Opposition Brief — Atlantic Lloyd's Insurance Co. of Texas v. Zurich Insurance

ane

Supreme Court, U.S.

eS Fe Bs

DEC 21 1998

IN THE

Supreme Court of the United States

OCTOBER TERM, 1998

RR eR aT

ATLANTIC LLOYD’S INSURANCE COMPANY OF TEXAS,

ATLANTIC MUTUAL INSURANCE COMPANY, CENTENNIAL

INSURANCE COMPANY, H.R. MANAGEMENT COMPANY,

HARRY W. REED, and GRAYSTAR MANAGEMENT,

Petitioners,

VS.

THE ZURICH INSURANCE COMPANY and

DIANNE THOMPSON,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

WERNER A. POWERS

Counsel of Record

ALAN WRIGHT

HAYNES & BOONE, L.L.P.

Attorneys for Respondents

901 Main Street, Suite 3100

Dallas, Texas 75202-3789

(214) 651-5000

@) Counsel Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 * (800) 359-6859

i

PARTIES TO THE PROCEEDING AND

STATEMENT PURSUANT TO RULE 29.6

The petition accurately lists the parties to the proceeding.

The parent of Respondent The Zurich Insurance Company

is Zurich Insurance Company. There are no nonwholly owned

subsidiaries of Respondent The Zurich Insurance Company.

il

TABLE OF CONTENTS

Page

Parties to the Proceeding and Statement Pursuant to Rule

29 O ivor etait eee eee i

ladle of Contents 355 ice oe eee ii

Table of Cited Authorities (i... 5 ...54sveeuesinee. iV

statement of the Case. 205 Uo oe ee l

A. The Parties and the Underlying Cases. ........

B. Course of Proceedings Below. ............... 2

C, Statemett OF Peete os so vyalets 5

1. Sie Coles Cie = oo 55 ae 6

6. FOC POE Ce oe ei a eee 7 '

‘

Summary of Atgumient ooo co 8

Reasons for Denying the Writ .................... 1]

I. This Appeal Is An Improper Attempt To Obtain

Appellate Review Of The District Court’s Remand

fo Mpa tS sp wgey wae na SY ye A doe 1]

If. The Court Of Appeals Correctly Ruled That There

Is No Federal Question Jurisdiction In This Case.

ee

ui

Contents

Page

A. Petitioners misstate the record and rely on

inapposite authority. .............. i 12

1. Petitioners misstate the record. ..... 12

2. Petitioners rely on inapposite authority

in an attempt to create a conflict among

a GENE. ok abds caNece eink ss 13

3. The All Writs Act does not apply. .. 14

B. There is no original or removal federal

question jurisdiction in this case. ....... 15

1. Rivet and Alleged Attacks on Federal

PES Son on. 6 w'h eo ks Wow ee 16

2. “Artful Pleading” Does Not

Apply: Rule 60, Rule 82, and the

Preemption Doctrime. ..........66. 18

C. There is no supplemental federal jurisdiction

PY 5S bee days cree oe eke ees 21

Ill. The Court Of Appeals Did Not Exceed Its

Jurisdiction In Ruling On Respondents’

| ey Poe ey Por ey 22

Ne SAO 6 Wi ano ep hoe oo Nae RE Dee ees 25

TABLE OF CITED AUTHORITIES

Page

Cases:

ALFAB, Inc. v. CNA Financial Corp., 877 F. Supp. 1538

aitpitchina tess eee a aa, 20

Avco Corp. y. Machinists, 390 U.S. $57 gh > Spee 18

Bender v. illiamsport Area School Dist., 475 U.S. 534

sigs bE ET POP ee Aaa 24

Capital Cities Cable. Inc. v. Crisp, 467 U.S. 69] (1984)

Soe eA ROCA A Re aN gad Ue ake ee ae 14

Carpenter v. Wichita Falls Indep. School Dist., 44 F.3d

362 (Sth Cir. sf ED Pane ENS ES 16

Caterpillar, Inc. y. Williams, 482 U.S. 386 (1987) ... 16

Covington & Cincinnati Bridge Co. y. Hager, 203 U.S.

iD yi sacas PORE CET ON oe 15

Cresswell v. Sullivan & Cromwell, 668 F. Supp. 166 (S.D.

eh acid CV oe Pee TC ena DE Anne, 20

Dobberowsky y. Cryogenic T; ransportation, Inc., 989 F.

Supp. 848 (E.D. Mich. aS EE Oe Rone 18

Franchise Tax Bd. y. Construction Laborers Vacation

Trust, 463 U.S. ] ROPOE Aegon 16

v

Cited Authorities

Page

In re Terra Int'l, Inc., 134 F.3d 302 (Sth Cir. 1998) .. 23

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

SER CIS EE USO ERE a be eee een 3, 9, 40, bd, 14, ¥9, 21, 22

Merrill Dow Pharmaceuticals, Inc. v. Thompson, 478

RL. Ue CASO) 6 avo any oe bears bal ye uee 16

Metropolitan Life Ins.Co. v. Taylor, 481 U.S. 58 (1987)

ghee ahns RD AE REDE CAG KES RASS ee 18

Mitchell v. Maurer, 293 U.S. 237 (1934) ........... 24

Musson Theatrical, Inc. v. Federal Express Corp., 89 F.3d

Saree Ce Gs BOON 5 ooo ha eee oe, 18

New Orleans Public service, Inc. v. Majoue, 802 F.2d

FOO Le GA SPOON bho kk Fae Reha eee ae 1]

Oklahoma Tax Comm'n v. Graham, 489 U.S. 838 (1989)

CF de dae 4 a eals ee AE ek we ae 16

Rivet v. Regions Bank, 108 F.3d 576 (Sth Cir. 1997),

POU, TAS BG. SEL ALGO) coxa oko i sea ee

SES e NAT ERS be eS ee ee 3, 9, 10, 12, 14, 16, 17, 18

Seedman v. United States Dist. Court, 837 F.2d 413 (9th

Ries AED sks wk veo as ee Re ee ee 1]

Stern v. South Chester Tube Co., 390 U.S. 606 (1968)

MENDES EMO EUS ESEREDD AEE Ee 15

vi

Cited Authorities

Page

Telecommunications Research and Action Center vy.

P.C.C., 190 Fe POOL. Ce 1968... 15

Verlinden B.V. v. Central Bank. 461 U.S. 480 (1983)

a ake wees 15

Statutes:

28 U.S.C. § 1331 a re ae SP aN 15, 16

ys BOS Foe eS Pr Ce Pigs ee ts eo 16

28 U.S.C. § 1447(d) ae : ine bea nial ll

29 U.S.C. § 1144(a) aud So 5 oe eae a Taney 18

28 Ui © SERS bet tac eee = 13

Rules:

Feo. R. Civ. P. 60 ace .3, 4, 10, 14, 18, 19

Fep. R. Civ. P. 60(b) ot a 13, 19, 20, 22

Fep. R. Civ. P. 60(b)(3) Ji dh cee wee Tey 23 19

Fep. R. Crv. P. &2 10,18, 19

l

STATEMENT OF THE CASE

A. The Parties and the Underlying Cases.

This proceeding arises from two consolidated toxic tort

cases (the “Chlordane Case”) brought in 1988 and 1989 in state

court in Houston, Texas, which were removed to the United

States District Court for the District of Columbia in 1990 and

then transferred to Judge John Rainey in the Southern District

of Texas, Houston Division, in 1991. The Chlordane Case,

which involved many parties who settled at different points in

time, concluded with a final judgment entered March 23, 1993.

Thereafter, in 1996, Respondents and others brought suit

in state court in Harris County, Texas, complaining of fraud

arising out of the settlement reached in the Chlordane Case

(the “Fraud Case”). Petitioners’ removal of the Fraud Case gave

rise to the appellate ruling here in issue.

The parties to the final judgment in the Chlordane Case,

which was entered pursuant to a settlement, included

Respondent Dianne Thompson and Petitioner H.R. Management

Company (“HRM”).

The Atlantic Insurance Companies were insurers, not

parties, in the Chlordane Case and are defendants in the Fraud

Case and Petitioners herein. The other defendants in the Fraud

Case are Petitioners HRM, Harry Reed (HRM’s owner), and

Graystar Management (HRM’s successor in interest).

Respondent The Zurich Insurance Company (“Zurich”) was an

insurer, not a party, in the Chlordane Case on behalf of HRM

and others, and Zurich joined Respondent Dianne Thompson

and others as a plaintiff in the Fraud Case.

:

emer menses i TI A I I I I

2

B. Course of Proceedings Below.

The Respondents, along with the other plaintiffs, filed the

Fraud Case in state court in Harris County, Texas, on or about

October 4, 1996. Substantially all of the plaintiffs were citizens

of Texas. Named as defendants were Petitioners Atlantic,

Centennial, and Atlantic Lloyd’s. Also named as defendants in

the Fraud Case were HRM, HRM’s owner, Harry Reed, and

HRM’s successor in interest, Graystar Management. All of the

defendants in the Fraud Case were citizens of Texas except for

Atlantic and Centennial. The plaintiffs alleged a number of state

law claims. No federal claims were asserted. See generally

Petition, App. H at 27a-49a (Plaintiffs’ First Amended Original

Petition in the Fraud Case).

This jurisdictional dispute arose because of Count One of

the Original Petition. By Count One, Respondents alleged that

the Petitioners had fraudulently induced them to settle the

Chlordane Case for at least $15 million less than its settlement

value. No equitable relief was sought in Count One. only

damages. Petition, App. H at 36a.

On or about November 1, 1996, Petitioners removed the

Fraud Case to the United States District Court for the Southern

District of Texas. The removal] papers claimed, inter alia, that

Count One by the Respondents was barred by an earlier federal

judgment entered pursuant to a settlement in the Chlordane

Case. The Fraud Case was assigned to Judge Melinda Harmon.

Judge Harmon did not transfer the Fraud Case to Judge John

Rainey, who had presided over the earlier Chlordane Case. Nor

was the Chlordane Case administratively reopened and

consolidated with the Fraud Case!

ests

|. Respondents note that, were supplemental jurisdiction the

Operative concept, then the state law claims alleged in the Fraud Case

(Cont'd)

On November 27, 1996, Respondents filed a Motion and

Brief to Remand in the Fraud Case. Respondents alleged, inter

alia, that they were not seeking to set aside a federal settlement

or a federal judgment; that, under Kokkonen v. Guardian Life

Ins. Co. of America, 511 U.S. 375 (1994), the Southern District

had no supplemental jurisdiction over settlements in the

Chlordane Case; that ALFAB, Inc. v. CNA Financial Corp.,

877 F. Supp. 1538 (M.D. Ala. 1995), decided post-Kokkonen,

was directly on point; that no federal question was alleged in

the Fraud Case; and that there_was no diversity jurisdiction.

On April 21, 1997, the district court entered its order

denying remand. See Petition, App. B at Sa-9a. The district

court found that Count One was an “artful” attempt to attack a

federal judgment; that an action in state court attacking a federal

judgment involves a “federal question” invoking the original

jurisdiction of federal courts; that there is no discernable

difference between an action for fraud seeking damages and an

action seeking to set aside a judgment; and that Kokkonen limits

the jurisdiction of courts to enforce settlements but is

inapplicable to fraud cases, where “[f]ederal jurisdiction is even

more essential.” /d. at 7a-8a. The district court also, sua sponte,

ordered Respondents to replead under Rule 60, Fen. R. Civ. P.,

within 15 days or face dismissal of their claims.

Respondents refused to replead because they would not be

forced to plead into the jurisdiction of the district court and

(Cont'd)

should have been appended to the Chlordane Case before Judge Rainey.

Presumably this would have required a transfer and consolidation of the

Fraud Case with the closed Chlordane Case. By attempting to maintain

jurisdiction over the state law claims in her court, Judge Harmon relied

solely on original, federal question jurisdiction over the state law claims

in the Fraud Case. See discussion of Rivet v. Regions Bank of La., __

U.S. _, 118 S. Ct. 921 (1998) and the well-pleaded complaint rule,

infra.

4

because they believed that Rule 60 was an optional remedy

even if the district court had original jurisdiction. Further, Rule

60 would have required a motion to be filed in Judge Rainey’s

Court in the Chlordane Case, which had never been reopened

or consolidated with the Fraud Case. The district court, on

August 6, 1997, entered an order that summarily disposed of

all of the claims then alleged in Respondents’ state court

petition. Of particular importance to this proceeding, the district

court, acting without motion, notice, hearing or evidence,

dismissed with prejudice Zurich’s fraud claim under Count One

of the Petition. The sole reason given was that Respondents

had failed to replead Count One under Rule 60. Zurich was not

a party to the Chlordane Case, or to the HRM settlement and

judgment in the Chlordane Case, and, therefore, could not

possibly seek relief under Rule 60.

After the district court denied remand, Respondents sought

mandamus relief in the court of appeals, seeking (1) the reversal

of the district court’s April 21, 1997 order denying remand and

(ii) an order of remand from the court of appeals. In its June 2,

1998 order reversing and vacating the district court’s order

denying remand, the court of appeals noted the following key

facts of importance to this appeal:

1. The district court’s order of dismissal in the

Chlordane Case “did not adopt or approve the

terms of the settlement” entered into by the

parties;

2. The fraud alleged in the Fraud Case “was

practiced upon the parties, not upon the court;”

and

3. The plaintiffs in the Fraud Case seek “damages

for fraudulent inducement in making the

i ee IS oe! ee ata Se ee a

settlement” at issue and do not attempt to

“circumvent the order of dismissal” in the

Chiordane Case.

Petition, App. A at 2a, 3a. The following language from the

court of appeals’ order is instructive:

The present suit is one for damages for fraud. It

does not seek to reopen the dismissed case nor does

it question the validity of the judgment dismissing

that case. It claims that the fraud was practiced upon

the parties, not upon the court. Thus, our decision

in Villareal v. Brown Express, Inc., 529 F.2d 1219

(Sth Cir. 1976) is not applicable. There we upheld

removal because plaintiff was using the second state

court suit to increase his personal injury recovery

and to circumvent two orders of the federal court.

Here plaintiffs are not trying to circumvent the order

of dismissal. Rather, they allege a separate state law

cause of action for which they seek damages. The

issue of the first suit (whether spraying the chemical

caused injury) is not at issue in the present suit for

fraud.

Id. at 3a-4a. The court of appeals vacated the district court’s

order denying remand, but did not remand the case to state

court because the question of diversity jurisdiction had not been

addressed by the district court. Jd. 7t 4a.

C. Statement of Facts.

The sole basis for sustaining subject matter jurisdiction in

the district court was the alleged nexus between the Chlordane

Case and the Fraud Case. In its order denying remand, the

district court concluded that the claims in the Chlordane Case

a eer ee eee

6

and the claims in the Fraud Case “involve the same inquiry on

the same facts and seek essentially the same damages.” See

Petition, App. B at 8a. A brief examination of the factual

grounds underlying the two Suits shows the error in this

conclusion.

l. The Chlordane Case

The plaintiffs in the Chlordane Case, including Respondent

Thompson, were former residents or employees at the Fondren

substance of which the use is strictly controlled by both state

and federal authorities. See Petition, App. H at 31a, 33a-34a.

A description of the Operative facts in the Chlordane Case

is set forth in portions of a confidential status report by Vial,

Hamilton, Koch & Knox, lawyers for HRM and Atlantic.

Portions of this report are excerpted in the plaintiffs’ petition

in the Fraud Case. See Petition, App. H at 33a-34a, 47a. In

evaluating the Chlordane Case, the lawyers for Atlantic made

the following conclusions:

I. Clara Tanner, the H.R. Management employee

responsible for choosing the chlordane, knew

before any was applied in the apartments that

it was improper and even criminal to use the

substance indoors.

-: He Management obtained the Chlordane for

use in the apartments by affirmatively lying

to the supplier, Wolf Nursery, as to how the

material was to be used.

7

3. Federally imposed labeling guidelines for

chlordane products would have disclosed that

H.R. Management’s method for application of

the product was improper and that the material

was dangerous and poisonous.

4. Under applicable regulations, the chlordane,

once obtained, should only have been applied

by licensed pesticide applicators and not by

the untrained, unsupervised workers that H.R.

Management actually used.

Id. at 47a.

The analysis by Vial, Hamilton also contained an estimated

range of damages sustained by the various plaintiffs in the

Chlordane Case. At that time, the total range of damages

exceeded $22,000,000. Jd. at 46a, 48a-49a.

2. The Fraud Case.

The question of the existence of federal jurisdiction in the

Fraud Case is determined by reference to the factual allegations

of the plaintiffs’ petition in the Fraud Case, which states:

Petitioner HRM had disclosed three insurance policies that

were potentially applicable to the claims in the Chlordane Case.

All policies were issued by the Atlantic Group. These three

policies were a $300,000 policy by Atlantic Lloyd's, a

$16,000,000 policy by Centennial, and an earlier $15,000,000

policy by Centennial. /d. at 31a. In order to induce the plaintiffs

in the Chlordane Case to settle for policy limits, lawyers for

the insurance carriers and HRM represented that Centennial

had denied coverage under the $15,000,000 policy, that the

$300,000 policy had been exhausted by earlier settlements, and

8

that something slightly less than $10,000,000 of policy benefits

remained. /d. at 31a, 32a.

Years after the conclusion of the Chlordane Case, lawyers

for the plaintiffs in the Chlordane Case learned that the

representations on which the plaintiffs had relied were false.

Centennial had not rejected coverage under the $15,000,000

policy. Indeed, the $10,000,000 used to settle the Chlordane

Case on behalf of HRM was paid under the $15,000,000 policy.

Id. at 32a.

Thus, as the court of appeals correctly noted, “[t]he issue

of the first suit (whether spraying the chemical caused injury)

is not at issue in the present suit for fraud.” Petition, App. A at

3a-4a. The district court’s contrary conclusion was clearly

wrong.

SUMMARY OF ARGUMENT

Federal courts must trust state courts to respect federal

judgments. Simply because a cause of action or an item of

damage pled in state court might tread upon a prior federal

judgment is no excuse for inventing federal jurisdiction. State

judges are competent to apply defenses of res judicata and

collateral estoppel, and their decisions in this regard are

ultimately subject to review by this Court. Indeed, in an extreme

case, a federal court may issue an injunction to stop a state

court from disobeying a federal judgment. Dislike or distrust

of state courts does not give a federal district court the right to

enlarge upon the constitutional limits of its power.

Federal jurisdiction falls into two categories: original and

supplemental. Original, federal question jurisdiction is subject

to the well-pleaded complaint rule in all cases except where

legislation enacted by Congress has completely preempted a

9

field of law. Where supplemental jurisdiction exists, it

necessarily comes to an end not later than the date on which

the trial court loses jurisdiction over its judgment, except in

those rare cases where the trial court expressly retains

jurisdiction over settlements. In the case at bar, the Southern

District’s supplemental jurisdiction over the earlier Chlordane

Case came to an end not later than thirty days after the entry of

final judgment.’ Even had Respondents wanted to invoke federal

jurisdiction, they were powerless to do so. See Kokkonen, 511

U.S. at 378.

However, this is all irrelevant because Respondents chose

to invoke only state law, as was their right. No federal question

was pled, and diversity was completely lacking. If the case pled

by Respondents represents an attack on a federal judgment,

which clearly it does not, Petitioners are protected by

affirmative defenses of res judicata or collateral estoppel in

the state court. See Rivet, U.S.__,118S. Ct. at 926.

Even if attacks on federal judgments were removable,

which they are not, this was not an attack on a federal judgment.

Respondents did not file suit in state court in an effort to

relitigate the claims alleged in the Chlordane Case. Rather, they

filed suit in state court seeking damages for an alleged fraud

committed by the insurance carriers who defended the

Chlordane Case. Respondents did not seek to set aside a federal

judgment. They did not ask for rescission of the settlement that

gave rise to the federal judgment. They only asked for damages

equal to the difference between what the insurance carriers paid

in settlement and what they would have paid but for their fraud.

2. The district court in the Chlordane Case did not reserve

jurisdiction to enforce the parties’ settlement agreement. Petition, App.

J at 54a-56a. To the contrary, as the court of appeals concluded, the

order “did not adopt or approve the terms of the settlement.” Petition,

App. A at 2a.

10

Nor can it be contended, as did the district court, that Rule

60 is the sole remedy for fraudulently induced settlements. The

common law of Texas Provides Respondent Thompson with a

remedy for fraudulently induced contracts, and a settlement.

even one in federal court, is a contract. Rule 60 cannot preempt

the common law of Texas. Only Congress can Pass legislation

that preempts state law. Certainly, this Court, through its rule

making authority, cannot preempt state law. Indeed. Federal

Rule of Civil Procedure 82 expressly provides that the Federal]

Rules of Procedure cannot increase the jurisdiction of federal

courts. Fep. R. Civ. P, 82.

The questions Petitioners present for this Court’s review

must be answered against them. The first question, whether

federal courts have jurisdiction over independent actions

seeking damages for fraud arising from the settlement and

dismissal of a prior federal action such that removal of such an

action from state court is proper, ts controlled by this Court’s

decisions in Kokkonen and Rivet.

Petitioners’ second question, whether the court of appeals

exceeded its jurisdiction in ruling, as part of its decision on

Respondents’ mandamus petition, that the district court erred

in finding federal question jurisdiction of a removed case, is

answered by reference to settled precedents of this Court

holding that appellate courts have a special obligation to Satisfy

themselves of appellate and district court jurisdiction. The court

of appeals’ ruling that there is no federal question Jurisdiction

was proper, and the petition for writ of certiorari should be

denied.

1]

REASONS FOR DENYING THE WRIT

THIS APPEAL IS AN IMPROPER ATTEMPT TO

OBTAIN APPELLATE REVIEW OF THE DISTRICT

COURT’S REMAND ORDER.

After the court of appeals issued the ruling challenged by

Petitioners, the district court ordered the Fraud Case remanded

to state court. Petition, App. F at 15a-24a. Under 28 U.S.C.

§ 1447(d), remand orders in cases other than civil rights cases

are not “reviewable on appeal or otherwise.” The district court’s

order of remand forecloses appellate review of pre-remand

jurisdictional rulings in the Fraud Case and moots Petitioners’

appeal.’

The Petition is an exercise in futility. There is no relief to

be granted to Petitioners because the Fraud Case has already

been remanded and cannot be “unremanded.” Even if the court

could somehow “unremand” the Fraud Case, then the court

would be doing indirectly what the law prohibits it from doing

directly — reviewing an order of remand. Were the Petitioners

sincere about having the opinion of the court of appeals

reviewed by this Court, they could have easily moved the

district court to delay its decision on whether to remand the

Fraud Case pending this Court’s certiorari review of the court

of appeals’ decision. This they did not do.

3. Seedman v. United States Dist. Court, 837 F.2d 413, 414 (9th

Cir. 1988) (after certification to state court, a federal court cannot vacate

a remand order issued under section 1447(c)); New Orleans Public

Service, Inc. v. Majoue, 802 F.2d 166, 167-68 (Sth Cir. 1986) (same)

12

THE COURT OF APPEALS CORRECTLY RULED THAT

THERE IS NO FEDERAL QUESTION JURISDICTION

IN THIS CASE.

A. Petitioners misstate the record and rely on inapposite

authority.

1. Petitioners misstate the record.

In an attempt to distance themselves from this Court’s

rulings in Kokkonen and Rivet, Petitioners misstate the record

in this case in at least two material respects. As will be seen,

these factual misstatements significantly affect the analytical

framework to be applied to the legal questions presented in the

Petition. Under a proper factual and legal analysis, which

necessarily requires consideration of Kokkonen and Rivet,

Petitioners’ claims are without merit.

First, notwithstanding the plain language of the plaintiffs’

petition in the Fraud Case, Petitioners describe Respondents’

claims in the Fraud Case as a collateral attack on the dismissal

order in the Chlordane Case. E.g., Petition at 4 (“on its face

Plaintiffs’ suit is a collateral attack on the earlier federal court

judgment of dismissal”); Petition at 19 (“regardless of how

Plaintiffs denominate their claims, their suit is an independent

action for relief contemplated by Rule 60(b)”). The court of

appeals correctly held that Respondents “are not trying to

circumvent the order of dismissal” and instead “allege a separate

State law cause of action for which they seek damages.” Petition.

App. A at 3a.

Second, disregarding the unambiguous terms of the order

dismissing the Chlordane Case, Petitioners attempt to categorize

13

the order as a consent decree by alleging that the district court

“approved” Respondents’ settlement in the Chlordane Case.

E.g., Petition at 5 (“Judge John D. Rainey entered an order

approving the settlement”); Petition at 19 (“before seeking an

additional monetary award, Plaintiffs here must set aside the

court approved settlement and federal judgment of dismissal”)

(emphasis supplied). The dismissal order in the Chlordane Case

was accurately characterized by the court of appeals in its

finding that the order “did not adopt or approve the terms of

the settlement.” Petition, App. A at 2a.

2. Petitioners rely on inapposite authority in an attempt

to create a conflict among the circuits.

Petitioners’ factual mischaracterizations lead them to

proffer improper legal analyses of their claims. The heart of

Petitioners’ argument is that there is a conflict among the

circuits regarding “whether state court actions collaterally

attacking the validity of a federal judgment can be removed.”

Petition at 9, 10. No such conflict is presented in this case, as

there is no collateral attack by Respondents on a federal

judgment. Petitioners’ argument is thus factually insupportable.

In an attempt to create a conflict among the circuits

justifying this Court’s attention to this case, Petitioners cite to

two general classes of cases. First, Petitioners cite numerous

consent decree and class action settlement cases analyzing

jurisdiction under the All Writs Act, 28 U.S.C. § 1651(a).

Petition at 12-14. Second, Petitioners cite decisions in which

federal judgments are directly attacked, typically under Rule

60(b), for alleged fraud on the court. Petition at 14-15. Neither

class of cases is applicable to the straightforward facts of this

case.

14

Petitioners’ efforts at conjuring up a conflict among the

circuits fails. The conflict alleged by Petitioners requires a

collateral attack on a federal judgment. The court of appeals

correctly held, consistent with Kokkonen and Rivet, that there

is no collateral attack. Moreover. it is undisputed that

Respondents did not plead under Rule 60 and refused to so

plead despite an order to do so from the district court in the

Fraud Case

3. The All Writs Act does not apply.

The All Writs Act does not apply in this case for two

reasons. First, the Act is not at issue in this case. Petitioners

belatedly raise the argument for the first time in this Court.

They did not argue the Act’s application in any of their filings

in the district court or the court of appeals, and the Act is not

mentioned in, and does not form the basis of. any ruling by the

district court or the court of appeals. There is no reason for the

Court to consider the Act in this case. See, e.g., Capital Cities

Cable, Inc. v. Crisp, 467 U.S. 691. 697-98 (1984) (Supreme

Court does not ordinarily consider questions not specifically

passed on by the lower court; question considered when raised

in Petitioners’ complaint, acknowledged by district court and

court of appeals, and district court made findings on all factual

issues necessary to resolve the question).

Second, the All Writs Act is inapplicable because (i) the

dismissal order in the Chlordane Case is not a consent decree

or an order over which the district court retained jurisdiction

and (11) Respondents’ claims in the Fraud Case do not constitute

a collateral attack on the dismissal order in the Chlordane Case.

The court of appeals found that the district court in the

Chlordane Case did not adopt or approve the terms of the

settlement. Petition, App. A at 2a. Nor is there any language in

the dismissal order to suggest that the district court reserved

15

jurisdiction to enforce the terms of the settlement. As a result,

the many “consent decree” and “class action settlement” cases

relied on by Petitioners, in which the district court retained

jurisdiction over a federal judgment pursuant to the All Writs

Act, are inapplicable.

The All Writs Act is not an independent grant of jurisdiction

to a court. Rather, it “merely permits a court to issue writs in

aid of jurisdiction acquired to grant some other form of relief.”

Telecommunications Research and Action Center v. F.C.C., 750

F.2d 70, 77 (D.C. Cir. 1984), citing Stern v. South Chester Tube

Co.. 390 U.S. 606, 608 (1968) and Covington & Cincinnati

Bridge Co. v. Hager, 203 U.S. 109, 110 (1906). Unless federal

jurisdiction over the case otherwise exists, the All Writs Act

does not independently confer jurisdiction. Even if it did,

however. Petitioners did not invoke it at any point in the

proceedings below and may not now do so.

B. There is no original or removal federal question

jurisdiction in this case.

The scope of statutory federal question jurisdiction under

28 U.S.C. § 1331 is narrower than the constitutional grant. See

Verlinden B.V. v. Central Bank, 461 U.S. 480, 493 (1983).

Federal question jurisdiction is analyzed under the mandates

of the “well-pleaded complaint” rule:

Whether a case is one arising under the Constitution

or a law or treaty of the United States, in the sense

of the jurisdictional statute, . . . must be determined

from what necessarily appears in the plaintiff's

statement of his own claim in the bill or declaration,

unaided by anything alleged in anticipation or

avoidance of defenses which it is thought the

defendant may interpose.

tt il Nl i Ol el al,

16

Franchise Tax Bd. v. Construction Laborers Vacation Trust,

463 U.S. 1, 10 (1983); see also Rivet, 118 S. Ct. at 925. The

existence of a federal defense to a state law claim does not

confer federal jurisdiction. Oklahoma Tax Comm'n y. Graham,

489 U.S. 838, 840-41 (1989). Instead, a suit arises under federal

law for purposes of 28 U.S.C. § 1331 only “if there appears on

the face of the complaint some substantial, disputed question

of federal law.” Carpenter v. Wichita Falls Indep. School Dist.,

44 F.3d 362, 366 (Sth Cir. 1995). Jurisdiction may not be

sustained on a theory that the plaintiff has not advanced. See

Merrill Dow Pharmaceuticals, Inc. v. T. hompson, 478 U.S. 804,

809 n.6 (1986).

The same basic tenets apply to federal question removal

jurisdiction. A defendant may only remove an action from state

court on federal question grounds if the action could have been

brought originally in federal court. 28 U.S.C. § 1441. A plaintiff

may thus generally defeat removal by choosing to base his

action solely upon state law, even if the allegations of the

complaint could support a claim under federal law. Caterpillar,

Inc. v. Williams, 482 U.S. 386, 392 (1987). A defendant may

not remove an action from state court based upon a federal

defense. Oklahoma Tax Comm'n y. Graham, 489 U.S. at 840-

41. The defendant can only remove a case to federal court if

the plaintiff must “establish both the correctness and

applicability to his case of a proposition of federal law.”

Franchise Tax Bd. v. Construction Laborers Vacation T; rust,

463 US. at 9.

|. Rivet and Alleged Attacks on Federal Judgments.

In Rivet, this Court clarified that state suits alleging claims

inconsistent with federal judgments do not create a federal

question. There, this Court held that removal may not be

predicated on a defendant’s assertion that a prior federal

17

judgment had disposed of the entire matter and thus barred the

plaintiffs from later pursuing a state-law based claim. Rivet,

118 S. Ct. at 926. The plaintiff in Rivet had filed a state court

lawsuit to foreclose on certain real property. The defendants

removed the case to federal court, asserting that the plaintiff's

suit was preempted by a prior federal judgment. The district

court failed to remand the case, instead granting summary

judgment to the defendants based on the prior federal judgment.

Id. at 924. The Fifth Circuit affirmed, holding that removal

was proper “where a plaintiff files a state cause of action

completely precluded by a prior federal judgment on a question

of federal law.” Rivet v. Regions Bank, 108 F.3d 576, 586 (Sth

Cir. 1997), rev'd, 118 S. Ct. 921 (1998).

This Court reversed. The Court analyzed the citizenship

of the parties and the claims the plaintiff had advanced in the

state court and determined that no federal jurisdiction existed.

Rivet, 118 S. Ct. at 925-26. The Court held that the fact that the

plaintiff's claim may relate closely to the subject matter of a

prior federal judgment does not give rise to federal question

removal jurisdiction. Jd. at 926. The fact that the state court

claim may seek relief that a federal court has already considered

and ruled upon does not turn the suit into a federal lawsuit. /d.

The Court acknowledged the “artful pleading doctrine,”

pursuant to which removal may be upheld even if no federal

question appears on the face of the plaintiffs complaint. /d. at

925. That doctrine allows removal where federal law completely

preempts a plaintiff's state law claim. Id. Federal preemption

is ordinarily merely a defense which will not support removal.

Id. Once an area of state law has been completely preempted,

however, any claim purportedly based on that preempted state

law claim is considered, from inception, a federal claim that

arises under federal law. Jd. The Court held that no complete

preemption obtains even when a party seeks to relitigate a matter

previously decided by a federal court. Id. at 926.

18

The present case does not raise a federal question. The

original state court petition in the Fraud Case raised only state

law claims of fraud, conspiracy to defraud, subrogation,

wrongful inducement to breach fiduciary duty, and unlawful

trade practices. See Petition, App. H. The Plaintiffs in the Fraud

Case did not plead “res judicata,” “collateral estoppel” or “Rule

60.” No federal question appears on the face of the petition.

The Fraud Case, like Rivet, was not removable.

2. “Artful Pleading” Does Not Apply: Rule 60, Rule 82,

and the Preemption Doctrine.

This case, like Rivet, is not a case of artful pleading. Before

the “artful pleading” doctrine is invoked, federal law must

“completely preempt” an area of State law. Rivet, 118 S. Ct. at

925.

The “artful pleading” doctrine applies only where Congress

has so completely preempted a particular area of the law that

any civil complaint raising the select group of claims is

necessarily federal in characier. Metropolitan Life Ins. Co. y.

Taylor, 481 U.S. 58, 63-64 (1987). Complete preemption

applies only in the extraordinary circumstances when Congress

intends, not merely to preempt state law, but to transfer

jurisdiction to decide the preemption question from state to

federal courts. Musson Theatrical, Inc. v. Federal Express

Corp., 89 F.3d 1244, 1253 (6th Cir. 1996). This Court has been

So reluctant to find complete preemption that it has limited

complete preemption to two federal statutes — the Labor

Management Relations Act (LMRA) and the Employee

Retirement Income Security Act, 29 U.S.C. § 1144(a) (ERISA).

See, e.g., Dobberowsky v. C ryogenic Transportation, Inc., 989

F. Supp. 848, 852-53 (E.D. Mich. 1997); Metropolitan Life Ins.

Co., 481 US. at 65-66; Avco Corp. vy. Machinists, 390 U.S.

557, 560 (1968). No federal law “completely preempts” any of

the claims in the Fraud Case.

19

Federal Rule of Civil Procedure 60 does not preempt the

common law of Texas. Rule 60 is not legislation. It does not

reflect Congress’ intent to preempt a body of state law. Instead

it is a rule adopted by this Court setting forth procedures

applicable to federal courts. The rule does not purport to govern

the conduct of state court litigants. Federal jurisdiction is not

derived from Rule 60(b) itself. See, e.g., In re Hunter, 66 F.3d

1002, 1005 (9th Cir. 1995). Indeed Rule 82 specifically

mandates that Rule 60(b) and all other federal rules “shall not

be construed to extend . . . the jurisdiction of the United States

district courts.” Fep. R. Civ. P. 82. For a federal court to have

jurisdiction over a suit that might fit with the framework of

Rule 60(b), some independent statutory or constitutional basis

for jurisdiction must exist. Jn re Hunter, 66 F.3d at 1005. As

the court of appeals correctly held, no independent statutory or

constitutional basis for federal jurisdiction exists in the Fraud

Case.

If the plaintiffs in the Fraud Case had filed a motion

pursuant to Rule 60(b)(3), there may have been federal

jurisdiction as part of the original case. Jn re Hunter, 66 F.3d

at 1005. They did not do so. If the Fraud Case plaintiffs had

alleged “fraud on the court,” federal supplemental jurisdiction

may have been available to the court to “vindicate its authority,

and effectuate its decrees.” Kokkonen, 511 U.S. at 380. They

made no such allegation.

Instead, however, the Fraud Case plaintiffs asserted a

garden variety state law fraud claim which, at best, may fit

within Rule 60’s broad catch-all “independent action.” As such,

however, no independent federal jurisdictional basis exists. /n re

Hunter, 66 F.3d at 1005-06.

Even if Rule 60 were substantive federal law, Rule 60 does

not completely preempt all state law cases that include fraud

counts and that relate to prior federal settlements.

20

[NJothing in the language of Rule 60(b) supports

the defendants’ contention that it precludes an action

for fraud in connection with a settlement. Rule 60(b)

denotes instances when a court “may relieve a party

... from a judgment,” but it does not purport to

cover damages actions for fraud and seek to affirm

or ratify a judgment rather than seek relief from a

judgment. Its focus is on a specific remedy —

obtaining relief from a judgment — not on all

available remedies for fraud.

Cresswell v. Sullivan & Cromwell, 668 F. Supp. 166, 169 (S.D.

N.Y. 1987). See also In re Hunter, 66 F.3d 1002 (9th Cir. 1995).

In Cresswell, defendants argued that the plaintiffs’ common

law fraud claim fell within Rule 60(b) and created federal

question jurisdiction. Defendants also argued that plaintiffs

were required to reopen the judgment and put both parties back

in the position they were in prior to settlement. Cresswell, 668

F. Supp. at 171. The Court rejected this argument, and held:

If this were the rule, few plaintiffs would choose to

enforce their claim for fraud in connection with a

settlement, no matter how valid their cause of action.

A plaintiff who must give up any benefit he has

gained and risk receiving nothing in return would

be reluctant to enforce his rights as a fraud

victim. ... Because the relief sought falls outside

the reach of Rule 60, that rule cannot be said to

require the plaintiffs to tender back their settlement

and sue to reopen the earlier judgment. Plaintiffs

may instead affirm the earlier settlement and seek

damages for the alleged fraudulent inducement of

the settlement.

Id. at 172.

21

C. There is no supplemental federal jurisdiction in this

case.

In Kokkonen, this Court specifically held that the concept

of supplemental jurisdiction cannot be stretched far enough to

include jurisdiction over suits relating to prior federal

settlements. Kokkonen, 511 U.S. at 380. The Court held that

when parties to a federal court lawsuit settle and jointly move

to dismiss a case, the federal court does not retain supplemental

jurisdiction over disputes arising out of that settlement

agreement unless the district court has expressly reserved the

right in its order to enforce the settlement agreement. /d. at

381-82. In the present case, the order dismissing the Chlordane

Case did not retain jurisdiction over settlement disputes. See

Petition, App. J.

Whether the dispute is one for breach of contract or fraud,

there is no supplemental jurisdiction. Following this Court's

decision in Kokkonen, a federal district court applied the

appropriate analysis and remanded a case removed on the

grounds that fraud claims arising out of a settlement in federal

court created federal question jurisdiction. ALFAB, Inc. v. CNA

Financial Corp., 877 F. Supp. 1538 (M.D. Ala. 1995). In

ALFAB, parties to a federal lawsuit executed a settlement

stipulation resolving the action; the district court adopted the

settlement stipulation and dismissed the case with prejudice.

Over a year later, the plaintiffs sued the same defendants in the

Alabama state court alleging that the defendants acted

fraudulently in procuring the settlement agreement reached in

the previous action, misrepresented the material information

during settlement negotiations and wrongfully canceled certain

insurance policies. /d. at 1539.

|

eS ci cai

22

The defendants removed the case and contended that the

federal court had supplemental jurisdiction pursuant to

Rule 60(b) because the plaintiff's fraud action necessarily

questioned the validity of the settlement agreement in federal

court. Relying on Kokkonen, the court remanded the case.‘ /d.

at 1540. Similarly, remand was required in the case at bar.

The district court in the instant case attempted to distinguish

Kokkonen by recharacterizing the claims asserted in the Fraud

Case as an attack ona prior federal judgment. It is not such a

case, however, and the district court had no authority to violate

the well-pleaded complaint doctrine. Respondents do not seek

to undo the prior judgment or settlement. This case is a

Straightforward suit for fraud in settlement negotiations, and

Kokkonen applies and resolves the issue. Supplemental

jurisdiction does not exist.

Iil.

THE COURT OF APPEALS DID NOT EXCEED ITS

JURISDICTION IN RULING ON RESPONDENTS’

MANDAMUS PETITION.

The court of appeals acted within its jurisdiction when it

reversed the district court’s decision and vacated the district

court's order denying remand. Petitioners argue that, because

the court of appeals denied the specific mandamus relief of

ordering the remand of the Fraud Case, it was without appellate

jurisdiction to reverse and vacate the district court’s order

denying remand. Petition at 21-22. In making this argument,

Petitioners mischaracterize the court of appeals’ ruling on

Respondents’ petition for writ of mandamus.

4. The ALFAB court also rejected the defendants’ reliance upon

previous cases upholding federal jurisdiction over settlement disputes

decided prior to this Court's decision in Kokkonen. Id. at 1540.

23

In their petition for writ of mandamus, Respondents asked

the court of appeals to (i) issue a writ of mandamus directing

the district court to vacate her Order Denying Motion to Remand

entered April 21, 1997, and (ii) to enter an order remanding the

Fraud Case to state court in Harris County, Texas. Instead of

issuing a writ of mandamus directing the district court to vacate

its order denying Respondents’ motion to remand, the court of

appeals vacated that order itself. By doing so, the court of

appeals granted Respondents part of the mandamus relief they

sought —- a reversal and vacation of the district court’s order

denying remand. Accordingly, this critical mandamus relief

sought by Respondents was granted by the court of appeals —

not denied.

The relief denied by the court of appeals was Respondents’

request that the case be remanded to state court. Rejecting that

request, the court of appeals instead remanded the case to the

district court so it could consider for the first time the issue of

diversity jurisdiction. Petition, App. A at la.

In sum, the court of appeals granted in part and denied in

part Respondents’ petition for writ of mandamus. Petitioners’

argument that the court of appeals acted without jurisdiction,

therefore, rests on the premise that the court of appeals has no

jurisdiction to grant part, but not all, of the relief requested in

a mandamus petition. This premise is legally incorrect, as

federal law does not preclude a court of appeals from partially

granting mandamus relief, and courts of appeals, including the

Fifth Circuit Court of Appeals, routinely grant such relief. See

In re Terra Int'l, Inc., 134 F.3d 302, 303 (Sth Cir. 1998)

(granting in part and denying in part request for mandamus

relief).

Notably, Petitioners do not contend that the court of appeals

lacked jurisdiction to consider the merits of Respondents’

24

mandamus petition. They argue only that, as a result of the

denial of mandamus relief, the court of appeals lacked

jurisdiction to reverse and vacate the district court’s order

denying remand to state court. As demonstrated above, the

denial of mandamus relief was only partial. The court of appeals

granted Respondents part of the relief they requested in their

petition for writ of mandamus regarding the district court’s

order denying remand. The court of appeals had the jurisdiction

to do so, and Petitioners’ argument to the contrary is without

merit.

In any event, all federal courts have a continuing obligation

to examine the basis for their jurisdiction, and that issue may

be raised by the parties or by the court sua sponte at any time

Bender v. Williamsport Area School Dist., 475 U.S. 534, 54]

(1986) (“every federal appellate court has a special obligation

to ‘satisfy itself not only of its own jurisdiction, but also that

of the lower courts in a cause under review.’ ”) (quoting

Mitchell v. Maurer, 293 U.S. 237, 244 (1934). The court of

appeals acted within its jurisdiction when it determined. in

reversing and vacating the district court’s order denying

remand, that there is no federal question jurisdiction in the Fraud

Case.

25

—

CONCLUSION

For the reasons given above, the petition should be denied.

Respectfully submitted,

WERNER A. POWERS

Counsel of Record

ALAN WRIGHT

HAYNES & BOONE, L.L.P

Attorneys for Respondents

901 Main Street, Suite 3100

Dallas, Texas 75202-3789

(214) 651-5000