Opposition Brief — Ruhrgas Ag v. Marathon Oil Co.

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~

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No. 98-470

FILED

op

IN THE

Supreme Court of the U

OFFICE OF THE CLERK

URT, U.S.

OCTOBER TERM, 1998

RUHROGAS AG,

Petitioner,

V.

MARATHON Ol COMPANY,

MARATHON INTERNATIONAL OIL COMPANY,

and MARATHON PETROLEUM NORGE A/S,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF IN OPPOSITION

CLIFTON T. HUTCHINSON *

J. GREGORY TAYLOR

DAvip J. SCHENCK

DEREK S. HOLLINGSWORTH

HuGHES & Luce, L.L.P.

1717 Main Street

Suite 2800

Dallas, Texas 75201

(214) 939-5500

Attorneys for Respondents

* Counsel of Record

WILSON - Eres Printinc Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

In a case properly filed in state court and removed by

the Defendant to federal court, may a district court ignore

a challenge to federal subject matter jurisdiction, conduct

discovery, and enter an order of dismissal without ever

determining the basis, if any, of federal subject matter

jurisdiction?

ii

RULE 29.6 DISCLOSURE

Marathon Oil Company, Inc. (“Marathon”) is a sub-

sidiary of USX Corp. Marathon International Oil Com-

pany (“MIOC”) is wholly-owned by Marathon. Mara-

thon Petroleum Norge A/S is a Norwegian Corporation

whose stock is held by a wholly-owned affiliate of MIOC.

TABLE OF CONTENTS

QUESTION PRESENTED .... 1

RULE 29.6 DISCLOS UBB

TABLE OF AUTHORITIES ....

JURISDICTIONAL SrATEMREE N22

STATEMENT OF THE CAS

RS et a ee eee Ne

r . A at

C. The Motion to Remand for Lack of Federal

Jurisdiction owe een: eee

D. The Appeal and First Petition for Certiorari....

SUMMARY OF OPPOSITION —...

REASONS FOR DENYING THE WRIT

I. THE FIFTH CIRCUIT CORRECTLY AP-

PLIED PRIOR DECISIONS OF THIS COURT..

A. Subject Matter Jurisdiction is a Threshold

Inquiry, Especially in Cases Removed from

EN nl el hah i an ta

B. Petit,oner’s Proposed Rule would Conflict

with Steel Co.

C. Caterpillar doesnot Hold Contrary to Ths

Principles

II. THERE IS NO CONFLICT WITH THE SEC-

OND CIRCUIT

CONCLUSION

(iii)

Page

iv

14

16

iv

TABLE OF AUTHORITIES

CASES ‘ Page

Abels v. State Farm Fire & Cag. Co., 770 F.2d 26

42808 ————————— 9

Ahern v. Charter Township, 100 F.3d 451 (6th

rere 9

Aldinger v. Howard, 427 U.S. 1619985 8

9

American Fire & Cas. Co. v. Finn, 341 U.S. 6

|

American Nat'l Ins. Co. v. Travelers Cas. and

Surety Co. 8 F. Supp. 24 988 (S:. Tet. 1998), 15

Bi v. Union Carbide Chems Plastics Co.,

F.2d 582 (2d Cir. 1993) Sie — 16

Briscoe v. Bell, 482 U.S. 404 (19777 9

erris Indus. v. Muszynski, 899 F.2d

151 (2d Cir. 1990) oe Me Bo ow 16

Can v. United States, uP. f. Posen $8 746 155 16

Cantor F LP. v. P ;

cen .

Caterpillar, Inc. v. Lewis, S. Ct. ( — 13, 1

Data Disc, Inc. v. Sytem Peck 2. Keen

F. 2d 1280 (9th 10

Ex Parte McCardle, 4 S606 (1868) E —

Healy v. Ratta, 292 U.S. 263 (193 9

Holly apy ong 0. ss Ft 617 U.S. 3 5 —

47 12, 13

Int 8 Inc. v. United States, No. 96-

. 1997 WL 529007 (S.D.N.Y. — 26, ie

| G6 + 2 ae. . a

suite * Fe US. $87 (1977) .......-.-.----- 1

4 onstr. Co., 260 U. a3 Us 178 8

. Great F. United Corp. 4⁴⁸ U 173

(1 95 440 . 1 p04 8. 12

Madanes v. Madanes, 981 F. Supp. 241 (S. D. N. v.

29 15

Marathon Oil Co. v. Ruhrgas, 145 F.3d 211 (5th

X RAA 12, 18, 16

*

TABLE OF AUTHORITIES—Continued

Page

Pacheco de Perez v. AT&T Co., 139 F.3d 1368

. 10

Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n,

896 F.2d 674 (2d Cir. 1990)0pʒ 14, 15, 16

Sanchez-Preston v. Luria, No. CV-96-2440, 1996

WL 738140 (E.D.N.Y. Dec. 17, 1999) 15

Sanger v. Reno, 966 F. Supp. 151 (E. D. N. v.

rr 15

Seemann v. Maxwell, 178 F. R. D. 23 (N. D. N. v.

rr 15

Shamrock Oil & Gas Corp. v. Sheets, 318 U.S. 100

(1941) C 0

Steel Co. v. Citizens for a Better Env’t, 118 S. Ct.

. ˙ · NN Ls elo 7, 8, 11. 16

United States v. Carpentieri, No. 96-Civ.-6460,

1998 WL 749042 (S. D. N. V. Oct. 26, 19989) 14

United States v. Corrick, 298 U.S. 435 (1936) 2

United States v. Fatico, 608 F.2d 1053 (2d Cir.

. 15

United States v. Rice, 327 U.S. 742 (194) 10

CONSTITUTIONAL PROVISION

U.S. Const. art. III | he A ES a ne 8. 13

STATUTES AND RULES

ES ET Ce 10

rere 9

. 2, 9, 11

r 2

e 5

OTHER AUTHORITIES

CHARLES ALLEN WRIGHT, ET AL., FEDERAL PRAC-

TICE AND PROCEDURE 20. 9, 10, 12, 14

In THE

Supreme Court of the Anited States

OcTOBER TERM, 1998

No. 98-470

Ruuwrecas AG,

4 Petitioner,

MAPATHON Om. COMPANY,

MARATHON INTERNATIONAL On. COMPANY,

and MARATHON PETROLEUM Norce A/S,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF IN OPPOSITION

JURISDICTIONAL STATEMENT

There is no jurisdiction. Every federal appellate court

has a special obligation to “satisfy itself not only of its

even though the parties are pre-

pared to concede it. Mitchell v. Maurer, 293 U.S. 237,

244 (1934); see also Juidice v. Vail, 430 U.S. 327, 331-

32 (1977) (standing). And if the record discloses that

error of the lower court in entertaining the suit.” United

States v. Corrick, 298 U.S. 435, 440 (1936) (footnotes

omitted ).

Congress directed that a case “shall” be remanded

immediately whenever it appears that the district court

lacks removal jurisdiction. 28 U.S.C. § 1447(c). It also

directed that an order of remand “is not reviewable on

appeal or otherwise” because such delay would unduly

interfere with the operations of the state courts. Id.

§ 1447(d). Despite the comity concerns and despite the

conclusion of the Fifth Circuit panel that there was never

federal jurisdiction in this case, the basis for federal

jurisdiction is still unknown. The Fifth Circuit en banc

did not address the issue, and the district court has been

unwilling or unable, despite the Fifth Circuit's mandate

and direct requests for a ruling, to rule regarding the

existence of federal jurisdiction. Even if this Court does

not find any issue in this case worthy of certiorari, it

can and should consider the question whether this case is

properly before this or any other federal court.

STATEMENT OF THE CASE

A. Background

On July 6, 1995, Respondents Marathon Oil Company

(“Marathon”), Marathon International Oil Company

(“MIOC”), and Marathon Petroleum Norge (“Norge”)

filed this case in Texas state court, alleging conspiracy,

fraud, and participation in a breach of fiduciary duty.

Marathon and MIOC alleged that Petitioner defrauded

them into loaning hundreds of millions of dollars for the

development of the Heimdal gas field based on misrepre-

sentations and fraudulent omissions contained in hun-

dreds of letters sent by Petitioner to them in Houston,

Texas over a multi-year period. Petitioner also traveled

to Marathon’s Houston, Texas headquarters for three

in-person meetings concerning the matter.

3

Norge is a Norwegian corporation and an of

Marathon and MIOC. It owns the production for

the Heimdal field. Norge alleges that the value of its

license has been diminished by Petitioner’s refusal to

permit Heimdal gas to be sold to any buyers who are not

members of Petitioner's cartel known as the “Consor-

tium.” It also alleged that Petitioner participated in

breaches of fiduciary duties owed to Norge by its joint

venture partner, Statoil (the Norwegian oil and gas com-

pany). These matters, too, were the subject of the three

in-person Houston meetings and correspondence directed

to Respondents in Texas.

Respondents’ claims arise from, or directly relate to,

deliberate contacts by Petitioner with the forum. Further-

more, Petitioner has maintained its own employees living

and working in Houston for many years. None of Re-

spondents’ claims present a federal question; instead, they

are garden-variety tort claims arising under Texas law.

B. The Removal

Petitioner removed the case on August 21, 1995.

Despite the absence of any apparent basis for federal

subject matter jurisdiction, Petitioner alleged both federal

question and diversity jurisdiction. First, it urged that

an arbitration agreement made the case removable; a

position contradicted by sworn statements in its own

removal papers that Ruhrgas has never entered into any

agreement with any of the Plaintiffs concerning gas pro-

duced from the Heimdal field or any of the matters that

are the subject of . . . this action.” Ex. B to Notice of

Removal. The District Court rejected the argument that

the case could be stayed pending arbitration in the ab-

sence of any consent to arbitrate.

affiliate

license

1 Petitioner to date has not filed an answer, offered any sworn

denial, or answered discovery relating to the essential alegations of

this lawsuit.

4

Petitioner next argued that the case presented issues

of such international significance that no state court

should be permitted to hear it. According to Petitioner,

the federal common law of international relations“ pro-

vided a basis for removal independent of any congres-

sional statute. The District Court never addressed this

contention; the Fifth Circuit panel rejected it. App. A.

Finally, Petitioner asserted that diversity jurisdiction

existed. Because Norge and Petitioner both are aliens,

however, there is no diversity. Although Petitioner nakedly

asserted that Norge was “fraudulently joined,” the only evi-

dence on the point established that (1) Norge actually owns

the relevant production license, (2) Norwegian law re-

quires that a Norwegian company like Norge hold the

license, and (3) Norge contends the value of its license

has been diminished by Petitioner’s refusal to permit

Heimdal gas to be sold to anyone other than the “Con-

sortium.” Norge also alleges that Petitioner participated

in breaches of fiduciary duties owed to Norge by its

partner, Statoil (the Norwegian oil and gas company).

Thus, Norge obviously has a sufficient interest in the case

to avoid any serious assertion that its joinder here was

somehow “fraudulent.” Accordingly, all three novel

arguments for removal jurisdiction are, and since the time

of removal in August 1995 have been, lacking in any

colorable merit.

C. The Motion to Remand for Lack of Federal Jurisdiction

On September 15, 1995, Respondents moved to re-

mand, pointing out the absence of federal subject matter

jurisdiction apparent from the face of the petition. On

that same date, Respondents also moved to stay the case

pending a determination of the existence of federal sub-

ject matter jurisdiction. That motion urged that subject

matter jurisdiction be resolved as a threshold matter and,

in view of the assertion of both federal question and

diversity jurisdiction, the basis, if any, of subject matter

5.

jurisdiction had to be resolved before it could be deter-

mined whether personal jurisdiction would relate to Peti-

tioner's contacts with Texas or the United States. FED.

R. Civ. P. 4(k)(2). The District Court denied that

request.

Instead, the District Court granted Petitioner’s request

to have “discovery” to identify grounds for its removal

and to support its various motions, including its personal

jurisdiction challenge. On March 29, 1996, the court dis-

missed for lack of personal jurisdiction, reasoning that

there was no proof that a tort had been committed by

Petitioner’s representatives while they were physically pres-

ent in Marathon’s Houston offices. The court never ad-

dressed whether there was any basis for federal subject

matter jurisdiction.

D The Appeal and First Petition for Certiorari

At oral argument, the Fifth Circuit panel expressed no

particular enthusiasm for the personal jurisdiction hold-

ing, and pressed counsel for both parties to explain (1)

why this case was in the federal courts and (2) why

it was necessary to reach personal jurisdiction at all. It

ruled, on June 10, 1997, that it lacked subject matter

jurisdiction and that the case should be remanded to state

court. Petitioner then filed a petition for writ of certiorari

asserting that the case should be arbitrated. This Court

denied the Petition on November 10, 1997. App. B. Fol-

lowing this Court’s denial of certiorari, the Fifth Circuit

sua sponte set the case for en banc reconsideration.

On June 22, 1998, the en banc court handed down the

decision at issue in this second Petition. It rejected the

former rule, finding it inconsistent with congressional

policy reflected throughout the removal statutes and deci-

sions of this Court concerning both removal and the power

of the inferior courts under Article III. The en banc

court remanded to the District Court for a ruling on the

6

Motion to Remand. On July 17, 1998, the Fifth Circuit

rejected Petitioner’s Motion to Stay the Mandate pending

this Petition. As of the date of this filing, despite renewed

requests, the District Court has not ruled whether subject

matter jurisdiction exists.

SUMMARY OF OPPOSITION

This effort at interlocutory review does not present any

novel issue, nor are the principles involved the subject

of any actual circuit conflict. The Petition questions

whether a federal court can ignore a challenge to its

subject matter jurisdiction and rule instead on a motion

to dismiss for lack of personal jurisdiction. Petitioner

asserts that so long as the personal jurisdiction question is

“easier,” then a federal court may ignore a “difficult”

question of subject matter jurisdiction in the interests of

judicial economy. Respondents submit that, at least in

removed cases, subject matter jurisdiction is a funda-

mental threshold issue that must be decided before a fed-

eral court can rule on any other matter.

This Court has already resolved, on occasions too

numerous to count, that federal subject matter jurisdic-

tion must be determined as a threshold matter. This is

especially true of removed cases. Any rule to the con-

trary would run counter to the limited jurisdiction af-

forded the lower courts in Article III of the Constitution

and by Congress in the removal statutes. It also would

create the potential, realized in this case, for prolonged

delay in remanding cases improvidently removed from

state court dockets.

The Fifth Circuit was correct in rejecting a rule that

would permit a district court to ignore the question

whether federal subject matter jurisdiction exists while it

retains a case for discovery and, perhaps, dismissal for

lack of amenability to service of process. The dismissal

entered in this case was erroneous and was subject to

;

correction on appeal. Nonetheless, a rule that would en-

dorse this procedure would leave the threshold question

of state or federal jurisdiction unanswered for years.

The Fifth Circuit’s opinion followed decisions of this

and other courts. Accordingly, the Petition should be

denied. In connection with its evaluation of this Petition,

however, this Court can and should examine the basis for

this casé’s presence in the federal system. As no such

basis exists, the Court should note the absence of subject

matter jurisdiction even if it determines that there is no

question worthy of review of certiorari.

REASONS FOR DENYING THE WRIT

Petitioner advocates a system in which federal courts

can assume subject matter jurisdiction for the purpose of

disposing of a case on a merits-based, personal jurisdiction

challenge. Petitioner bases this conclusion on the maxim

that a federal court always has jurisdiction to determine

its own jurisdiction. Respondents agree that federal courts

have jurisdiction to determine jurisdiction. That, how-

ever, is not the issue. Rather, the question here is whether

federal courts can ignore a lack of subject matter juris-

diction. In particular, when a district court’s subject mat-

ter jurisdiction in a removed case is called into question,

may it nonetheless proceed with discovery, and then enter

a dispositive, merits-based judgment based on a state law

question of amenability to process without ever consider-

ing whether Article III jurisdiction exists? A long line of

cases, culminating with the recent opinion in Steel Co. v.

Citizens for a Better Environment, 118 S. Ct. 1003

(1998), establish that it cannot.

IL. THE FIFTH CIRCUIT CORRECTLY APPLIED

PRIOR DECISIONS OF THIS COURT

Subject matter jurisdiction lies at the very heart of

federal court authority. Recognizing this important prin-

ciple, the Fifth Circuit’s opinion below requires federal

courts sitting in removed cases to resolve issues of subject

matter jurisdiction before considering contested issues like

personal jurisdiction. In reaching this conclusion, the

Fifth Circuit followed the mandate that subject matter

jurisdiction is a “fundamentally preliminary” and thresh-

old issue. Leroy v. Great W. United Corp., 443 US.

173, 180 (1979).

A. Subject Matter Jurisdiction is a Threshold Inquiry,

Especially in Cases Removed from State Court

As this Court has recognized consistently, “[flederal

courts are courts of limited jurisdiction” acquiring power

to adjudicate claims from both Article III and Congress.

Insurance Corp. of Ireland, Ltd. v. Compagnie des Baux-

ites de Guinee, 456 U.S. 694, 701 (1982); Aldinger v.

Howard, 427 U.S. 1, 15 (1976). Other than the Supreme

Court, every federal court “derives its jurisdiction wholly

from the authority of Congress,” and Congress may “give,

withhold or restrict such jurisdiction at its discretion, pro-

vided it be not extended beyond the boundaries fixed by

the Constitution.” Kline v. Burke Constr. Co., 260 U.S.

226, 234 (1922). Thus. without jurisdiction the

court cannot proceed at all in any cause and “ ‘the only

function remaining to the court is that of announcing the

fact and dismissing the cause“ Steel Co. v. Citizens for

a Better Env't, 118 S. Ct. 1003, 1012 (1998) (quoting

Ex Parte McCardle, 74 U.S. 506, 514 (1868) (emphasis

added) ). This threshold inquiry is all the more important

when, as here, the case has been unilaterally removed

from the state courts by one of the litigants.

The Court has admonished federal courts to tread cau-

tiously when exercising subject matter jurisdiction in a

case removed from state court. “The power reserved to

the states under the Constitution to provide for the deter-

mination of controversies in their courts, may be restricted

only by the action of Congress in conformity to the Judi-

ciary Articles of the Constitution. Due regard for the

9

rightful independence of state governments . . . requires

that [federal courts] scrupulously confine their own juris-

diction to the precise limits which the [removal] statute

has defined.’” Shamrock Oil & Gas Corp. v. Sheets, 313

U.S. 100, 108-09 (1941) (quoting Healy v. Ratta, 292

U.S. 263, 270 (1934)). Indeed, to permit a federal court

with no subject matter jurisdicion to enter a judgment in

a removed case would “work a wrongful extension of

federal jurisdiction and give district courts power the

Congress has denied them.” American Fire & Cas. Co. v.

Finn, 341 U.S. 6, 18 (1951).

Cognizant of these concerns, Congress strictly limited

federal removal jurisdiction and attempted to check the

incentive to remove cases without jurisdiction. It required

that a case not be removed until it has in fact “become

removable.” 28 U.S.C. § 1446(b). It mandated remand

when “at any time before judgment it appears that the

district court lacks jurisdiction.” 28 U.S.C. § 1447(c).

It authorized the entry of fee awards for improper removal

and rejected any right to appeal an order of remand “no

matter how plain the legal error.” See Briscoe v. Bell,

432 U.S. 404, 413 n.13 (1977).

Every federal appellate court has been mindful of the

limited nature of removal jurisdiction and the attendant

potential for interference with state court proceedings.

See, e.g., Ahern v. Charter Township, 100 F.3d 451, 454

(6th Cir. 1996) (“Due regard for state governments’

rightful independence requires federal courts scrupulously

to confine their own jurisdiction to precise statutory lim-

its.”); Abels v. State Farm Fire & Cas. Co., 770 F.2d 26,

29 (3d Cir. 1985) (“Because lack of jurisdiction would

make any decree in the case void and the continuation

of the litigation in federal court futile, the removal statute

should be strictly construed and all doubts should be re-

solved in favor of remand.”) (quoting 14 “CHARLES

ALLEN WRIGHT, ET XL., FEDERAL PRACTICE AND PRo-

CEDURE § 3642 (2d ed. 1985) ).

10

Consistent with the Fifth Circuit, the Eleventh Circuit,

for example, recently held that federal district courts sit-

ting in removed cases have a mandatory duty to determine

subject matter jurisdiction before considering any other

dispositive motion. Pacheco de Perez v. AT&T Co., 139

F.3d 1368, 1372 n.4 (11th Cir. 1998). “To do otherwise

would allow defendants to evade the statutory require-

ments of § 1441(b) and allow the federal courts to make

significant dispositive rulings in a case over which the

federal courts may lack jurisdiction.” Jd. (“Important

[suhject matter] jurisdictional questions cannot be ignored

merely because they are difficult.”). Even opposing coun-

sels’ treatise recognizes that “it would not simply be wrong

but indeed would be an unconstitutional invasion of the

powers reserved to the states if federal courts were to

entertain cases not within their jurisdiction.” 13 CHARLES

ALLEN WRIGHT, ET AL., FEDERAL PRACTICE AND PROCE-

DURE § 3522 (2d ed. 1984).

Petitioner’s argument not only ignores these fundamen-

tal concerns but also neglects serious comity consequences

that Congress intended to address in the removal statutes.

As is often the case, the personal jurisdiction

here overlapped with the merits. See, e.g., Data Disc, Inc.

v. Systems Tech. Assocs., Inc., 557 F.2d 1280, 1285-86

n.2 (9th Cir. 1977). Petitioner urged, for instance that

its conduct while visiting Respondents’ Texas offices did

not amount to actionable fraud under Texas law. The

District Court so ruled. Pet. App. B-15. There was, in

essence, a merits-based ruling. It also was erroneous.

While appeal lies to correct the error, the remand question

went unresolved and has been held hostage throughout

the appellate process. Had the District Court simply ad-

dressed its subject matter jurisdiction at the outset and

remanded, no appeal would lie, and the severe delay in-

herent in the appellate process would have been avoided.

United States v. Rice, 327 U.S. 742, 751 (1946). By

ruling on personal jurisdiction and ignoring subject matter

jurisdiction, a district court creates the entirely avoidable

11

possibility of delay occasioned by subsequent reversal on

personal jurisdiction.? Likewise, even if a district court

could be authorized to ignore the question of subject

matter jurisdiction, an appellate court still would be bound

to address the threshold issue. Either way, a remand

ruling is delayed improperly despite 28 U.S.C. § 1447(c).

B. Petitioner's Proposed Rule would Conflict with

Steel Co.

Petitioner's argument also conflicts with this Court's

recent decision in Steel Co. v. Citizens for a Better En-

vironment, 118 S. Ct. 1003, 1012-13 (1998). In Steel

Co., the Court, reiterating the fundamental nature of sub-

ject matter jurisdiction, rejected a Ninth Circuit rule that

would have allowed a court to assume jurisdiction over a

case for the purpose of disposing of it on a closely-

related merits ruling. In doing so, the Court held that to

DD2— — Se Sas. conmening wives

matter jurisdiction “carries the courts beyond the bounds

of authorized judicial action and thus offends fundamental

principles of separation of powers.” /d. at 1012. The

court further noted that

This conclusion should come as no surprise, since

it is reflected in a long and venerable line of our

cases. “Without jurisdiction the court cannot pro-

ceed at all in any cause. Jurisdiction is the power

to declare the law, and when it ceases to exist, the

only function remaining to the court is that of an-

nouncing the fact and dismissing the cause

“On every writ of error or appeal, the first and funda-

mental question is that of jurisdiction.” . . . The re-

2 This case is a paradigm of such delay, by which the basic ques-

tion of subject matter jurisdiction has been submerged for over

three years, with no end in sight.

12

Even Petitioner agrees, as it must, that every federal

r

in order to first address the issue of personal j

jurisdiction.

Petitioner premises its argument on the illogical conclu-

sion that a defense to service of process that includes the

cepts—speaking

Insurance Corp. of Ireland, Ltd. v. Compagnie des Baux-

ites des Guinee, 456 U.S. 694, 701 (1982). The Fifth

Circuit correctly rejected this “jurisdiction is jurisdiction

is jurisdiction” argument. Marathon Oil Co. v. Ruhrgas,

145 F.3d 211, 217 (Sth Cir. 1998) (en banc).“

Subject matter jurisdiction and personal jurisdiction are

separate and distinct concepts. The Court has instructed,

for example, that “neither personal jurisdiction nor venue

is fundamentally preliminary in the sense that subject-

matter jurisdiction is, for both are personal privileges of

the defendants, rather than absolute strictures on the

court.” Leroy v. Great W. United Corp., 443 U.S. 173,

180 (1979) (emphasis added). “The distinction is that

subject-matter jurisdictional requirements prevent our

overreaching into the powers that the Constitution and

Congress have left to the state courts, while personal

jurisdiction requirements prevent both state and federal

3 The recent adoption of Petitioner’s “jurisdiction is jurisdiction”

argument represents an abrupt about-face for Professors Wright

and Miller. Before appearing here, their statements regarding the

threshold nature of subject matter jurisdiction were unequivocal.

“(When [a motion to dismiss) is based on more than one ground,

the court should consider the Rule 12(b)(1) challenge first.” 5A

CHARLES ALLEN WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE

1350 (2d ed. 1990) (emphasis added). “Upon finding that it has no

subject matter jurisdiction, the district court should strike the case

from its docket.” Jd. at Vol. 13, § 3522 (2d ed. 1984 & Supp. 1998).

13

courts from upsetting the defendant's settled expectations

as to where it can reasonably anticipate being sued.”

Marathon Oil Co., 145 F.3d at 218 (citing Insurance

Corp. of lreland, Ltd., 456 U.S. at 702-04).

Subject matter jurisdiction, which flows from Article III

of the Constitution, is an absolute boundary on a federal

— I oe ee ee

Principles of estoppel do not apply: and “a party

aos ik Gah bo tae te te we eee

jurisdiction early in the proceedings.” Insurance Corp. of

Ireland, Ltd., 456 U.S. at 702 (citations omitted). On

the other hand, “personal jurisdiction flows not from

Art. III. but from the Due Process Clause” and represents

an “individual right” that may be waived. Id. at 702, 703.

C. Caterpillar does not Hold Contrary to These Prin-

ciples

Petitioner's attempt to conjure up a conflict between

the Fifth Circuit's opinion and this Court's decision in

Caterpillar, Inc. v. Lewis, 117 S. Ct. 467 (1996), is

untenable. In Caterpillar, the defendants removed the

case at a time when there was a lack of complete diver-

sity. Id. at 471. The plaintiff objected to jurisdiction

after removal and moved the court to remand the case.

The trial court considered the question of subject matter

jurisdiction and denied the motion, although its disposi-

tion was erroneous and would have been subject to reversal

on appeal had the error remained. Id. The non-diverse

other grounds, ‘the court should consider the [subject mat-

ter jurisdiction] challenge first since if it must dismiss the

complaint for lack of subject matter jurisdiction, the

accompanying defenses and objections become moot and

need not be determined. Id. (citing 5 CHARLES ALLEN

WRIGHT AND ARTHUR R. MILLER, FEDERAL PRACTICE

AND PrRocepuRE § 1350 (ist ed. 1969)). Rhulen is con-

trolling authority in the Second Circuit.* See, e.g., United

States v. Carpentier’, No. 96-Civ.6460, 1998 WL 749042, at *2

15

States v. Fatico, 603 F.2d 1053, 1058 (2d Cir. 1979

(holding that one appellate panel cannot overrule another

panel); Ingram v. Kumar, 585 F.2d 566, 568 (2d Cir.

(S.D.N.Y. Oct. 26, 1998) ; Seemann v. Marwell, 178 F. R. D. 23, 25 n.1

(N.D.N.Y. 1998); Madanes v. Madanes, 981 F. Supp. 241, 249

(S.D.N.Y. 1997); Integrated Utils., Inc. v. United States, No. 96-

Civ.-8983, 1997 WL 529007, at *2 (S.D.N.Y. Aug. 26, 1997) ; Sanger

v. Reno, 966 F. Supp. 151, 159 (E.D.N.Y. 1997): Sanchez-Preston

v. Luria, No. CV-96-2440, 1996 WL 738140, at *2 (E.D.N.Y. Dee. 17,

1996). This also has been the practice in the federal courts of

Texas. E.g., American Nat'l Ins. Co. v. Travelers Cas. and Surety

Co., 8 F. Supp. 2d 938, 939 (S.D. Tex. 1998) ([The first question

for the Court is always jurisdiction. ... If the lawsuit has come

before the court via removal, upon determining that subject matter

jurisdiction is lacking, the Court’s only recourse is remand.” ).

5 Regardless, personal jurisdiction here could not “easily” be de-

cided in Petitioner’s favor. Respondents’ state court petition alleged

misrepresentations and fraudulent omissions contained in more than

one hundred letters sent by Petitioner or Respondent in Houston,

Texas over a multi-year period, as well as three in-person meetings

at Respondents’ Houston headquarters. The claims involved arise

from, or directly relate to, all of these intentional contacts by Peti-

tioner with the forum. Petitioner's actions are alleged to have

caused Respondents to sustain hundreds of millions of dollars in

damages in Texas. Petitioner’s stationing of its own employees in

Houston for many years also precluded any “easy” decision in its

favor. And even if the personal jurisdiction question had been an

primarily

on Browning-Ferris Indus. v. Muszynski, 899 F.2d 151,

159-60 (2d Cir. 1990).” Marathon Oil Co., 145 F.3d

at 223.“ Muszynski was a “hypothetical jurisdiction” case;

its holding was invalidated by this Court's decision in

Steel Co., 118 S. Ct. at 1016.

conflicts and erroneous decisions. See Holly Farms Corp.

v. NLRB, 517 U.S. 392, 397 (1996). Neither is present

here.

CONCLUSION

Marathon filed this state tort action over three years

ago, seeking a remedy in state court for wrongful acts

occurring in and directed toward Texas. By manipulating

easy one, it still would not justify wresting a case from the state

court in which it was filed.

The Cantor Fitzgerald court also cited Can v. United States,

14 F.3d 160, 162 n.1 (2d Cir. 1994), and Bi v. Union Carbide Chemi-

cals & Plastics Co., 984 F.2d 582, 584 n.2 (2d Cir. 1993). But as

the Fifth Circuit pointed out, “[nJeither of these cases, however,

supports Cantor Fitzgerald's holding. Can discusses which subject-

matter jurisdiction challenge a district court should address first.

See Can, 14 F.3d at 162 n.1. Bi adopts no rule, but instead addresses

subject-matter jurisdiction before considering personal jurisdiction.

See Bi, 984 F.2d at 584 n.2.“ Marathon Oil Co., 145 F.3d at 223

n.18.

November 9, 1998

case any further , this Court should

Respectfully submitted,

CLIFTON T. HUTCHINSON *

J. GREGORY TAYLOR

Davip J. SCHENCK

DEREK S. HOLLINGSWORTH

HuGHes & Luce, L.L.P.

1717 Main Street

Suite 2800

Dallas, Texas 75201

(214) 939-5500

Attorneys for Respondents

* Counsel of Record

APPENDICES

la

APPENDIX A

[Filed Jun. 10, 1997]

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 96-20361

MARATHON Om. CoMPANY;

MARATHON INTERNATIONAL OIL COMPANY;

MARATHON PETROLEUM Norce A/S,

Appeal from the United States District Court

for the Southern District of Texas

Before POLITZ, Chief Judge, WIENER and STEWART,

Circuit Judges.

POLITZ, Chief Judge:

This international commercial dispute involves allega-

tions of fraud, civil conspiracy, and various business

2a

torts. Concluding that the district court lacked subject

matter jurisdiction, we vacate and remand with instruc-

tions.

Background

In 1976 Marathon Oil Company (MOC) became in-

volved in North Sea gas exploration activities when its

affiliate, Marathon International Oil (MIO), purchased

a European concern holding a North Sea production li-

cense.! The production license, originally held by Mara-

thon Petroleum Norge (Norge), ultimately gave another

affiliate, Marathon Petroleum Norway (MPN) rights to

24% of a gas field in the North Sea known as the Heim-

dal field.? Another large interest holder in the Heimdal

field was Statoil, Norway's state-owned gas company,

which had purchased a 40% interest in 1975.

The present litigation arises from alleged oral and writ-

ten agreements between the Marathon companies, Ruhr-

gas, A.G., and other European companies, regarding the

development and production of Heimdal field reserves.

Ruhrgas is Germany's primary gas company. According

to the Marathon plaintiffs, Ruhrgas, Statoil, and a consor-

tium of other European companies secretly conspired to

monopolize the western European gas market by funnel-

ing a large portion of North Sea gas reserves through

Ruhrgas’s production facilities in Germany.

The plaintiffs allege that to effectuate this plan Ruhrgas

duped them into providing MPN with $300 million to

participate in extensive construction and drilling opera-

tions with the false promises of premium prices for MPN’s

European gas sales and guaranteed pipeline transporta-

1 MIO acquired Pan Ocean and its subsidiary, Pan Ocean Norge,

which held the North Sea production license. Pan Ocean was later

renamed Marathon Petroleum Norway, and Pan-Ocean Norge be-

came Marathon Petroleum Norge.

2MPN acquired the production license by virtue of a Pass

Through Agreement with its subsidiary, Marathon Petroleum Norge,

the original license holder.

3a

tion tariffs to help offset the substantial construction

investment.“

When it ultimately became apparent that premium

prices would not be honored and the scheduled transpor-

tation tariffs would not materialize, MOC, MIO, and

Norge * sued Ruhrgas in Texas state court for fraud, mis-

representation, civil conspiracy, and tortious interference

with business relations. Ruhrgas timely removed, invok-

ing jurisdiction under diversity of citizenship, federal ques-

tion, and 9 U.S.C. § 205. After removal, Ruhrgas moved

for a stay pending arbitration in Europe which the district

court denied. Ruhrgas then filed a motion to dismiss for

lack of personal jurisdiction and a motion to dismiss for

forum non conveniens. The Marathon plaintiffs moved

to remand for lack of subject matter jurisdiction. The

district court granted Ruhrgas’s motion to dismiss for

lack of personal jurisdiction and dismissed all other mo-

tions as moot. The court then denied Ruhrgas’s motion

for reconsideration in which Ruhrgas reurged the court

to abate all proceedings pending compelled arbitration in

Europe. All parties timely appealed.

Analysis

We address at the threshold the vital question of

federal subject matter jurisdiction. As courts of limited

jurisdiction, federal courts may adjudicate a case or con-

troversy only if there is both constitutional and statutory

3 This proposal was known as the “Heimdal Gas Agreement,”

which allegedly guaranted a $5.50 per million BTU price. MPN,

as assignee of Norge’s Heimdal license, was a party to this agree-

ment.

1 As a signatory to the Heimdal Gas Agreement, MPN’s claims

were subject to binding arbitration in Europe. Norge, however, was

not a signatory and asserts that although it assigned its Heimdal

license to MPN, it nonetheless has standing to sue for the alleged

devaluation of the license. We address that contention infra.

—

4a

authority for federal jurisdiction.’ Ruhrgas insists that

we must rule on its personal jurisdiction challenge without

first determining whether we have jurisdiction ratione

materiae. We are cognizant that in some instances we

have permitted the dismissal of an action for lack of per-

sonal jurisdiction without considering the question of sub-

ject matter jurisdiction.®

We decline, however, to extend those cases into manda-

tory rules of trial and appellate procedure governing the

order in which jurisdictional motions must be determined.

No dispositive precedent of our circuit has held that a

court must ignore a lack of subject matter jurisdiction

when it has before it an easier disposition of a motion to

dismiss for lack of personal jurisdiction. Such a rule

necessarily would be invalid in light of our constitutional

and statutory authority and the overwhelming body of

precedent commanding all federal courts to scrutinize

assiduously subject matter jurisdiction at each stage of

litigation, trial and appellate, and to dismiss cases not

properly before us.”

5 Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375

(1994); B, Ine. v. Miller Brewing Co., 663 F.2d 545 (Former 5th

Cir. 1981); Erwin Chemerinski, Federal Jurisdiction 217 (1989);

see also Sheldon v. Sill, 49 U.S. (8 How.) 441 (1850) (Congress may

create lower federal courts and thus has the power to vest them with

less than full Article III jurisdiction).

8 See, e. g., Villar v. Crowley Maritime Corp., 990 F.2d 1489 (5th

Cir. 1993); Association Nacional de Pescadores v. Dow Quimica,

988 F.2d 559 (5th Cir. 1993); Walker v. Savell, 335 F.2d 536 (5th

Cir. 1964).

7 See, e. g., Cutler v. Rae, 7 U.S. (7 How.) 729 (1849) ; Mansfield

v. Swan, 111 U.S. 379 (1884); Louisville & Nashville R.R. Co. v.

Motley, 211 U.S. 149 (1908); Mitchell v. Maurer, 293 U.S. 237

(1984); Clark v. Paul Gray, Inc., 8306 U.S. 583 (1939); Philbrook

v. Glodgett, 421 U.S. 7078 (1975); Judice v. Vail, 430 U.S. 327

(1977); Bender v. Williamsport Area School Dist., 475 U.S. 534

(1986); FW/PBS, Inc. v. City of Dallas, 493 U.S. 215 (1990);

Save the Bay, Inc. v. United States Army, 639 F.2d 1100 (5th Cir.

1981); Giannakos v. M/V Bravo Trader, 762 F.2d 1295 (5th Cir.

1985); Mocklin v. Orleans Levee Dist., 877 F.2d 427 (5th Cir.

Sa

We must be ever mindful that any rule or decision

allowing a federal court to act without subject matter

jurisdiction conflicts irreconcilably with basic principles

of federal court authority.* On several occasions we have

sounded the caution that where a federal court pro-

ceeds in a matter without first establishing that the dis-

pute is within the province of controversies assigned to

it by the Constitution and statute, the federal tribunal

poaches upon the territory of a coordinate judicial system,

and its decisions, opinions, and orders are of no effect.” ®

Aer lack of personal jurisdiction were judg-

ments on merits, decisions allowing that determina-

tion in the absence of federal subject matter jurisdiction

would have no validity.’ The appropriate course is to

examine for subject matter jurisdiction constantly and,

lacking, to remand to state court if appro-

priate, or otherwise dismiss. 1 Such a course respects the

1989) ; Tree Properties, Ine. v. United States Mineral Prods. Co

974 F.2d 602 (5th Cir. 1992); Moore v. United States Dept. of

1 ex rel. Farmers Home Admin, 55 F.3d 991 (5th Cir.

8 See, e. g., Kokkonen, 511 U.S. at 877 (holding that the juri

” . sdic-

tion of the federal courts “is not to be expanded by judicial decree” )

(citing American Fire & Cas. Co. v. Finn, 341 U.S. 6 (1951) >).

9 , Inc. 663 F.2d at 548; see also Stafford v. Mobil Oil Co

945 F.2d 808 (Sth Cir. 1991); Getty Oil Co. v. Insurance Co. of

N. Am., 841 F.2d 1254 (5th Cir. 1988); Jn re Majestic Energy

Corp., 835 F.2d 87 (6th Cir. 1988); In C

poe gy re Carter, 618 F.2d 1093

10 See Caterpillar, Inc. v. Lewis, 117 S.Ct. 467 (1996) (holdin

that a district court must have subject matter jurisdiction by the

time it renders judgment for the judgment to be valid): see also

Weeks v. Fidelity & Cas. Co., 218 F.2d 508, 504 (5th Cir. 1955) (“If

the refusal to remand was erroneous, the judgment of dismissal was

likewise erroneous.”) (citing Ruff v. Gay, 67 F.2d 684 :

1983), aff'd, 292 U.S. 25 (1984)). n (Sth Cir.

11 Confronted with virtually identical facts, in Zie

„ gler *. Cham-

pion Mortgage Co., 913 F.2d 220 (5th Cir. 1“ 0), we raised the

524 (5th

12 Cf. Leffal v. Dallas Indep. School Dist., 28 F.3d 521,

Cir. 1994) (“Removal statutes are to be strictly construed against

removal.” ).

13 Kokkonen, 511 U.S. at 377; see also Stafford v. Mobil Oil Corp.,

945 F.2d 803, 804 (5th Cir. 1991) (“The burden of proving that

complete diversity exists rests upon the party who seeks to invoke

the court’s diversity jurisdiction.” )

10 See Giannakos, 762 F.2d at 1298 (holding that diversity

doce ast exits where eilens xo on beth cides of the Utigntion”).

15 At the time the parties filed their appellate briefs, Norge did

not have the right to market Heimdal gas under the Pass Through

ii

8 5

|

ö

i

$3

reserves to non-consortium buyers and thereby devalues

the production license. Ruhrgas responds that Norge can-

not complain of any damage to its production license as

Norge assigned all of its interests in the Heimdal license

to MPN. '

The party attempting to prove fraudulent joinder has

a heavy burden.“ To establish that a defendant has been

joined fraudulently, “the removing party must show [by

clear and convincing evidence] either that there is no

possibility that the plaintiff would be able to establish a

cause of action against the [nondiverse] defendant in state

court; or that there has been outright fraud in the plain-

tiffs pleadings of jurisdictional facts.” 1 In making this

Agreement. Briefing indicated that MPN’s rights under the Pass

Through Agreement would terminate if it failed to perform certain

obligations. Norge predicted that such a reversion would occur as

a result of Ruhrgas’s activities during the summer of 1996. The

current status of the Pass Through Agreement therefore is unclear.

Terms in the agreement, however, indicate that Norge may have

continuing obligations to the nation of Norway under the original

production license and that Ruhrgas’s interference in MPN’s activi-

ties may be impacting those obligations. Norge also asserts that

Ruhrgas has tortiously interfered with MPN’s obligations to Norge

under the Pass Through Agreement.

16 Ford v. Elsbury, 32 F.3d 981 (5th Cir. 1994).

17 B, Inc., 663 F. 2d at 549 (footnote omitted).

18 Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir.

1992); see also Burden v. General Dynamics Corp., 60 F.3d 213

(Sth Cir. 1995); B, Ine.

ie

rth

au

He

110

| i!

8212

|

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11

exist for classifying Norge’s property interest.

s choice of law rules Norwegian law likely

to be consulted to answer these difficult ques-

t this stage in the proceedings, however, Ruhr-

shoulders the burden of proof, and it simply cannot

745

af

prove, by clear and convincing evidence, that Norge has

absolutely no possibility of recovering damages under any

theory of liability. Diversity jurisdiction, therefore, is not

present.

B. Federal Question Jurisdiction

Ruhrgas asserts that federal question jurisdiction is

present because the Ipllaintiffs“ claims raise substantial

19 See Cantu v. Bennett, 39 Tex. 303 (1873) (indicating that the

law of the situs would control the characterization of Norge’s prop-

erty interests); but see Swanson v. Schlumberger Tech. Corp. (Tex.

App.—Texarkana 1995, writ granted) (indicating that Texas law

may control this determination under the “most significant relation-

ship” test). Given the fraudulent joinder standards, we must pre-

sume that Norwegian law would apply. Burden. There is, however,

no evidence of Norwegian law in the record. Even if we were to

attempt to apply Texas law, classification of these various interests

and the concomitant rights of Norge to pursue damage remedies

would be unclear. This alone precludes a finding of fraudulent

joinder. See Sid Richardson Carbon & Gasoline Co. v. Interenergy

Res., Ltd., 99 F.3d 746 (5th Cir. 1996).

9a

In Torres v. Southern Peru Copper Corp., we found

federal question jurisdiction based on the federal com-

mon law of foreign relations. As in Torres, the defend-

disputes between western European corporations and

United States corporations and cannot properly form the

basis of federal subject matter jurisdiction.

Ruhrgas appears to be an important gas supplier in

Germany and western Europe but this action does not

strike at the sovereignty of a foreign nation. The plain-

tiffs’ claims do not call into question official German

policy decisions and the Republic of Germany was not a

participant in the activities giving rise to this suit. This

litigation does not seek to impose liability for injuries to

foreign citizens occurring solely on foreign soil, as was

the situation in Torres. Indeed, Ruhrgas allegedly came

to the United States and defrauded a United States com-

pany on American soil. Merely requiring a German cor-

20 113 F.3d 540 (5th Cir. 1997).

21 Franchise Taz Bd. v. Construction Laborers Vacation Trust,

463 U.S. 1, 13 (1983).

10a

poration to abide by state law when present here does not

necessarily implicate substantial foreign relations issues

between the United States and Germany. Further, we

remain unconvinced that this suit may impact severely

tt vital economic interests of a highly developed and

flourishing industrial nation such as Germany. Federal

question jurisdiction does not exist.

c. 9USC. § 205

Finally, Ruhrgas claims that this case is removable

under 9 U.S.C. § 205 because the plaintiffs’ claims relate

to an arbitration agreement falling under the Convention

on the Recognition and Enforcement of Foreign Arbitral

Awards. Notably, MOC, MIO, and Norge were not signa-

tories to any arbitration agreement, nor were they parties

to any arbitration proceedings.”

Under 9 U.S.C. § 205, federal jurisdiction exists if the

plaintiffs’ claims relate to an arbitration agreement or

award falling under the Convention on the Recognition

of Foreign Arbitral Awards. An arbitration agreement or

award falling under the Convention is one which arises

out of an international commercial legal relationship.”

No one disputes that the plaintiffs’ claims arise from in-

ternational commercial relationships; the issue is whether

any relevant arbitration agreement exists between the

parties to this litigation, a necessary predicate for federal

jurisdiction under 9 U.S.C. § 205.% Simply stated, there

22 MPN, however, has participated successfully in arbitration pro-

ceedings in Europe.

23 See 9 U.S.C. §$§ 206, 2.

24 See Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Corp,,

767 F.2d 1140 (5th Cir. 1995) (holding that the Convention only

applies where (1) there is an agreement in writing to arbitrate the

dispute; (2) the agreement provides for arbitration in the territory

of a Convention signatory; (3) the agreement to arbitrate arises

from a commercial legal relationship; and (4) a Non-American

citizen is a party to the agreement).

lla

is no such agreement.”

Ruhrgas maintains that the Marathon plaintiffs are at-

tempting to enforce provisions of the Heimdal Gas Agree-

ment, an agreement to which they are not parties. It

further characterizes this suit as an inappropriate attempt

to circumvent the arbitration agreement under which

MPN is bound to arbiwate any disputes concerning the

Heimdal Gas Agreement. As such, Ruhrgas contends that

the Marathon plaintiffs should be estopped from denying

the applicability of the arbitration provisions. We are not

persuaded.

MOC and MIO are not seeking redress for wrongs

done to MPN. Rather, they allege that Ruhrgas and

others jointly participated in a scheme to induce them

fraudulently into investing $300 million into MPN. That

Ruhrgas may have effectuated this fraud through its con-

tractual relationship with MPN does not lead to the con-

clusion that MOC and MIO are seeking damages for harm

done to MPN. Further, MOC and MIO are not seeking

damages for any breach of contract; they could not do so

because no contracts exist between them and Ruhrgas.“

The same is true of Norge’s claims. Norge merely claims

that Ruhrgas’s tortious conduct has affected the value

of its production license and impeded its obligations and

rights under the Heimdal license and Pass Through Agree-

ment. Norge is not seeking damages on behalf of MPN,

nor has it claimed entitlement to any rights under the

Heimdal Gas Agreement.

25 Ruhrgas acknowledges that none of the Marathon plaintiffs

have any contractual relationship with Ruhrgas and that none of

the plaintiffs ever signed an arbitration agreement.

26 Contrary to Ruhrgas’s contention that the Marathon plaintiffs

are seeking to enforce the pricing arrangements in the Heimdal Gas

Agreement, plaintiffs do not seek injunctive relief. Moreover, the

plaintiffs would not be entitled to recover the lost profits of MPN,

though such figures may be relative in proving the extent of the

plaintiffs’ damages.

12a

Finally, Ruhrgas asserts other theories for its thesis

that the arbitration provisions in the Heimdal Gas Agree-

ment should apply to all of MPN’s corporate affiliates.

None is persuasive.

Conclusion

Concluding that the district court lacked subject matter

jurisdiction, we vacate the judgment of the district court

and remand with instructions that this action be remanded

to the 152nd Judicial District Court of Harris County,

Texas.

VACATED and REMANDED.

13a

APPENDIX B

SUPREME COURT OF THE UNITED STATES

Office of the Clerk

Washington, D.C. 20543

November 10, 1997

MARATHON Ol COMPANY, et al.

Dear Mr. Hutchinson:

The Court today entered the following order in the

above entitled case:

—

The petition for a writ of certiorari is denied.

Sincerely,

/s/ William K. Suter

WILLIAM K. SUTER

Clerk