone made clear

that “ ‘[e]ffectively out of court’ means effectively out of fed-

eral court.” 460 U.S. at 9 n.8. Because the Colorado River

stay anticipated a possible state court resolution of the issue

that might have res judicata effect in federal court, the order

“amount[ed] to a dismissal of the suit” and the Court of

Appeals had jurisdiction under § 1291. Id. at 10. Summing up

the limited nature of the Idlewild doctrine, Moses H. Cone

explained that a stay order is final only “when the sole pur-

pose and effect of the stay are precisely to surrender jurisdic-

tion of a federal suit to a state court.” Id. at 11 n.11.7

As an alternative to its reliance on Idlewild, Moses H. Cone

found that the stay was final under the collateral order doc-

trine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S.

541 (1949). That doctrine recognizes that a “small class” of

decisions is appealable under § 1291, even though they do not

satisfy the ordinary definition of finality. Id. at 546. For a col-

lateral order to be appealable, it must: (1) “ ‘conclusively

determine the disputed question,’ ” (2) “ ‘resolve an important

issue completely separate from the merits of the action,’ ” and

(3) “ ‘be effectively unreviewable on appeal from a final judg-

ment.’ ” Moses H. Cone, 460 U.S. at 11-12 (quoting Coopers

& Lybrand v. Livesay, 437 U.S. 463, 468 (1978)).

The stay order at issue in Moses H. Cone undoubtedly sat-

isfied the second and third criteria, but one of the parties

argued that it did not “conclusively determine the disputed

question.” The Court rejected that position because “there

[was] no basis to suppose that the District Judge contemplated

any reconsideration of his decision to defer to the parallel

state-court suit.” Moses H. Cone, 460 U.S. at 12-13. In con-

trast to orders “as to which some revision might reasonably be

CALIFORNIA DEP’T OF WATER v. POWEREX 8983

expected in the ordinary course of litigation,” the first require-

ment of the collateral order doctrine is satisfied by orders

“made with the expectation that they will be the final word on

the subject addressed.” Id. at 12 n.14.

Although a remand to state court also seems to satisfy both

the Idlewild and Cohen tests for finality, Moses H. Cone did

not purport to overrule Thermtron. As a result, when, in Sur-

vival Systems, we first confronted a remand of a supplemental

state law claim, we held that “[t]he only avenue of review

available is by mandamus under the authority of Thermtron.”

825 F.2d at 1418. Notwithstanding the latent conflict between

Survival Systems and Moses H. Cone, our cases continually

held that remands preceded by discretionary declines of juris-

diction over state law claims could be reviewed only by way

of a mandamus petition. See Executive Software N. Am., 24

F.3d at 1550; Lee, 12 F.2d at 936; Price v. PSA, Inc., 829 F.2d

871, 874 (9th Cir. 1987); Paige v. Henry J. Kaiser Co., 826

F.2d 857, 865-66 (9th Cir. 1987). But see Scott v. Machinists

Auto. Trades Dist. Lodge No. 190 of N. Cal., 827 F.2d 589,

592 (9th Cir. 1987) (per curiam) (reviewing in an ordinary

appeal a remand that followed a discretionary decline of sup-

plemental jurisdiction).

Ordinarily, we would be bound by Survival Systems, and

the task of correcting any perceived errors would fall to an en

banc panel of this court. An exception to this rule occurs,

however, when an intervening Supreme Court decision “un-

dercut[s] the theory or reasoning underlying the prior circuit

precedent in such a way that the cases are clearly irreconcil-

able.” Miller, 335 F.3d at 900. This is true even when the

intervening case dealt with an issue that is not identical to the

one presented in the circuit precedent. Id.

[6] The reasoning in Quackenbush convinces us that Sur-

vival Systems and its progeny are no longer good law. In

Quackenbush, the Supreme Court considered whether an

abstention-based remand is appealable under § 1291. 517 U.S.

8984 CALIFORNIA DEP’T OF WATER v. POWEREX

at 709. Comparing such a remand to the stay at issue in Moses

H. Cone, the Court had little difficulty finding it appealable.

More so than the stay reviewed in Moses H. Cone, the remand

placed the litigants “effectively out of court”—the Idlewild

rationale. Id. at 714 (“When a district court remands a case to

a state court, the district court disassociates itself from the

case entirely, retaining nothing of the matter on the federal

court’s docket.”). The abstention-based remand also satisfied

the Cohen test for finality; it conclusively determined an issue

separate from the merits, it was sufficiently important to war-

rant an immediate appeal, and it would not be subsumed in

any other appealable order. Id.

Because the Court was reviewing a remand, the conflict

between Moses H. Cone and Thermtron was manifest. Rather

than attempt to reconcile the two cases, the Court held that

“[t]o the extent Thermtron would require us to ignore the

implications of our later holding in Moses H. Cone, . . . we

disavow it.” Quackenbush, 517 U.S. at 715.

This overruling of Thermtron effectively destroys the foun-

dation for Survival Systems. When Survival Systems ruled that

a mandamus petition was required for review of a discretion-

ary decision to remand a pendent state law claim, it cited the

“authority of Thermtron.” 825 F.2d at 1418; accord Price,

829 F.2d at 874 (rejecting the analysis used in Moses H. Cone

because, “under Thermtron, the order is reviewable on a peti-

tion for a writ of mandamus”). In Lee v. City of Beaumont, we

described the Moses H. Cone analysis as “an exception” to the

Thermtron rule. 12 F.3d at 935. It is now clear, though, that

Moses H. Cone did not supplement Thermtron; it supplanted

it.

Although Survival Systems has not yet been explicitly over-

ruled, we have already recognized that “[t]he Supreme

Court’s decision in Quackenbush refined and expanded our

test for determining whether an exceptional remand order is

reviewable on appeal.” Snodgrass, 147 F.3d at 1165. In a case

CALIFORNIA DEP’T OF WATER v. POWEREX 8985

of first impression, Snodgrass held that a remand under the

Declaratory Judgment Act, 28 U.S.C. § 2201, is reviewable

under § 1291. In doing so, it rejected Survival Systems’ analy-

sis in favor of Moses H. Cone’s Idlewild and Cohen tests.7

[7] We now recognize that Quackenbush is clearly irrecon-

cilable with Survival Systems and its progeny. Cf. In re

Bethesda Mem. Hosp., Inc., 123 F.3d 1407, 1408 (11th Cir.

1997) (“Quackebush . . . overrules this circuit’s cases holding

that mandamus is the proper vehicle to review remand

orders.”); Pa. Nurses Ass’n v. Pa. State Educ. Ass’n, 90 F.3d

797, 801 (3rd Cir. 1996) (stating that Quackenbush supports

view that remands under § 1367(c) are reviewable under

§ 1291); Gaming Corp. of Am. v. Dorsey & Whitney, 88 F.3d

536, 542 (8th Cir. 1996) (holding that district court’s remand

7

We have found only two published decisions in this circuit that have

applied the jurisdictional/substantive test, see supra note 5, since Quack-

enbush was decided. Niehaus v. Greyhound Lines, Inc. cited Lee and

repeated that “when a remand order is based on a substantive determina-

tion of the merits, the order is reviewable on appeal as a final collateral

order.” 173 F.3d 1207, 1211 (9th Cir. 1999). But Niehaus had no occasion

to revisit Survival Systems and Lee. In a single paragraph of jurisdictional

analysis, Niehaus found that the remand order before it was based on a

substantive decision and was therefore reviewable under § 1291. Thus, the

outcome of the § 1291 analysis would have been the same whether or not

the jurisdictional/substantive test remained in force.

In Lyons v. Alaska Teamsters Employer Service Corp., we discussed at

some length the jurisdictional/substantive test. 188 F.3d 1170, 1172-73

(9th Cir. 1999). Lyons, though, considered the distinction as part of the

§ 1447(d) analysis. The court never reached the mandamus issue because

it concluded that the district court’s “substantive preemption analysis was

part of the jurisdictional determination,” and the court of appeals, there-

fore, “lack[ed] jurisdiction to review the remand order pursuant to 28

U.S.C. § 1447(d).” Id. at 1174.

We have not found any case decided after Quackenbush in which this

court confronted a remand to state court and rejected a § 1291 appeal in

favor of a mandamus petition under the authority of Survival Systems or

related cases. Thus, we consider Quackenbush to be “intervening” within

the meaning of our stare decisis jurisprudence.

8986 CALIFORNIA DEP’T OF WATER v. POWEREX

under § 1367(c) was reviewable under § 1291 because

remand’s effect was “identical to that of the order reviewed

in Quackenbush,” notwithstanding earlier circuit case law that

indicated mandamus petition was the proper procedure). We

conclude that Moses H. Cone should guide our review of

remands to state court, and, on the authority of Quackenbush,

we overrule circuit precedents that instruct otherwise.

[8] Applying Moses H. Cone to this case, we find that we

have jurisdiction under § 1291 to review the remand order.

The Idlewild “effectively out of court” test is satisfied because

“ ‘the district court disassociate[d] itself from the case

entirely, retaining nothing of the matter on the federal court’s

docket.’ ” Snodgrass, 147 F.3d at 1166 (quoting Quacken-

bush, 517 U.S. at 714).

[9] The remand also qualifies as an appealable collateral

order under Cohen. By holding that the factors identified in

United Mine Workers of America v. Gibbs, 383 U.S. 715, 726

(1966), cut against an exercise of supplemental jurisdiction,

the district court “conclusively determined a disputed ques-

tion completely separate from the merits.” Snodgrass, 147

F.3d at 1166. That decision “could not be reviewed on appeal

from the final judgment ultimately entered by the state court.”

Id.

[10] Additionally, the Supreme Court has recently

explained that the collateral order doctrine can be invoked

only to advance a “weighty public objective” that is sufficient

to overcome “the substantial finality interests § 1291 is meant

to further.” Will v. Hallock, 546 U.S. 345, 350, 353 (2006).

For example, a district court’s decision denying a state’s

claim of Eleventh Amendment immunity is an appealable col-

lateral order because of the “need to ensure vindication of a

State’s dignitary interests.” Id. at 352 (citing P.R. Aqueduct &

Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 146

(1993)). The public interest in promoting foreign relations is

substantial enough to give this court collateral-order jurisdic-

CALIFORNIA DEP’T OF WATER v. POWEREX 8987

tion over a district court’s decision denying a party’s claim for

FSIA’s procedural protections. See, e.g., Gupta v. Thai Air-

ways Int’l, Ltd., 487 F.3d 759, 763-64 & n.6 (9th Cir. 2007)

(noting that orders denying foreign sovereign immunity are

collateral orders and that “the text of the FSIA and the legisla-

tive history of the Act ‘support[ ] a prompt appellate determi-

nation of sovereign immunity’ ” (quoting Compania

Mexicana de Aviacion, S.A. v. U.S. Dist. Ct., 859 F.2d 1354,

1358 (9th Cir. 1988) (per curiam))).

We proceed to the merits of the dispute under § 1291 stan-

dards.

III. FSIA

[11] Congress has granted procedural and substantive pro-

tections to foreign sovereigns and entities with certain rela-

tionships to them. Procedurally, “foreign state[s],” as defined

by 28 U.S.C. § 1603(a), are empowered to remove civil

actions brought against them to federal court for a bench trial.

28 U.S.C. § 1441(d).8 Substantively, “a foreign state shall be

immune from the jurisdiction of the courts of the United

States and of the States,” unless it falls within certain excep-

tions. 28 U.S.C. § 1604.

[12] Because this action concerns contracts between DWR

and Powerex, Powerex concedes that this case falls within the

“commercial activity” exception to substantive immunity. See

28 U.S.C. § 1605(a)(2). Powerex maintains, though, that it is

entitled to a bench trial in federal court because it falls within

the definition of “foreign state” in § 1603(a) and (b).

8

In relevant part, § 1441(d) states,

Any civil action brought in a State court against a foreign state

as defined in [28 U.S.C. § 1603(a)] may be removed by the for-

eign state to the district court of the United States for the district

and division embracing the place where such action is pending.

Upon removal the action shall be tried by the court without jury.

8988 CALIFORNIA DEP’T OF WATER v. POWEREX

[13] Section 1603(a) includes within the definition of “for-

eign state” a “political subdivision of a foreign state or an

agency or instrumentality of a foreign state as defined in

[§ 1603(b)].” Section 1603(b) provides that

An “agency or instrumentality of a foreign state”

means any entity—

(1) which is a separate legal person, corpo-

rate or otherwise, and

(2) which is an organ of a foreign state or

political subdivision thereof, or a majority

of whose shares or other ownership interest

is owned by a foreign state or political sub-

division thereof, and

(3) which is neither a citizen of a State of

the United States as defined in section

1332(c) and (e) of this title, nor created

under the laws of any third country.

[14] There is no dispute that Powerex satisfies the

§ 1603(b)(1) and (3) definitional requirements of “agency or

instrumentality of a foreign state.” Rather, this case turns on

whether Powerex is an “organ” of either Canada or a Cana-

dian political subdivision.9

As noted at the outset, in California v. NRG Energy Inc.,

we held that Powerex was not an organ of British Columbia

(sometimes, “the Province”). 391 F.3d 1011, 1025-26 (9th

Cir. 2004), vacated sub nom. Powerex Corp. v. Reliant

9

Powerex contends that it is an organ of British Columbia and that a

majority of its shares are owned by British Columbia. Because we hold

that Powerex passed the organ test, we need not reach its majority-of-

shares argument. See EIE Guam Corp. v. Long Term Credit Bank of

Japan, Ltd., 322 F.3d 635, 639 (9th Cir. 2003) (noting that “organ” and

“majority of shares” prongs are disjunctive).

CALIFORNIA DEP’T OF WATER v. POWEREX 8989

Energy Servs., Inc., 127 S. Ct. 2411 (2007). Because that

decision was vacated on jurisdictional grounds by the

Supreme Court, however, we are not bound by it, and we

accord that opinion deference only to the extent we find it

persuasive. See Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494

F.3d 788, 804 n.15 (9th Cir. 2007). We can also consider the

persuasive force of Justice Breyer’s dissent in Powerex.

Whereas the Powerex majority never reached the FSIA ques-

tion, finding that it lacked the jurisdiction to do so, Justice

Breyer would have held that the Court had jurisdiction and

that Powerex is an organ of the Province. See Powerex, 127

S. Ct. at 2424-26 (Breyer, J., joined by Stevens, J., dissent-

ing).

[15] An entity is an organ of a foreign state (or political

subdivision thereof) if it “engages in a public activity on

behalf of the foreign government.” Patrickson v. Dole Food

Co., 251 F.3d 795, 807 (9th Cir. 2001), aff’d on other

grounds, 538 U.S. 468 (2003). To determine whether an

entity satisfies this definitional test,

“courts examine the circumstances surrounding the

entity’s creation, the purpose of its activities, its

independence from the government, the level of gov-

ernment financial support, its employment policies,

and its obligations and privileges under state law.”

An entity may be an organ of a foreign state even if

it has some autonomy from the foreign government.

EIE Guam Corp. v. Long Term Credit Bank of Japan, Ltd.,

322 F.3d 635, 640 (9th Cir. 2003) (citations omitted) (quoting

Patrickson, 251 F.3d at 807). Consistent with Congress’s

intent, this court defines “organ” “broadly,” mindful that

“ ‘agency or instrumentality of a foreign state’ could

assume a variety of forms, including a state trading

corporation, a mining enterprise, a transport organi-

zation such as a shipping line or airline, a steel com-

8990 CALIFORNIA DEP’T OF WATER v. POWEREX

pany, a central bank, an export association, a

government procurement agency or a department or

ministry which acts and is suable in its own name.”

Gates v. Victor Fine Foods, 54 F.3d 1457, 1460 (9th Cir.

1995) (quoting H.R. Rep. No. 94-1487 (1976), as reprinted in

1976 U.S.C.C.A.N. 6604, 6614).

[16] Powerex’s relationship with British Columbia cannot

be fully understood without first examining Powerex’s parent

company, BC Hydro. In 1964, BC Hydro was created by the

British Columbia Hydro and Power Authority Act in order to

hold the Province’s assets and to promote major hydroelectric

development. Its responsibilities included, for example, build-

ing dams and power-related facilities along the Peace River

system.

Early in its existence, BC Hydro assisted the Province and

Canada in negotiating and implementing a treaty pertaining to

power generation and flood control along the Columbia River.

See Treaty Between the United States of America and Canada

Relating to Cooperative Development of the Water Resources

of the Columbia River Basin, U.S.-Can., Jan. 22-Sep. 16,

1964, 15 U.S.T. 1555 [hereinafter Columbia River Treaty].

The Columbia River Treaty contained a provision in which

both Canada and the United States agreed to “designate enti-

ties . . . empowered and charged with the duty to formulate

and carry out the operating arrangements necessary to imple-

ment the Treaty.” Id., art. XIV, § 1, 15 U.S.T. at 1566. BC

Hydro was duly designated as such, and was tasked with,

among other things, constructing reservoir facilities on the

Columbia River. During the 1980s, the corporation actively

sold power to United States entities at the international bor-

der.

BC Hydro is governed by British Columbia’s Hydro and

Power Authority Act. R.S.B.C., ch. 212, § 1(1) (1996). By

that legislation, the corporation is “for all its purposes an

CALIFORNIA DEP’T OF WATER v. POWEREX 8991

agent of the government and its powers may be exercised only

as an agent of the government.” Id. § 3(1). BC Hydro direc-

tors are appointed by, and hold office during the pleasure of,

the Lieutenant Governor in Council,10 who also determines

their salaries and other remuneration. Id. § 4(1), (3). The pow-

ers vested in the corporation by the legislation are “[s]ubject

to the approval of the Lieutenant Governor in Council.” Id.

§ 12(1).

In NRG Energy, we concluded that “BC Hydro was an

immune foreign sovereign as defined by the Foreign Sover-

eign Immunities Act,” and that the decisions it made relating

to the energy crisis in 2000-2001 were “sovereign functions,

not commercial ones.” 391 F.3d at 1024. We explained that

“BC Hydro is responsible for decisions relating to, for exam-

ple, flood control, management of fisheries, and construction

of dams. These are governmental responsibilities, unlike any

responsibilities of a private, commercial actor.” Id.

10

Who is the Lieutenant Governor in Council? According to the website

of British Columbia’s current Lieutenant Governor,

“Lieutenant Governor” is The Queen’s representative and CEO

of the province. . . . The Queen is the Head of the Common-

wealth and the Canadian Head of State, thus The Queen of Can-

ada. The Lieutenant Governor is appointed by the Governor

General, on the advice of the Prime Minister of Canada, for a

period of not less than five years.

....

“Lieutenant Governor in Council” appears in many government

documents, such as acts of legislation. Legally, it refers to the

Lieutenant Governor acting on and with the advice of the Execu-

tive Council or Cabinet. When the Cabinet makes a decision and

it has been approved by the Lieutenant Governor, it is said to

have been made by the Lieutenant Governor in Council.

See Office of the Lieutenant Governor, Frequently Asked Questions: What

is the difference between “Lieutenant Governor” and “Lieutenant Gover-

nor in Council”?, http://www.ltgov.bc.ca/faq/default.htm#difference (last

visited June 20, 2008).

8992 CALIFORNIA DEP’T OF WATER v. POWEREX

Having familiarized ourselves with BC Hydro, we can now

turn our focus to Powerex.

In November 1988, British Columbia’s Minister of Energy,

Mines, and Petroleum Resources notified BC Hydro’s CEO

and Chairman that the Provincial Cabinet desired a “single

window agency to be responsible to market the export of

power outside the province and that this entity should be a

wholly owned subsidiary of BC Hydro.” Powerex (under a

different name) was incorporated one month later.

BC Hydro wholly owns Powerex and appoints Powerex’s

board of directors. That board is made up of inside directors

who sit on both BC Hydro’s and Powerex’s boards, and out-

side directors who are appointed by the inside directors. Any

outside directors—i.e., non-BC Hydro directors—on

Powerex’s board are subject to the approval of the office of

the British Columbia Premier.

[17] The “circumstances surrounding [Powerex’s] creation”

weigh in favor of finding Powerex an organ of British Colum-

bia.11 It owes its very existence to the Province, which

instructed BC Hydro to establish a subsidiary that would

assist it with its sovereign functions. BC Hydro did not con-

tract with an outside, private company; pursuant to the Prov-

ince minister’s instructions, it created an “agency” that

qualifies as a “government body” under the Province’s fiscal

control statute. See Powerex, 127 S. Ct. at 2425 (Breyer, J.,

dissenting) (citing Financial Administration Act, R.S.B.C. ch.

11

One reason we may reach a different outcome than the NRG Energy

court is because we believe these circumstances are relevant, whereas

NRG Energy appears to have given them no consideration. See NRG

Energy, 391 F.3d at 1025-26. We choose to follow other cases that have

recognized the significance of the circumstances surrounding an entity’s

creation, and that have relied upon them in finding that entities qualified

as organs. See, e.g., EIE Guam, 322 F.3d at 640, 642; Corporacion Mex-

icana de Servicios Maritimos, S.A. de C.V. v. M/T Respect, 89 F.3d 650,

653-55 (9th Cir. 1996).

CALIFORNIA DEP’T OF WATER v. POWEREX 8993

138, § 1 (1996)). But cf. Patrickson, 251 F.3d at 808 (reject-

ing corporations’ claim of organ status under FSIA, even

though foreign state’s law classified corporations as “govern-

ment companies”). DWR points out that Powerex was not leg-

islatively created. Creation by formal legislation, however, is

not a precondition for recognition as an organ of a foreign

state under FSIA. See EOTT Energy Operating Ltd. P’ship v.

Winterthur Swiss Ins. Co., 257 F.3d 992, 995, 998 (9th Cir.

2001) (remanding to district court for further factfinding on

organ status of entity, even though entity was a private insur-

ance company purchased by foreign state); Gates, 54 F.3d at

1460 (holding that an association of private hog producers

was an organ, where such association became an official

industry marketing board pursuant to Alberta law after receiv-

ing approval from Alberta government).

“[T]the purpose of [Powerex’s] activities,” also reveals the

entity’s public nature. Since its incorporation in 1988,

Powerex has been marketing surplus power from the BC

Hydro system. Powerex receives power from BC Hydro at the

Province’s border, and then sells it wholesale to entities in

Canada and the United States. Although there is nothing

inherently public about this type of activity, in this case

Powerex is fulfilling the precise mission originally dictated by

the Province’s Ministry of Energy, Mines, and Petroleum

Resources.

The Province has also looked to Powerex to further other

public policies. Under the direction of the Provincial Govern-

ment, Powerex fulfills the goals of the Power for Jobs Devel-

opment Act, the purpose of which is “to help ensure that

British Columbia’s electric power resources contribute to the

creation and retention of jobs in British Columbia and to

regional economic development.” Power for Jobs Develop-

ment Act, S.B.C. ch. 51, § 2 (1997); id. § 1 (defining “author-

ity” as BC Hydro and “a subsidiary of the British Columbia

Hydro and Power Authority”). In furtherance of that Act,

Powerex has supplied power on favorable terms to expanding

8994 CALIFORNIA DEP’T OF WATER v. POWEREX

businesses in British Columbia, and negotiated on behalf of

the Province with “industrial undertakings” that have consid-

ered establishing facilities in the Province.

Powerex has also played a role in treaty formation and

implementation. See Powerex, 127 S. Ct. at 2425 (Breyer, J.,

dissenting) (citing agreements). For example, its executives

negotiated, and then the corporation assumed, some of Cana-

da’s rights and interests under the Columbia River Treaty in

the 1990s. Finally, Powerex was to serve as the vehicle for the

Province’s now-abandoned attempt to create an auction mar-

ket for electricity trading. All of these activities were in fur-

therance of policies adopted by the Province, and thus they

were activities pursued for “public” purposes. See EIE Guam,

322 F.3d at 640-42 (finding that “key” fact to entity’s organ

status was that entity’s “purpose is to carry out Japanese

national policy” (internal quotation marks omitted)); Gates,

54 F.3d at 1461 (holding that entity is organ, and explaining

that the “conclusion is especially sound here given that the

purpose of the entity in question is to advance the Province

of Alberta’s interest”).

Turning to the next factor, we respectfully disagree with the

NRG Energy court’s finding that Powerex enjoys a “high

degree of independence from the government.” 391 F.3d at

1026. On the contrary, Powerex is restrained by provincial

regulations and directives applicable to government corpora-

tions, the Province can limit Powerex’s ability to enter bank-

ing and other financial arrangements, and Powerex’s financial

operations are reviewed by the Province’s comptroller general.12

Powerex, 127 S. Ct. at 2425 (Breyer, J., dissenting) (citing

Financial Administration Act, R.S.B.C. ch. 138, §§ 4.1,

8(2)(c)(i), 75, 79.3 (1996)).

12

Br. for the Province of British Columbia as Amicus Curiae Supporting

Appellant at 24.

CALIFORNIA DEP’T OF WATER v. POWEREX 8995

Most importantly, “[t]he British Columbian Government,

through BC Hydro, has sole beneficial ownership and control

of Powerex.” Id. at 2426. As noted above, the Province sets

Powerex’s objectives and indirectly appoints and approves its

board members to ensure that Powerex carries out its public

duties. Although Powerex may enjoy a limited degree of tacti-

cal independence, its purposes and strategies—indeed, its

continued existence—are determined by the Province.

DWR argues that it is BC Hydro, and not the Province, that

directly supervises Powerex. This hardly matters. If BC

Hydro conducts sovereign functions as an agent of the Prov-

ince, there is no obvious reason why it is significant that

Powerex reports to BC Hydro, so long as Powerex’s relation-

ship to the Province otherwise satisfies FSIA’s criteria. There

is no reason to think Congress cared for the manner in which

foreign states interacted with their organs—i.e., whether the

foreign state supervises the organ directly, or through an

incorporated agent. See Gates, 54 F.3d at 1460 (holding that

entity was organ, because even though government did “not

appear to exercise day-to-day control over [the entity, the

government did] play an active supervisory role”). In any

event, this circuit has already rejected this line of argument

with respect to a second-tier subsidiary of the government of

Mexico. Corporacion Mexicana de Servicios Maritimos, 89

F.3d at 655.

Discussing some of the remaining factors in this circuit’s

test for determining “organ” status, NRG Energy observed

Powerex’s “lack of financial support from the government

and its lack of special privileges or obligations under Cana-

dian law.” 391 F.3d at 1026.

Again, we take a different view. Notably, Powerex does not

pay federal or provincial income tax. This is a special privi-

lege under Canadian law, and it likely amounts to substantial

financial support. And we have already discussed other obli-

gations under the Province’s laws—Powerex’s role in imple-

8996 CALIFORNIA DEP’T OF WATER v. POWEREX

menting treaties and assisting the Province with its job-

creation efforts, as well as its duty to comply with sundry reg-

ulations that apply to government corporations.

NRG Energy noted the district court’s finding that

“Powerex acted not in the public interest, but rather as an

independent commercial enterprise pursuing its own profits,”

and that “any profits and losses from [Powerex’s] sales of

power are solely the responsibility of PowerEx and are in no

way guaranteed or subsidized by the government.” 391 F.3d

at 1026.

According to the evidence before this court, Powerex does

not reap its profits. BC Hydro’s treasurer declared:

Powerex’s earnings are consolidated with those of

BC Hydro for purposes of establishing BC Hydro’s

rates. . . . The benefits of Powerex’s export trade

activity are passed through to the Provincial Govern-

ment through the consolidation of Powerex’s earn-

ings into the net income of BC Hydro and the

requirement that, whenever its debt equity ratio

would not drop below certain specified levels, BC

Hydro pay approximately 85% of its consolidated

net income to the BC Government annually.13

In other words, “if Powerex earns a profit, that profit must

be rebated directly or indirectly to British Columbia’s resi-

dents.” Powerex, 127 S. Ct. at 2426 (Breyer, J., dissenting).

For this reason, it is irrelevant that Powerex is profit-

driven, for, as Justice Breyer explained,

a well-run nationalized firm should make a reason-

able profit; nor should it have to borrow from the

13

Decl. of Valerie Lambert in Support of British Columbia Hydro and

Power Authority’s Motion to Dismiss ¶ 6.

CALIFORNIA DEP’T OF WATER v. POWEREX 8997

government itself. The relevant question is not

whether Powerex earns a profit but where does that

profit go? Here it does not go to private sharehold-

ers; it goes to the benefit of the public in payments

to the province and reduced electricity prices.

Powerex, 127 S. Ct. at 2426 (Breyer, J., dissenting) (citations

omitted); see also EIE Guam, 322 F.3d at 641 (holding that

entity is organ, notwithstanding “the commercial nature” of

its work, because of “Congress’ belief that an entity’s

involvement in commercial affairs does not automatically ren-

der the entity non-governmental” (internal quotation marks

omitted)).

Powerex’s employment policies do not obviously qualify it

or disqualify it as an “organ” of British Columbia. Although

Powerex employees are not civil servants and are not paid

within provincial guidelines nor included in the government

pension program, this court has repeatedly held that “[a] com-

pany may be an organ of a foreign state for purposes of the

FSIA even if its employees are not civil servants.” EIE Guam,

322 F.3d at 641 (citing Gates, 54 F.3d at 1461). Further,

Powerex employees enjoy the same standard employee bene-

fits as BC Hydro employees and participate in the same pen-

sion plan, and it seems pretty clear that BC Hydro would

qualify as an “organ.”

[18] Taking a holistic view of Powerex, one sees a corpora-

tion that is a wholly-owned, second-tier subsidiary of British

Columbia, created pursuant to an order of the Province. A

majority of its directors are indirectly selected by the Lieuten-

ant Governor in Council, and its remaining directors are sub-

ject to government approval. It is immune from taxation. By

statute, the government’s comptroller oversees its financial

operations. It implements international agreements at the

direction of the government, and it carries out domestic policy

goals. Its profits redound to the benefit of the Province’s citi-

zens. For these reasons, we agree with Justice Breyer that

8998 CALIFORNIA DEP’T OF WATER v. POWEREX

“Powerex is the kind of government entity that Congress had

in mind when it wrote the FSIA’s ‘commercial activit[y]’ pro-

visions.” Powerex, 127 S. Ct. at 2426 (Breyer, J., dissenting)

(alteration in original) (quoting 28 U.S.C. § 1602).

IV. Conclusion

[19] Because we hold that Powerex is an organ of British

Columbia, it falls within the definition of “foreign state” and

is entitled to a federal bench trial. See 28 U.S.C. §§ 1441(d),

1603. We express no opinion on the Federal Power Act issue.

REVERSED and REMANDED.