Respondents Brief — Ruhrgas Ag v. Marathon Oil Co.

e TT ae

Supreme Court, U. 8.

FILED

IN THE

Supreme Court of the United States

OCTOBER TERM, 1998

RuHRGAS, A. G.,

* Petitioner,

MARATHON OIL COMPANY,

MARATHON INTERNATIONAL OIL COMPANY,

AND MARATHON PETROLEUM NORGE A/S,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF FOR RESPONDENTS

DAVID L. SHAPIRO CLIFTON T. HUTCHINSON *

1575 Massachusetts Avenue J. GREGORY TAYLOR

Cambridge, MA 02138 DAVID J. SCHENCK

(617) 491-2758 DEREK S. HOLLINGSWORTH

Of Counsel Hud HES & Luce, L. L. P.

1717 Main Street

Suite 2800

Dallas, Texas 75201

(214) 939-5500

Attorneys for Respondents

February 24, 1999 ounsel of Record

WILSON - Epes PRINTING 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 jurisdic-

tion, conduct discovery, and enter an order of dis-

missal without first ruling on a motion to remand for

lack of subject matter jurisdiction?

(i)

ii

RULE 29.6 DISCLOSURE

Marathon Oil Company is a subsidiary of USX

Corp. Marathon International Oil Company is wholly-

owned by Marathon Oil Company. Marathon Petro-

leum Norge A/S is a Norwegian corporation whose

stock is held by a wholly-owned affiliate of Marathon

International Oil Company.

TABLE OF CONTENTS

QUESTION PRESENTED ..0.........2.......ccc-c-sceesseeeseen scenes

RULE 29.6 DISCLOSURE .....................-:0..c-sessseesnsseeeeeees

— VU ̃ — ——

I.

II.

III.

THE SIGNIFICANCE OF ARTICLE III AND

THE MADISONIAN COMPROMISE |...

THE EXISTENCE OF FEDERAL SUBJECT

MATTER JURISDICTION IS A PRELIMI-

NARY AND NECESSARY THRESHOLD

är *

THE NEED TO DETERMINE SUBJECT

MATTER JURISDICTION AT THE THRES-

HOLD IS ESPECIALLY EVIDENT IN RE-

.

A. Statutory Limits On Removal Protect The

Plaintiff's Choice Of Forum And Reflect The

Threshold Nature Of Subject Matter Juris-

.

B. Judicial Limits On Removal Require Strict

Statutory Construction And Resolution Of

All Doubts In Favor Of Remane

IGNORING SUBJECT MATTER JURISDIC-

TION IS NEITHER CONSTITUTIONAL NOR

--- ——

(iii)

10

14

14

17

19

iv

TABLE OF CONTENTS—Continued

A. Subject Matter Jurisdiction Is Fundament-

ally Different From All Other Categories Of

TTT TING is AES

B. Deciding Other Issues Without Subject Mat-

ter Juris'ction Deprives State Courts Of

Their Itesiuwal Jurisdictio nn

C. “Efficiency Jurisdiction” Would Be Ineffi-

cient And Invite Abuse

CTS ——ñ—

v

TABLE OF AUTHORITIES

CASES Page

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

J „„ 18

American Home Assurance Co. v. Insular Under-

writers Corp., 494 F.2d 317 (Ist Cir. 1974) 18

American Investors Life Ins. Co. v. Webb Life Ins.

Agency, 876 F. Supp. 1278 (S.D. Fla. 1995) 23

American Pictures, Ine. v. Morgan, 371 F. Supp.

I. 4 23

Anderson v. Yungkau, 329 U.S. 482 (1947) 15

Aquafaith Shipping, Ltd. v. Jarillas, 968 F.2d 806

rr . 27

Bank One v. United States, 157 F.3d 397 (5th Cir.

1E 20

In re Bear River Drainage Dist., 267 F.2d 849

(10th Cir 1959) 18, 22

Bender v. Williamsport Area Sch. Dist., 475 U.S.

. 16

Boyer v. Snap-on Tools Corp., 913 F.2d 108 (3d

1 oe a SV a EN 19

Briscoe v. Bell, 432 U.S. 404 (1977) eee an eee 16

Brown v. Francis, 75 F.3d 860 (3d Cir. 1996) 18, 19

Burnham v. Superior Court, 495 U.S. 604 (1990) 23

Burns v. Windsor Ins. Co., 31 F.3d 1092 (11th Cir.

19943) 17, 18

Caterpillar, Inc. v. Lewis, 117 S. Ct. 467 (1996) 13

Caterpillar, Inc. v. Williams, 482 U.S. 886 (1987).. 26

Chesapeake & Ohio Ry. Co. v. Cockrell, 232 U.S.

rr 27

City of Indianapolis v. Chase Nat'l Bank, 314 U.S.

e 9,12

Clark v. Paul Gray, Inc., 306 U.S. 583 (1939) 2 16

Colorado v. Symes, 286 U.S. 510 (19327 23

Cook v. Weber, 698 F.2d 907 (7th Cir. 1983 18

Cutler v. Rae, 48 U.S. (7 How.) 729 (18499 16

Data Disc. Inc. v. Systems Tech. Assoc., Inc., 557

F.2d 1280 (9th Cir. 1977) 22

Duncan v. Stuetzle, 76 F.3d 1480 (9th Cir. 1996).. 18

Ex parte McCardle, 7 U.S. (7 Wall.) 506 (1869) 10

FDIC v. Meyer, 510 U.S. 471 (1994) 20

vi

TABLE OF AUTHORITIES—Continued

Page

Foremost Ins. Co. v. Richardson, 457 U.S. 668

rec 25

FW/PBS, Inc. v. City of Dallas, 493 U.S. 215

ST ERR AE oR tae SSeS La 16

Grace v. American Century Ins. Co., 109 U.S. 278

reren 2 10

Healy v. Ratta, 292 U.S. A 12, 18

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

Bauzites de Guinee, 456 U.S. 694 (1982) mn 20

International Assoc. of Entrepreneurs of Am. v.

Anooff, 58 F.3d 1266 (8th Cir. 1995)... 18

International Primate Protection Leaque v. Admin-

istrators of Tulane Educ. Fund, 500 U.S. 72

|) Sa OE ee er Te td ee 15, 19

Juidice v. Vail, 480 U.S. 327 (197 16

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

r a A TO ES oS 20

Lerecon, Inc. v. Milberg Weiss Bershad Hynes &

Lerach, 118 S. Ct. 956 (1998) ..... 15

Liberty Mutual Ins. Co. v. Ward Trucking Corp.,

48 F.3d 742 (34 Cir. 1994) ~................................... 16

Louisville & Nashville R.R. Co. v. Mottley, 211

, a eee 16

In re Lowe, 102 F.3d 731 (4th Cir. 1996) 18

Mansfield, C. & L.M. Ry. Co. v. Swan, 111 US. 379

/ TTT 21, 12, 16

Marathon Oil Co. v. Ruhrgas A.G., 145 F.3d 211

(5th Cir. 1998) (en bane)ʒ ee. 12, 22, 23

Mitchell v. Maurer, 293 U.S. 237 (1933) 16

National Iranian Oil Co. v. Ashland Oil, Inc., 817

ee ee eee Gy OD ce . 27

News-Teran, Inc. v. City of Garland, 814 F.2d 216

ET . Bae ted 17

Nichols v. Southeast Health Plan, 859 F. Supp. 553

, certain, — CaP etal 22

Owen Eanin. and Erection Co. v. Kroger, 487 U.S.

1 ted tanens R

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

ee BM a ad.) Sd Sad 18

vii

TABLE OF AUTHORITIES—Continued

Page

Perkins v. Benguet Consol. Mining Co., 342 U.S.

/ /! 23

Philbrook v. Glodgett, 421 U.S. 707 (197557 16

Plaquemines Tropical Fruit Co. v. Henderson, 170

rr... 9

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

896 F.2d 674 (2d Cir. 199) 18, 22

Robb v. Connolly, 111 U.S. 624 (1884) 23

Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100

(1941) — 11. 12, 18

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

r ty passim

Stock West, Inc. v. Confederated Tribes, 873 F.2d

RIE ATEN Se 21

Summit Health v. Pinhas, 500 U.S. 322 (1991) 20

Tafflin v. Levitt, 493 U.S. 455 (1990)' 24

Thermtron Prods. v. Hermansdorfer, 423 U.S. 336

renner 17

Transaero, Inc. v. La Fuerza A eren Boliviana, 162

Renee... 22

Transit Cas. Co. v. Certain Underwriters at Lloyd's

of London, 119 F.3d 619 (8th Cir. 1997) 18

United States v. Rice, 327 U.S. 742 (194) 17, 28

Vasquez v. Alto Bonito Gravel Plant Corp., 56 F.3d

. 19

Wisconsin Department of Corrections v. Schacht,

66 U.S.L.W. 4531 (U.S. June 22, 199) 20

Ziealer v. Champion Mort. Co., 913 F.2d 228 (5th

een 16

Zines v. eee Spree 455 U.S. 385

(1982) biden 20

CONSTITUTIONAL PROVISION

TE .. passim

STATUTES AND RULES

ACT OF SEPT. —— . 8,14

9 U.S.C. § 202 1 ; 27

28 U.S.C. § 1441 (bb a 17

viii

TABLE OF AUTHORITIES—Continued

Page

28 U.S.C. § 144 ee salinities 14

e : 17

i cccttivactcccicercsiistitiiniitiendscdindnlaiudilinnae 14

r eee 15, 17, 19

ft ES | . eee 16, 28

Gir... ee ee 27

RESTATEMENT (SECOND) OF JUDGMENTS § 27

RRR SS ET A, CR Se ET CERT a BEE 22

FED. R. Civ. P. 12 (b) (2 rere 4, 15

ehh 22

renner . 15

OTHER AUTHORITIES

ZECHARIAH CHAFEE, IR., SOME PROBLEMS OF

. ee 25

MICHAEL G. COLLINS, Article III Cases, State

Court Duties, and the Madisonian Compromise,

-) , 2% een 8

RICHARD H. FALLON, ET AL., HART AND WECHS-

LER’s THE FEDERAL COURTS AND THE FEDERAL

EE OY re ees passim

JoHN P. FRANK, Historical Bases of the Federal

Judicial System, 13 LAW & CONTEMP. PRoss. 8

8 A ee ee 6, 7

JAMES F. LIEBMAN & WILLIAM F. RYAN, “Some

Effectual Power’: The Quantity and Quality of

Decisionmaking Required of Article III Courts,

98 CoLuM. L. REV. 696 (1999771: 7

CHARLES ALAN WRIGHT, LAW OF FEDERAL Cours

OY Rg ES SS SR es 26, 29

CHARLES ALAN WRIGHT, Restructuring Federal

Jurisdiction: The American Law Institute Pro-

posals, 26 WASH. & LEE L. REV. 185 (1969) ....14, 24, 26

CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE

AND PROCEDURE §§ 1350, 3522, 3723 _............. 12, 15, 27

ARTICLES OF CONFEDERATION, ARTICLE IX 6

RECORDS OF THE FEDERAL CONVENTION (Max Far-

rand ed. 19877 4 L? @&e

IN THE

Supreme Court of the United States

OCTOBER TERM, 1998

No. 98-470

RUHRGAS, A. G.,

1 Petitioner,

MARATHON OIL COMPANY,

MARATHON INTERNATIONAL OIL COMPANY,

AND MARATHON PETROLEUM NorcE A/S,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF FOR RESPONDENTS

STATEMENT OF THE CASE

A. Factual Background

On July 6, 1995, Respondents Marathon Oil Com-

pany (“Marathon”), Marathon International Oil

Company (“MIOC”), and Marathon Petroleum Norge

(“Norge”) filed this case in Texas state court, alleg-

ing conspiracy, fraud, and participation in a breach

of fiduciary duty. Marathon and MIOC alleged that

Petitioner Ruhrgas, A. G. (“Ruhrgas”) defrauded

them into loaning hundreds of millions of dollars for

2

the development of the Heimdal gas field, which is

located in the North Sea. These allegations were based

on misrepresentations and fraudulent omissions con-

tained in hundreds of letters sent by Ruhrgas to

Marathon and MIOC in Houston, Texas over a multi-

year period. Ruhrgas officials also traveled to Mara-

thon’s Houston, Texas headquarters for three in-

person meetings concerning the gas field matter.

Norge is a Norwegian corporation and an affiliate

of Marathon and MIOC. It owns the production li-

cense for the Heimdal field. Norge alleges that the

value of its license has been diminished by Ruhrgas’

refusal to permit the sale of Heimdal gas to any buy-

ers except members of Ruhrgas’ cartel, known as the

“Consortium.” Norge also alleges that Ruhrgas par-

ticipated with its joint venture partner, Statoil (the

Norwegian oil and gas company), in breaches of

fiduciary duties Statoil owed to Norge. These mat-

ters, too, were the subject of the three in-person

Houston meetings and numerous correspondence di-

rected to Respondents in Texas.

Respondents’ claims arise from, or directly relate

to, deliberate contacts by Ruhrgas with the forum

state—Texas. Furthermore, Ruhrgas has maintained

employees 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. Procedural History

After Respondents filed this lawsuit in Texas state

court, Ruhrgas removed the case to federal district

court for the Southern District of Texas on August

21, 1995. A week later it filed, among many other

3

motions, a motion to stay pending arbitration based

on an arbitration clause contained in a contract be-

tween Ruhgras and Marathon Petroleum Company

(Norway), a non-party affiliate of the Marathon Re-

spondents. On September 15, 1995, Respondents filed

a Motion to Remand, raising the absence of federal

subject matter jurisdiction.

Respondents asked the district court to stay all

activity in the case until it had considered its subject

matter jurisdiction, urging that a simple facial exam-

ination of the pleadings revealed no basis for federal

removal jurisdiction. J.A. 137. Ruhrgas then sought

an order staying consideration of subject matter

jurisdiction until it had conducted “discovery” in sup-

port of its notice of removal and in connection with

its assertion that the court lacked personal jurisdic-

tion. The court withheld a ruling on the remand

question and permitted Ruhrgas to conduct the re-

quested discovery. Thereafter, on November 17, 1995,

the court, noting the absence of any arbitration agree-

ment between the parties, denied Ruhrgas’ motion to

stay pending arbitration. The alleged existence of

such an agreement had been Ruhrgas’ principal argu-

ment in support of federal subject matter jurisdic-

tion. Nevertheless, on March 29, 1996, the district

court entered an order dismissing the case for lack of

personal jurisdiction and denying as moot the motion

to remand.

Respondents and Ruhrgas both appealed to the

Fifth Circuit. On June 10, 1997, a Fifth Circuit

panel found that Ruhrgas (a) had not met its burden

of showing an agreement to arbitrate, (b) had not

shown fraudulent joinder, and (c) had not shown

that the suit raised a federal question by virtue of the

federal common law of international relations. Thus,

4

there was no subject matter jurisdiction. The court

remanded the case to the state court from which it

was improvidently removed. This Court denied

certiorari on November 10, 1997, but the Fifth Cir-

cuit voted to rehear the case en banc.

On en banc rehearing, the Fifth Circuit limited

itself to the question whether a federal district court

may dispose of a case on a Rule 12(b)(2) motion

challenging personal jurisdiction without addressing

whether it had subject matter jurisdiction under Ar-

ticle III and the governing statutes. Concluding that

subject matter jurisdiction is a threshold issue, the

court remanded to permit the district court to deter-

mine whether such jurisdiction existed. Claiming

this ruling presented a conflict with the Second Cir-

cuit, Ruhrgas again sought certiorari. This Court

granted the Petition on December 7, 1998.

SUMMARY OF ARGUMENT

This case exemplifies why federal subject matter

jurisdiction must be determined as a threshold issue.

This action was filed in a Texas state court, by two

Texas residents and an alien, asserting claims based

on Texas law arising from conduct occurring, in sig-

nificant part, in Texas. Four years later, the case

remains stuck in a federal procedural quagmire, and

no federal court ever has found a basis for subject

matter jurisdiction. To say, as Ruhrgas does, that

such a result is compelled by judicial “efficiency” is

outrageous.

Federal courts are courts of limited jurisdiction,

deriving their judicial authority from Article III of

the Constitution. This constitutional grant of author-

ity involves two important principles: (1) The scope

of federal subject matter jurisdiction is limited by

5

Article III itself; and (2) Authority to determine the

jurisdiction of inferior federal courts within that

scope is delegated to Congress. These two principles

are deeply rooted in notions of federalism. The con-

cerns they reflect become especially pronounced when

a litigant attempts to remove a case from state to

federal court. For a federal court sitting in a re-

moved case to ignore a challenge to its authority

over the subject matter simply because the court be-

lieves it might be easier“ or more efficient” is

irreconcilable with the fundamental allocation of

judicial power within our federal system.

For every case originally filed in federal court, the

first and fundamental question the court must address

is whether it possesses constitutional and statutory

subject matter jurisdiction over the case. And this

threshold question is even more important in cases

removed from state courts, for if it even “appears”

that the answer is negative, the case shall“ be re-

manded promptly. The inquiry may not always be

“easy,” but difficulty of decision is no substitute for

subject matter jurisdiction, and federal law provides

an answer for difficult cases: all doubts must be re-

solved in favor of remand. To further minimize inter-

ference with the state courts, the federal removal

statutes were drafted to render a remand order un-

appealable. Following remand, of course, the state

court is fully capable of deciding all other issues in

the case, including questions—whether easy or hard—

about the reach of the state’s long-arm statute.

Ruhrgas argues that the approach it advocates

would promote efficiency in the administration of the

federal courts. This argument is flawed in at least

two respects. First, Ruhrgas’ approach would in fact

be inefficient for a number of reasons, especially given

6

the multi-factor analysis that would ensue whenever

a federal court was asked to ignore its subject matter

jurisdiction. Second, and more fundamentally, the

approach contemplates that the most basic limitation

on federal court authority, which goes to the core of

the allocation of judicial power between the federal

government and the states, may be ignored in the

name of administrative efficiency.

ARGUMENT

I. THE SIGNIFICANCE OF ARTICLE III AND THE

MADISONIAN COMPROMISE

The delicate balance of state and federal court

authority that would be upset by Ruhrgas’ proposals

should be viewed in light of the compromise that first

gave rise to national“ courts. While the framers of

the Constitution had little difficulty authorizing a

federal judiciary—albeit a judiciary of carefully

limited subject matter jurisdiction—the Constitu-

tional Convention hotly debated the desirability of

establishing inferior federal courts. Indeed, before

the Convention, there were only very limited national

courts.! The controversy reflected the basic constitu-

1 For instance, Article IX of the Articles of Confederation

authorized a mechanism to resolve certain disputes between

the states. That procedure was rarely invoked. See RICHARD

H. FALLON ET AL., HART AND WECHSLER’S THE FEDERAL

COURTS AND THE FEDERAL SYSTEM 6 n.31 (4th ed. 1996)

[hereinafter “HART & WECHSLER”’]; John P. Frank, Histori-

cal Bases of the Federal Judicial System, 13 LAW & CONTEMP.

Pross. 3, 8 & n.32, 33 (1948). Article IX also authorized the

Congress to appoint courts to try piracies and felonies on the

high seas. State courts invariably were appointed for this

purpose. Appeals from these courts were heard by a na-

tional judicial body—at first a Congressional committee and

then “The Court of Appeals in Cases of Capture.” Hart &

WECHSLER at 6-7; Frank, 13 LAW & CONTEMP. PrRoBs. at 8

n.32.

7

tional tension about the allocation of powers between

the states and the new federal government.

Proponents of increased national power (“Nation-

alists“) led by James Madison and Edmund Randolph,

proposed a clause establishing a “National Judiciary

. . . to consist of one or more supreme tribunals, and

of inferior tribunals.” ? The first elause created little

controversy, but there was a “strong sentiment”

against the creation of inferior federal courts of

original jurisdiction. Frank, 13 LAW & CONTEMP.

Pross. at 10. Many at the Convention wished to leave

“all litigation at the trial stage to the state courts.”

Id. John Rutledge, speaking for a group of delegates

adverse to expanded national power, flatly opposed the

creation of any lower federal courts, saying: “State

tribunals might and ought to be left in all cases to

decide in the first instance, the right to appeal to the

supreme national tribunal being sufficient to secure

the national rights and uniformity of judgments.”

1 RECORDS OF THE FEDERAL CONVENTION at 124.°

Despite Madison’s spirited defense of ini rior

federal courts, Rutledge’s motion to eliminate chem

prevailed. Madison responded with a compromise that

would authorize Congress to create inferior federal

courts and, by necessary implication, to limit their

subject matter jurisdiction within the confines of

2 Madison’s journal record from May 29, 1787 session, in 1

RECORDS OF THE FEDERAL CONVENTION at 21 (Max Farrand

ed. 1937) (emphasis added).

3 Roger Sherman of Connecticut apparently agreed. He

added that inferior courts would prove to be too costly. HART

& WECHSLER at 8; 1 RECORDS OF THE FEDERAL CONVENTION

at 124-25.

Article III.“ After more spirited debate, the Madi-

sonian Compromise, as it came to be known, even-

tually carried the day.

The authority delegated to Congress by the Madi-

sonian Compromise was implemented by the Judiciary

Act of 1789,° which established a system of inferior

federal courts with specific jurisdiction, The Judi-

ciary Act fell short of vesting federal jurisdiction to

the full extent allowed by Article III.“ Subsequent

congressional actions have redefined federal jurisdic-

tion, first expanding and then, for the last century,

41 RECORDS OF THE FEDERAL CONVENTION at 125. And

some delegates may have understood the language of the

compromise to enlist state courts for “national purposes”

rather than create new “national” courts. James F. Liebman

& William F. Ryan, “Some Effectual Power”: The Quantity

and Quality of Decisionmaking Required of Article III Courts,

98 CoLuM. L. REv. 696, 717 (1998); see also Michael G.

Collins, Article III Cases, State Court Duties, and the Madi-

sonian Compromise, 1995 WIS. L. REV. 39, 120 (“The practice

of appointing state courts as federal courts, common at the

time of the Convention, may therefore have been understood

by some delegates as the natural reference of the Compro-

mise’s language.).

5 Pierce Butler of South Carolina argued that the establish-

ment of lower federal courts would cause the states to “revolt

at such encroachments.” 1 RECORDS OF THE FEDERAL CONVEN-

TION at 125.

Act of Sept. 24, 1789, 1 Stat. 73.

7 Congress never has conferred the full jurisdictional power

of Article III to the lower federal courts. F. g., Owen Equip.

and Erection Co. v. Kroger, 437 U.S. 365, 371-74 (1978);

see also HART & WECHSLER at 32. Most of the history of suc-

cessive Judiciary Acts since the 1789-1802 period is a study

in careful drafting of boundaries to, and the placement of

limitations on, federal district court jurisdiction,

9

generally restricting the scope of federal trial court

authority.“ Throughout this history, however, Con-

gress has carefully balanced states’ rights against fed-

eral power by specifically defining and restricting the

jurisdictional reach of federal courts. E. g., Plaque-

mines Tropical Fruit Co. v. Henderson, 170 U.S. 511,

514-15 (1898); City of Indianapolis v. Chase Nat’l

Bank, 314 U.S. 63, 76 (1941). Fundamental to this

balance is the principle that federal courts may not

act without power over the case. Indeed, by 1883,

this Court had recognized a “presumption” that lower

federal courts were without subject matter jurisdic-

tion over the case “unless the contrary affirmatively

8 To be sure, federal district court jurisdiction as delineated

in the Judiciary Acts has seen periods of growth. Reconstruc-

tion Congresses enacted a series of statutes extending the

jurisdiction of the federal courts, and as HART & WECHSLER

state, [mlost sweepingly, the Judiciary Act of 1875 con-

ferred on the federal judiciary a general jurisdiction over all

cases ‘arising under’ federal law.” Jd. at 86. However, as

federal judicial business exploded, “Congress finally re-

sponded to the crisis with the Judiciary Acts of 1887-88,

which put a series of curbs on access to the lower federal

courts,” and thereby substantially fixed the framework of

the contemporary federal system. Id. at 37.

Since the 1887-88 Acts, the general trend has been for Con-

gress to be careful about lower federal court jurisdiction.

For instance, in the Lochner era, Congress proceeded to rein

in lower federal court jurisdiction as a result of federal courts

engaging in “broader and potentially more intrusive scrutiny

of state and federal legislation.” Jd. at 38. Since that time,

apart from jurisdictional grants in newly-created federal

causes of action, the most significant changes with respect to

lower federal court jurisdiction appear to have been increases

in the amount-in-controversy requirements for diversity cases

and the elimination of such requirements in federal question

cases. Id.

10

appears.” Grace v. American Century Ins. Co., 109

U.S. 278, 283-84 (1883).

Thus the Constitution left to Congress two basic

determinations: whether to establish inferior federal

courts, and the extent of their subject matter juris-

diction (within the limited authority conferred by

Article III). This constitutional decision is especially

significant to this case. It means that the threshold

issue of federal judicial competence includes both the

question whether the case falls within Article III it-

self and the question whether Congress has in fact

authorized the exercise of federal judicial authority

in the particular case. An affirmative answer to both

questions is required in order to satisfy the limits

imposed by the founders and to ensure that the inter-

ests of the states are properly protected. Judge Smith

and a majority of the Judges serving on the Fifth

Circuit correctly determined that without such an

affirmative answer, a federal district court cannot

proceed.

II. THE EXISTENCE OF FEDERAL SUBJECT MAT-

TER JURISDICTION IS A PRELIMINARY AND

NECESSARY THRESHOLD QUESTION

Mindful of these historical considerations, this

Court consistently has observed that federal subject

matter jurisdiction is a threshold consideration. E. g.,

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

1003, 1012-13 (1998). Without such jurisdiction

over a case, an inferior federal court “cannot proceed

at all.” Ex parte McCardle, 74 U.S. (7 Wall.) 506,

514 (1869). Rather, “the only function” properly

available to a court without federal subject matter

jurisdiction “is announcing that fact and dismissing

for in a removed case, remanding] the cause.” Id.

11

This restriction springs directly “from the nature and

limits of the judicial power of the United States”

embodied in the Madisonian Compromise. Mansfield,

C. & L. M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884).

Indeed, this Court has long recognized that if a

federal district court assumes the power to act in a

case where Congress has not authorized inferior court

action, it violates Article III, the Compromise that led

to it, and more generally, the “power reserved to the

states under the Constitution.” Shamrock Oil & Gas

Corp. v. Sheets, 313 U.S. 100, 108-09 (1941). This

concept of subject matter jurisdiction is not at all

“protean” and is fundamentally different from other

matters that have been denominated “jurisdictional,”

such as personal jurisdiction (including amenability

to service of process) or improper venue.“ Federal

courts, as opposed to state courts, may reach the is-

sues in a case only if there is both constitutional and

statutory authority for subject matter jurisdiction.

Because of their unusual nature, and because it

would not simply be wrong but indeed would be

an unconstitutional invasion of the powers re-

served to the states if federal courts were to

entertain cases not within their jurisdiction, the

rule is well settled that the party seeking to in-

® See HART & WECHSLER at 1583-85. Ruhrgas, at pp. 21-24

of its brief, invokes decisions of this Court dealing with ques-

tions of abstention and supplemental jurisdiction to support

its argument that the federal courts have discretion to bypass

questions of subject matter jurisdiction when convenience

dictates. But those cases could not be more inapposite. They

all involve instances in which subject matter jurisdiction

exists, and the question is whether, as a matter of carefully

confined discretion, considerations of federalism warrant a

discretionary decision not to exercise that jurisdiction, at

least before a state court has had an opportunity to act.

12

voke the jurisdiction of a federal court must

demonstrate that the case is within the compe-

tence of that court.”

This rule is not new—it is precisely the compromise

Madison envisioned. As this Court recently observed

in Steel Co.: “This conclusion should come as no sur-

prise, since it is reflected in a long and venerable line

of our cases. The requirement that jurisdiction

be established as a threshold matter ‘spring[s] from

the nature and limits of the judicial power of the

United States’ and is ‘inflexible and without excep-

tion.“ un Whether a statutory grant of subject mat-

ter jurisdiction can or should be considered before

addressing the ultimate reach of Article III might

be debatable; however, Steel Co. confirms that sub-

ject matter jurisdiction under Article III must be

present at the threshold.” E. g., Steel Co., 112 S. Ct.

at 1022 (Stevens, J., concurring). The point, as re-

flected in the Madisonian Compromise, Article III

and the Tenth Amendment, is that both Article III

and congressional authorization to act must be pres-

ent before an inferior court may assume power over

10 Marathon Oil Co. v. Ruhrgas, A.G., 145 F.3d 211, 216

(5th Cir. 1998) (en banc) (quoting 13 CHARLES ALAN

WRIGHT FT AL., FEDERAL PRACTICE AND PROCEDURE § 3522, at

61-62 (2d ed. 1984)) (emphasis added by the court).

11 Steel Co. v. Citizens for a Better Env’t, 118 S. Ct. 1008,

1012 (1998) (quoting Mansfield, C. & L.M. Ry. Co. v. Swan,

111 U.S. 379. 382 (1884)). Ruhrgas' citation of Stee! Co.,

Pet. Brief at 15, as referring to both subject matter jurisdic-

tion and personal jurisdiction is incorrect since the case (and

the quotation) plainly refer only to subject matter jurisdic-

tion.

12 F. g., City of Indianapolis v. Chase Nat'l Bank, 314 U.S.

63. 76-77 (1941); Shamrock Oi] & Gas Corp., 313 U.S. at 108-

09; Healy, 292 U.S. at 270.

13

the case and reach any issue other than subject mat-

ter jurisdiction.

The rule to which this Court has adhered for more

than 100 years remains in effect today.“ In every

federal case, the “first question” necessarily is that

of subject matter jurisdiction, for if Congress has not

granted such jurisdiction to the inferior courts, it is

useless, if not improper, to enter into any discussion

of other questions.” Ex parte McCardle, 74 U.S. at

515. So primary is this single issue that even on

writ of error or appeal, “the first and fundamental

question is that of jurisdiction.” Mansfield, 111 U.S.

at 382.“

13 Ruhrgas’ reliance (pp. 18, 19, 28, 38) on Caterpillar, Inc.

v. Lewis, 519 U.S. 61 (1996), is wholly misplaced. In that

case, this Court held that even if subject matter jurisdiction

was lacking when the district court erroneously denied a

motion to dismiss, a decision on the merits should be upheld

so long as subject matter jurisdiction did exist at the time

judgment was rendered. This holding has no bearing on the

question whether a federal court may properly ignore a con-

tinuing lack of subject matter jurisdiction in order to reach

and decide other issues in the case.

Similarly irrelevant in the present case are this Court’s

decisions, discussed at pp. 13-15 of Ruhrgas’ brief, holding

that a federal court has “jurisdiction to determine jurisdic-

tion” and may take whatever action is appropriate (including

the issuance of discovery orders and contempt sanctions) with

respect to the making of that determination. Of course, a

court must have such authority; it does not follow, however,

that a federal court also has authority to take actions „re-

lated to the proper determination of subject matter jurisdic-

tion or unnecessary to preserve the status quo while it under-

takes that task.

1¢ The “purity” of Article III jurisdiction remains unalloyed

when the balance of state and federal authority is at stake.

None of the “dilution” cases cited in Steel Co. challenged state

court original jurisdiction.

14

III. THE NEED TO DETERMINE SUBJECT MATTER

JURISDICTION AT THE THRESHOLD IS ESPE-

CIALLY EVIDENT IN REMOVED CASES

The necessity of determining federal subject matter

jurisdiction at the outset exists in every case. In the

removal context, however, the underlying principles

of federalism become especially important. Pursuant

to 28 U.S.C. § 1446, a defendant may remove a case

from a state court simply by filing a Notice of Re-

moval in the appropriate federal district court. Once

the defendant files a copy of the notice with the clerk

of the affected state court, federal law commands

“the State court shall proceed no further unless and

until the case is remanded.” 28 U.S.C. § 1446(d).

The simplicity of this procedure, however, offers a

potential for abuse well beyond the imagination

of anyone at the Constitutional Convention. Accord-

ingly, Congress and the federal courts have placed

strict limits on removal to maintain federalism’s deli-

cate balance.

A. Statutory Limits On Removal Protect The Plain-

tiff’s Choice Of Forum And Reflect The Threshold

Nature Of Subject Matter Jurisdiction

Congress first authorized removal in the Judiciary

Act of 1789 and, since that time, has restricted re-

moval jurisdiction and placed firm guidelines on the

procedure to curb abuse. To prevent improvident

15 See generally Charles Alan Wright, Restructuring Fed-

eral Jurisdiction: The American Law Institute Proposals, 26

WASH. & LEE L. REV. 185, 203 (1969) (decrying “outrageous

practice” of stopping a state court “in its tracks by a frivo-

lous petition for removal“).

15

removal it has established several safeguards. The

first is the primacy of federal subject matter juris-

diction: “If at any time before final judgment it

appears that the district court lacks subject matter

jurisdiction, the case shall be remanded.” 28 U.S.C.

§ 1447(c) (emphasis added). Such language in a

jurisdictional statute “creates an obligation imper-

vious to judicial discretion.” Lexecon, Inc. v. Milberg

Weiss Bershad Hynes & Lerach, 118 S. Ct. 956, 962

(1998) (citing Anderson v. Yungkau, 329 U.S. 482,

485 (1947)). Indeed, this Court has observed that

“ ‘the literal words of § 1447(c) ... give no discretion

to dismiss rather than remand an action.’ The stat-

ute declares that, where subject matter jurisdiction

is lacking, the removed case ‘shall be remanded.’ ”

International Primate Protection League v. Adminis-

trators of Tulane Educ. Fund, 500 U.S. 72, 89

(1991). The body of precedent from this Court com-

manding all federal courts to scrutinize assiduously

subject matter jurisdiction at each stage of litigation

—trial and appellate—and to dismiss cases not prop-

16 This concept is mirrored in Fed. R. Civ. P. 12(h) (3),

which provides: “Whenever its appears by suggestion of the

parties or otherwise that the court lacks jurisdiction over the

subject matter, the court shall dismiss the action.” Not sur-

prisingly, lack of subject matter jurisdiction is the first de-

fense listed in Rule 12(b). And as noted in one leading

treatise: “[W]hen a [Rule 12(b)] motion is based on more

than one ground, the court should consider the Rule 12(b) (1)

challenge first since if it must dismiss the complaint for lack

of subject matter jurisdiction, the accompanying defenses and

objections become moot and do not need to be determined.”

5A CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE &

PROCEDURE § 1350, at 209-10 (2d ed 1990).

16

erly before them is overwhelming.” Likewise, the

courts of appeals have embraced this concept as an

imperative, holding that the appropriate course (even

on appeal) is to examine for subject matter jurisdic-

tion constantly and, if it is found lacking, to order

remand to the state court."

The second congressional safeguard stresses the fi-

nality of a remand for lack of subject matter juris-

diction, underscoring the notion that because state

courts are the repositories of general jurisdiction, a

remand cannot harm the defendant: “An order re-

manding a case to the State court from which it was

removed is not reviewable on appeal or otherwise

.. . . 28 U.S.C. § 1447(d).% This bright line rule

applies “no matter how plain the legal error.” Bris-

17 See, e.g., Cutler v. Rae, 48 U.S. (7 How.) 729 (1849);

Mansfield, C. & L. M. Ry. Co. v. Swan, 111 U.S. 379 (1884) ;

Louisville & Nashville R. R. Co. v. Mottley, 211 U.S. 149

(1908) ; Mitchell v. Maurer, 293 U.S. 237 (1934); Clark v.

Paul Gray, Inc., 306 U.S. 583 (1939); Philbrook v. Glodgett,

421 U.S. 707 (1975); Juidice v. Vail, 430 U.S. 327 (1977);

Bender v Williamsport Area Sch. Dist., 475 U.S. 534 (1986) ;

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

18 See, e.g., Ziegler v. Champion Mort. Co., 913 F.2d 228

(5th Cir. 1990); Liberty Mut. Ins. Co. v. Ward Trucking

Corp., 48 F.3d 742 (3d Cir. 1995).

19 In most cases involving a remand, state courts will have

concurrent jurisdiction. In the very rare instance of a re-

mand of a case in which federal subject matter jurisdiction

is exclusive, an objection to state court authority over the

subject matter may be made on remand and, if denied, may

then be made the subject of a certiorari petition in this Court.

Of course in the present case, there is no doubt of the state

court’s jurisdiction over the subject matter.

17

coe v. Bell, 432 U.S. 404, 414 n.18 (1977). % As this

Court has pointed out, the rule was intended to avoid

“prolonged litigation of questions of jurisdiction of

the district court to which the cause is removed.”

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

As a final check, Congress has strictly drafted the

removal statute to limit a defendant’s right to re-

move. Although federal question cases are generally

removable, diversity cases may be removed only if

none of the defendants resides in the state in which

the suit was filed originally. See 28 U.S.C. § 1441(b).

A defendant may remove a case only within 30 days

from the time it becomes removable, or the opportun-

ity to remove is lost. See 28 U.S.C. § 1446(b). Con-

gress also authorized the entry of fee awards against

a removing defendant where removal is later deter-

mined to have been improvident—even if the removal

was made in good faith. See, e.g., 28 U.S.C.

§ 1447(c); News Texan, Inc. v. City of Garland, 814

F.2d 216, 220 (5th Cir. 1987). As the Eleventh Cir-

cuit has observed, such restrictions confirm that the

plaintiffs choice of forum and the defendant’s right

to remove are not “on equal footing.” Burns v. Wind-

sor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994).

B. Judicial Limits On Removal Require Strict Statu-

tory Construction And Resolution Of All Doubts In

Favor Of Remand

As noted above, Congress has not been alone in

checking abuse of the removal mechanism. Under

this Court’s guidance, the federal judiciary has been

20 A defendant may appeal a remand based on something

other than a lack of subject matter jurisdiction. Thermtron

Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 344-45 (1976).

This, again, demonstrates that the subject matter jurisdiction

inquiry is qualitatively different.

18

careful to ensure that the limitations on federal judi-

cial authority embodied in Article III and the Madi-

sonian Compromise are respected and that the lower

federal courts confine themselves to cases in which

Congress has authorized them to proceed, leaving all

other cases to the state courts. E.g., Healy, 292 U.S.

at 269-71. The courts have been especially cautious

in the removal context. As this Court stressed in its

unanimous Shamrock Oil decision, “the power re-

served to the states under the Constitution to provide

for the determination of controversies in their courts,

may be restricted only by the action of Congress in

conformity to the Judiciary Articles of the Constitu-

tion.” 313 U.S. at 108-09. This policy, noted the

Court, requires strict construction of the removal

statutes. Id.

The courts of appeals have consistently read the

removal statutes strictly so as to require lower fed-

eral courts “scrupulously to confine their own juris-

diction to precise statutory limits.“ * In cases where

the plaintiff and defendant clash over subject matter

jurisdiction, the courts of appeals require that all

doubts be resolved in favor of remand.” Accordingly,

21 Ahern v. Charter Township, 100 F.3d 451, 454 (6th Cir.

1996) ; see also, e.g., American Home Assurance Co. v. In-

sular Underwriters Corp., 494 F.2d 317, 319 (Ist Cir. 1974) ;

Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d

674, 678 (2d Cir. 1990) ; Brown v. Francis, 75 F.3d 860, 864-

65 (3d Cir. 1996) ; In re Lowe, 102 F.3d 731, 734-35 (4th Cir.

1996) ; Cook v. Weber, 698 F.2d 907, 909 (7th Cir. 1983) ;

International Assoc. of Entrepreneurs of Am. v. Angoff, 58

F.3d 1266, 1270 (8th Cir. 1995) ; Duncan v. Stuetzle, 76 F.3d

1480, 1485 (9th Cir. 1996) ; In re Bear River Drainage Dist.,

267 F.2d 849, 851 (10th Cir. 1959); Burns v. Windsor Ins. Co.,

31 F.3d 1092, 1095 (11th Cir. 1994).

22 See, e.g., Pacheco de Perez v. AT&T Co., 139 F.3d 1368

(11th Cir. 1998); Transit Cas. Co. v. Certain Underwriters

19

where the subject matter jurisdiction question is “dif-

ficult,” the federal judiciary already has devised a

simple but effective means of resolvi i :

— ving the issue:

IV. IGNORING SUBJECT MATTER JURISDICTI

ON IS

NEITHER CONSTITUTIONAL NOR EFFICIENT

Despite the established rule that doubts as to sub-

ject matter jurisdiction be resolved in favor of re-

mand, Ruhrgas offers this Court a new solution:

permit the federal district court to ignore “difficult”

issues of subject matter jurisdiction if ruling on an

easier” personal jurisdiction question would dispose

of the case. Ruhrgas argues that this approach is

justified in the name of judicial efficiency because it

gives federal courts more discretion to dispose of a

case, and it Spares state courts from having to rule

on personal jurisdiction issues. Like “futility juris-

diction” ** and “hypothetical jurisdiction,” = how-

ever, there is simply no constitutional, statutory or

policy support for Ruhrgas’ new concept of “efficiency

jurisdiction.” Cf. 28 U.S.C. § 1447 (e).

at Lloyd’s of London, 119 F.3d 619 (8th Cir. 1997

’ ; b ); Brown

v. Francis, 75 F.3d 860 (3d Cir. 1996); Vasquez v. Alto

Bonito Gravel Plant Corp., 56 F.3d 689 (5th Cir. 1995);

Boyer v Snap-on Tools Corp., 918 F.2d 108 (3rd Cir. 1990).

23 Under Ruhrgas’ view, even “easy” ti paren

are a “burden” for state court judges. eee, “4

24 See International Primate Protection Lea i

istrators of Tulane Educ. Fund, 500 U.S. 72. 88.85 2

(remanding ease to state court for lack of subject matter ju-

risdietion pursuant to mandatory language of § 1447 (e) de-

spite argument that remand would be futile).

25 See Steel Co. v. Citizens for a Better Env’t, 118

‘ S. Ct.

1003, 1012-13 (1998) (holding subject matter jurisdiction

could not be assumed through “hypothetical jurisdiction” in

order to reach a dispositive merits question).

20

A. Subject Matter Jurisdiction Is Fundamentally Dif-

ferent From All Other Categories Of Jurisdiction

Ruhrgas argues at some length that because its

amenability to service of process is a personal juris-

diction question, a federal district court should be

free to choose which “jurisdictional” issue to enter-

tain first. But the banner of “jurisdiction” can be

flown over a variety of issues and defenses that

might eventually arise in a case.?“ Only a court

with subject matter jurisdiction over the case, how-

ever, has the power to decide any of them. “Neither

personal jurisdiction nor venue is fundamentally pre-

liminary in the sense that subject-matter jurisdiction

is, for both are personal privileges of the defendant,

rather than absolute strictures on the court.” Leroy

v. Great W. United Corp., 443 U.S. 173, 180 (1979).

The idea of “efficiency jurisdiction” ignores the

critical distinction between subject matter and per-

sonal (or any other) jurisdiction. As this Court ex-

plained in Insurance Corp. of Ireland, Ltd. v. Com-

pagnie des Bauæites de Guinee:

26 F. g., FDIC v. Meyer, 510 U.S. 471, 475 (1994) (treating

sovereign immunity as “jurisdictional”); Summit Hea’th,

Ltd. v. Pinhas, 500 U.S. 322, 330-31 (1991) (holding conduct

reached by antitrust laws was a “jurisdictional” issue) ; Zipes

v. Trans World Airlines, Inc., 455 U.S. 385, 393 (1982) (ad-

dressing and ultimately rejecting argument that filing period

under statute was jurisdictional“); Bank One v. United

States, 157 F.3d 397, 402-03 (5th Cir. 1998) (treating limi-

tations under Quiet Title Act as “jurisdictional”). Justice

Breyer’s opinion for the Court in Wisconsin Department of

Corrections v. Schacht, 66 U.S.L.W. 4531 (U.S. June 22,

1998) demonstrates that jurisdictional defenses, such as per-

sonal jurisdiction or, as in that case, the Eleventh Amend-

ment, are considered after jurisdiction over the case.

21

Subject-matter jurisdiction, then, is an Art. III

as well as a statutory requirement; it functions

as a restriction on federal power, and contrib-

utes to the characterization of the federal sov-

ereign. Certain legal consequences directly fol-

low from this. For example, no action of the

parties can confer subject-matter jurisdiction

upon a federal court. Thus, the consent of the

parties is irrelevant, principles of estoppel do not

apply, and a party does not waive the require-

ment by failing to challenge jurisdiction early in

the proceedings. Similarly, a court, including an

appellate court, will raise lack of subject-matter

jurisdiction on its own motion. “[T]he rule,

springing from the nature and limits of the judi-

cial power of the United States is inflexible and

without exception, which requires this court, of

its own motion, to deny its jurisdiction, and, in

the exercise of its appellate power, that of all

other courts of the United States, in all cases

where such jurisdiction does not affirmatively ap-

pear in the record.”

None of this is true with respect to personal

jurisdiction.

456 U.S. 694, 702 (1982) (emphasis added and cita-

tions omitted).

Unlike subject matter jurisdiction,” personal ju-

risdiction can be conferred by agreement,” can readily

27 F. g., Steel Co, 118 S. Ct. at 1012-13; Stock West, Inc. v.

Confederated Tribes, 873 F.2d 1221, 1225 & 1228-29 (9th

Cir. 1989) (stressing that federal subject matter jurisdiction

is presumed to be lacking and also stressing that, unlike per-

sonal jurisdiction, subject matter jurisdiction requirement

cannot be conferred by contract or waived).

28 Stock West, 873 F.2d at 1228-29.

22

be waived by the defendant * and can be pretermitted

by the court until trial when it overlaps with a

decision on the merits.“ Such a defense has no bet-

ter claim to being considered in advance of the ques-

tion of who has the power over the case than any of

the other issues that might be said to have “juris-

dictional” significance.

B. Deciding Other Issues Without Subject Matter

Jurisdiction Deprives State Courts Of Their

Residual Jurisdiction

When a federal court acting without subject mat-

ter jurisdiction dismisses a case for lack of personal

jurisdiction, it impermissibly wrests that decision

from the state courts. Pursuant to their residual

29 F. g., Transaero, Inc. v. La Fuerza Aerea Boliviana, 162

F.3d 724, 729 (2d Cir. 1998); Fep. R. Civ. P. 12 (h) (1).

30 F. g., Data Disc, Inc. v. Systems Tech. Assoc., Inc., 557

F.2d 1280, 1285 (9th Cir. 1977).

31 The Second and Fifth Circuits have required federal dis-

trict courts to address a challenge to its jurisdiction over the

case before reaching a personal jurisdiction defense. See, e. g.,

Rhulen Agency, Inc. v Alabama Ins. Guar. Ass'n, 896 F.2d

674, 678 (2d Cir. 1990); Marathon Oil Co. v. Ruhrgas, 145

F.3d 211, 215 (5th Cir. 1998) (en banc); see also Nichols v.

Southeast Health Plan, 859 F. Supp. 553, 559 (S.D. Ala.

1993) (“A federal court lacking subject matter jurisdiction

cannot rule on other pending motions.”) (citing Jn re Bear

River Drainage Dist., 267 F.2d 849 (10th Cir. 1959) ).

32 Although a dismissal for lack of personal! jurisdiction is

not a decision having “claim preclusive” effect, such a decision

will have “issue preclusive” effect, i. e., it will preclude reliti-

gation of the issue of personal jurisdiction in a subsequent

action on the same claim governed by the same law. See R-

STATEMENT (SECOND) OF JUDGMENTS § 27, cmt. b and illus.

8 (1982).

23

(and general) jurisdiction, state courts are entitled to

interpret both their own long-arm statute and (sub-

ject to this Court’s review) the minimum contacts

requirement of the federal Due Process Clause.“

See Marathon Oil Co. v. Ruhrgas, 145 F.3d 211, 216

(5th Cir. 1998) (en banc). As Justice Harlan put it:

“Upon the State courts, equally with the courts of the

Union, rests the obligation to guard, enforce and pro-

tect every right granted or secured by the Constitu-

tion of the United States. Robb v. Connolly, 111

33 State courts invariably have a special interest in inter-

preting and applying their own long-arm statutes. Indeed,

the long-arm statutes in some states do not reach even to

the limits of the Due Process Clause. See, e.g., American

Investors Life Ins. Co. v. Webb Life Ins. Agency, 876 F. Supp.

1278, 1280 (S.D. Fla. 1995). And the availability of long-

arm statutes in other states is restricted to certain individuals

See, e.g., American Int'l Pictures, Inc. v. Morgan, 371 F. Supp.

528, 531 (D. Miss. 1974) (recognizing that Mississippi's long-

arm statute is available only to state residents). These differ-

ences reflect more than technical nuances; they exemplify the

kinds of policy decisions that should be left to state courts. Cf.

Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 440-41

(1952). As this Court recognized in Colorado v. Symes, “‘it is

axiomatic that the right of the states, consistently with the

Constitution and laws of the United States, to make and en-

force their own laws is equal to the right of the federal gov-

ernment to exert exclusive and supreme power in the field

that by virtue of the Constitution belongs to it.” 286 U.S.

510, 518 (1932).

Moreover, only at its limits does a state’s long-arm statute

implicate federal due process questions. Of course, any state

procedure, at its limits, can present such a question. None-

theless, these still are all fundamentally questions of state

law. Cf. Burnham v. Superior Court, 495 U.S. 604 (1990)

(plurality).

24

U.S. 624, 637 (1884); see also Tafflin v. Levitt, 493

U.S. 455, 458 (1990). Ruhrgas now asks the Court to

sacrifice the states’ right to decide disputes within

their power on the altar of efficient judicial adminis-

tration.

C. “Efficiency Jurisdiction” Would Be Inefficient And

Invite Abuse

The discretionary approach Ruhrgas advocates

supposedly is “efficient” because (1) it frees a

federal district court from having to address a “dif-

ficult” subject matter jurisdiction issue, and (2) it

frees a state court from having to address an “easy”

personal jurisdiction issue. But degree of difficulty

cannot create the authority to decide an issue, even

in the name of efficiency. See Steel Co., 118 S. Ct. at

1012-13. And, as a practical matter, “difficult” ques-

tions of subject matter jurisdiction are so rare as to

render the argument virtually moot.

The fact is that while this issue [of federal ques-

tion jurisdiction] raises fascinating intellectual

problems, and provides marvelous examination

questions for law professors to use, in practice it

is of almost no significance. I doubt if I see as

many as one reported decision a year in which

there is any serious question whether the case is

or is not within federal question jurisdiction. In

the real world almost all cases fall within stereo-

32 for which the answer is perfectly

clear.

* Charles Alan Wright, Restructuring Federal Jurisdic-

tion: The American Law Institute Proposals, 26 WASH. &

L&E L. REV. 185, 201 (1969). “Federal courts should not dis-

place state responsibility and choke the federal judicial docket

on the basis of federal concerns that in truth are only ‘imag-

Nevertheless, Ruhrgas urges a multi-factor “effi-

ciency” test that would add extraordinary uncertainty

to the process and lend itself to continuing contro-

versy.“ According to Ruhrgas, the factors that ap-

pear to be relevant to this approach include (but are

not necessarily limited to) the following: (1) Is the

question of subject matter jurisdiction “harder” than

the question of personal jurisdiction? (2) Is the

question of subject matter jurisdiction one involving

a limitation of federal authority under Article III

itself, or one arising under a statute? (3) Is the

question of personal jurisdiction one of federal law

under the due process clause or of state long-arm

law? (4) Is the claim of subject matter jurisdiction

made in good faith? (5) Which issue, if either,

would, or might, require the court to look into the

merits of the case? Given the need to examine these

and other questions under Ruhrgas’ approach, the

costs of a “discretionary,” multi-factor approach

clearly exceed the benefits.

inary.“ Foremost Ins. Co. v. Richardson, 457 U.S. 668, 685-

86 (1982) (Powell, J., dissenting, joined by Berger, C.J.,

Rehnquist and O’Connor, J.J.).

Ruhrgas efficiency arguments fail to account for any of

the practical considerations of the rule’s application. The

test advocated by the Fifth Circuit dissent in this case incor-

porates a series of factors that would authorize an inferior

court to ignore the question of subject matter jurisdiction.

It did not suggest that these factors would be exclusive or

offer any predictable means of determining the weight given

to each of the factors. It could take years, if not decades, to

bring any predictability to a new legal standard of jurisdic-

tional “efficiency.”

36 Cf. ZPCHARIAH CHAFEE, In., SOME PROBLEMS OF EQUITY

312 (1950) (“The boundary between judicial power and null-

ity should also, if possible, be a bright line, so that very little

26

Finally, any imagined efficiency resulting from

Ruhrgas’ new theory would evaporate the moment a

federal district court makes the wrong decision. This

case provides the perfect illustration:

Respondents filed a state court petition stating

claims arising only under Texas tort law. The face

of their pleading raised no federal questions, and

diversity jurisdiction was lacking.“ The claims were

based, in part, on actions Ruhrgas made while physi-

cally present in Texas during meetings with Mara-

thon specifically related to the subject matter of the

litigation. The claims also were based on more than

100 letters and telexes sent by Ruhrgas to Marathon

and MIOC in Texas, and described a fraud-based

conspiracy that specifically targeted Respondents in

Texas. Had the parties remained in state court, there

would have been no briefing on federal subject: mat-

ter jurisdiction at all, and any personal jurisdiction

challenges could have been decided by the state court.

Instead of pursuing this undeniably efficient path,

Ruhrgas chose to remove the case to federal court,

necessarily making the process more complex and less

efficient. Making arguments it now admits were

“novel,” Ruhrgas asserted federal question jurisdic-

tion on the basis of an international convention that

thought is required to enable judges to keep inside it.”). To

the same effect, see Wright, supra note 34, at 187.

37 Clearly, Ruhrgas would have preferred that this case had

been filed by Respondents’ affiliate as a breach of contract

action. The plaintiff, however, is the master of the claims, and

if it chooses not to assert a federal claim, even if one is avail-

able, the defendant cannot remove on the basis of a federal

question. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392

(1987) ; CHARLES ALAN WRIGHT, LAW OF FEDERAL COURTS

229 (5th ed. 1994).

27

did not apply according to its own terms, and the

supposed federal common law of international rela-

tions.“ Ruhrgas also claimed that Norge had been

fraudulently joined as a plaintiff, even though Norge

unquestionably owns the production license for the

Heimdal field and is claiming Ruhrgas’ actions dam-

aged the value of that interest. All of these novel

38 The Convention on the Enforcement of Foreign Arbitral

Awards only applies in cases where there is a written arbi-

tration agreement between the parties. See 3 U.S.T. 2517:

National Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 826,

334-35 (5th Cir. 1987) ; see also 9 U.S.C. § 202 (requiring dis-

pute to be between parties with an arbitration agreement

that is within the reach of the Federal Arbitration Act).

Affidavits attached to the removal papers proclaimed “Ruhr-

gas AG has never entered into any agreement with any of

the plaintiffs concerning. . any matters which are the sub-

ject of the First Amended Petition.” J.A. 121.

This Court never has recognized such a basis for federal

subject matter jurisdiction. If any such basis exists, however,

a private commercial dispute between corporations residing in

different countries is patently insufficient to invoke it. See

Aquafaith Shipping, Ltd. v. Jarillas, 963 F.2d 806, 809 (5th

Cir. 1992).

% Removing a non-diverse case from state to federal court

on an assertion of fraudulent joinder of a plaintiff has never

been authorized by Congress nor sanctioned by this Court. Cf.

Chesapeake & Ohio Ry. Co. v. Cockrell, 282 U.S. 146, 152

(1914). Where a plaintiff—or a group of plaintiffs—has ex-

ercised its right to assert a claim against a defendant, the

proper method of challenging that assertion is by seeking a

dismissal in state court. Cf. 14B CHARLES ALAN WRIGHT ET

AL., FEDERAL PRACTICE AND PROCEDURE § 3723, at 658 (3d ed.

1998) (concluding that the “confusion” surrounding fraudu-

lent misjoinder of partics “easily could be avoided by having

the removing party challenge the misjoinder in state court

before seeking removal“).

28

issues were briefed extensively by the parties. The

district court’s refusal to rule on these “difficult” is-

sues created by Ruhrgas can hardly be described as

efficient. Had the court simply resolved all doubts in

favor of remand (as required by federal law) and

returned the case to state court, the result would have

been unappealable.“

Instead, the district judge ignored the subject mat-

ter jurisdiction challenge and erroneously dismissed

the case for lack of personal jurisdiction. In 80 do-

ing, the court created an appealable decision, injecting

even more inefficiency into the process. Although the

original Fifth Circuit panel found there was no sub-

ject matter jurisdiction and ordered a remand, Ruhr-

gas dragged the controversy out even further by peti-

tioning this Court for certiorari. Upon denial of that

petition, the Fifth Cireut (on its own motion) elected

to hear the case again, and ultimately remanded to

the district court for a determination of subject mat-

ter jurisdiction. Displeased with that result, Ruhrgas

continued to prolong the controversy by seeking fur-

ther review.

In the four years of controversy since this case was

removed, this entire state law dispute could have been

disposed of in the state system. Instead, the federal

courts have yet to establish their jurisdiction over

the case, and merits discovery has not even begun.

Clearly, Ruhrgas’ proposed “efficiency jurisdiction”

has proven anything but efficient.

Furthermore, as Ruhrgas’ tortured subject matter

jurisdiction arguments make clear, the recognition of

discretionary “efficiency jurisdiction” merely invites

41 See United States v. Rice, 327 U.S. 742, 751 (1946); 28

U.S.C. § 1447 (d).

29

abuse. If Ruhrgas’ position is upheld, defendants na-

tionwide will use the result as a basis for removing

an action to federal court whenever there is even a

possibility of subject matter jurisdiction, and then

will press for a personal jurisdiction (or other “juris-

dictional”) ruling because the subject matter juris-

diction issue is “too hard.” Such a result would re-

place the limited subject matter jurisdiction of the

federal courts with a new era of forum shopping, and

would thus undermine the allocation of authority

between federal and state courts.

CONCLUSION

Questions of federal subject matter jurisdiction are

questions of constitutional law, and “efficiency” should

play little, if any, role in their resolution.

In 1864, former Justice Benjamin Curtis made

the still-timely reminder: Let it be remembered,

also, for just now we may be in danger of for-

getting it, that questions of jurisdiction were

questions of power as between the United States

and the several States.” There is a recurring

temptation to view questions of federal jurisdic-

tion as if they were simple procedural questions,

to be resolved in whatever fashion will best serve

the desirable goal of efficient judicial administra-

tion. But when it is remembered that the deli-

cate balance of a federal system is at stake, and

that expansion of the jurisdiction of the federal

courts diminishes the power of the states, it is

apparent that efficiency cannot be the sole or the

controlling consideration.

CHARLES ALAN WRIGHT, LAW OF FEDERAL Courts, at

2 (5th ed. 1994).

It is self-evident that a federal court first must have

jurisdiction over the case before it can proceed to rule

30

on other issues in the case. Ruhrgas’ request that this

Court recognize “efficiency jurisdiction” is an affront

to federalism, a model of inefficiency, and an invita-

tion for abuse. This Court should decline to recognize

it, confirm the threshold nature of federal subject

matter jurisdiction in federal courts, and affirm the

Fifth Circuit’s decision below.“

Respectfully submitted,

DAVID L. SHAPIRO CLIFTON T. HUTCHINSON *

1575 Massachusetts Avenue J. GREGORY TAYLOR

Cambridge, MA 02138 DAVID J. SCHENCK

(617) 491-2758 DEREK S. HOLLINGSWORTH

1717 Main Street

Suite 2800

Dallas, Texas 75201

(214) 939-5500

Attorneys for Respondents

February 24, 1999 * Counsel of Record

12 In a remarkable footnote at the end of its brief (p. 38

n.20), the Petitioner suggests that the judgment below should

be reversed and the judgment of the district court affirmed.

Respondents submit that the judgment below should be af-

firmed, but in no event would it be appropriate to order that

the judgment of the district court be affirmed. The question

of personal jurisdiction, which was also before the court of

appeals, has not been ruled on, either by the initial panel or

by a majority of that court sitting en banc, and is not within

the question presented to this Court.